The continuing spike in food prices seems to be making people say deeply silly things. On the one hand, you had the recent comments by the Consumer Affairs Minister, in which he declared that he’s had just about enough of this “specialization of labour” fad, and told everyone to plant vegetables in their backyard. Then today, I chance upon this.
Government should reconsider its refusal to subsidise basic food items for T&T citizens, as publicly announced by Prime Minister Patrick Manning.
Economist Dr Dhanayshar Mahabir said Government did not base its decision on a detailed consideration of subsidies and how such a programme could be implemented and managed and should be reconsidered in light of the hard times being suffered by citizens.
“I completely disagree with the Government,” Mahabir said during a telephone interview last week.
“There is no basis why we can’t offer a subsidy to consumers on rice, flour, cooking oil-if the price of that is also to rise-and milk.”
Really? You’re an economist and you can’t think of why subsidies on specific products might be a bad idea? You’re a professor at the main tertiary insitution in the Anglophone Caribbean, and you can’t think of a reason? I would like to suggest that UWI serious consider opening a vacancy in their economics department, because, yikes.
Anyway. He continues.
“But given the information technology available to us now, [black markets, and other inevitable results of this kind of plan] need not happen. For example, of the total cost of a package of flour, if it is to be $55-it is easy now for a company like the National Flour Mills to send a package of flour to a supermarket, charge the supermarket $35 and then send a bill to the Government for $20.
“At the same time, the flour can be stamped ‘Maximum Retail Price $40′, so the consumers are aware.
Oh, thank GOD we can use technology (ink? paper?) to stamp an MSRP on the packs of flour. Surely when there are flour shortages (which there will be if the government does this), people will not happily ignore those kinds of controls and pay whatever the market will bear. Because that never happens.
“I think that in the short period, given the incredible hardship being faced by the poor and middle class, the latter also slowly slipping into poverty, I now call them the working poor, the Government has to re-think its position on the four basic items.”
Emphasis mine. I hope he doesn’t think that using the term “working poor” to refer to the lower end of the middle class is somehow creative. In any case, this illustrates the problem I have with this sort of thing quite nicely. He is assuming that flour, rice, milk, and cooking oil are the “basics” for everyone, and would have the government assume the same. But why? I actually tend to eat more vegetables rather than starches. Why don’t I get a subsidy?
Also: Mahabir is correct to say that the working poor are struggling with the jump in food prices. But his subsidy plan doesn’t transfer money to just the working poor who need it – it transfers money to *everyone* (except me and my quasi-Atkins eating habits — I’m bitter!). If you want to help the poor, why not just help them directly with food vouchers and/or plain old cash? Then they could spend it as they saw fit, rather than having the pointyheaded elite decide for them, Dr. Mahabir.
Mahabir pointed to what he said was a fact being lived by thousands across the country-four years ago, a food bill that was around $1,000 has now doubled while salaries have remained the same.
We are in agreement that this is a huge problem, for the record. I just don’t think we should be subsidizing food purchases for people in Westmoorings and Fairways to solve it. Call me crazy.
But the good doctor isn’t done yet.
Along with subsidies on food items, he also suggested the removal of Value Added Tax (VAT) on more items, including electricity.
“There is no good reason why the Government, in its healthy fiscal position, can’t subsidise a basic commodity like electricity,” he said, noting that a subsidisation programme does not have to be permanent.
Oh. My. God.
In a country that is already one of the world’s most prodigious polluters (per capita, granted), and a country with comically heavily subsidized energy costs, we should encourage *more* pollution? In fact, you’d like us to subsidize it?
Dr. Mahabir and John McCain should really hang out.
Also, the idea that the government could remove VAT on electricity, and then have the nuts required to put it back is either really stupid or really naive.
He also argued that it was time that T&T adopted the long-held European method of subsidy, where a cash transfer was made to farmers should prices fall below a mark set by the State and it was found that farmers’ profits were reduced.
You know, having given this a little thought, this isn’t the worst thing in the world. It sure beats price controls, and it’s not like the Trinidadian market is big enough for this to cause the problems caused by subsidies in the US and EU. On the other hand, it would direct capital to farming when it could be better applied elsewhere. Yes, this might be OK as a temporary effect, but things like farm subsidies have a funny habit of becoming permanent.
“There is nothing wrong at all with subsidising the farming sector of the economy,” said Mahabir, noting a significant decline in agriculture-the farming community has shrunk from 30,000 in 1988 to 20,000 today while the acreage cultivated has also declined, with lands either being abandoned or going to housing and other industries. Following the closure of Caroni (1975) Ltd, the contribution of agriculture to the Gross Domestic Product (GDP) went from four per cent to half a per cent, he also noted.
1. What’s wrong with the land being used for housing? People need houses.
2. The decline in acreage tells me nothing about the food being produced on the land (yields may well be down too, but he doesn’t talk about that). Ditto the decline in the number of farmers.
3. That tidbit about Caroni, if true (sounds pretty hard to believe to me), really drives home what a great idea closing Caroni was (no wonder both the UNC and PNM supported it when each was the party in power). Apparently, 3.5% of our economy was tied up in a horrible inefficient and unprofitable industry, and now that land and capital can be used for better things, like, say, planting food.
“We need to look at the capabilities of the existing 20,000 farmers and at their impediments. Their impediments are largely State-induced. They are not getting the research that allows them to produce high-yielding crops. We have to put the farmer at the centre and gear all policy-making towards that.”
If they don’t have information about high-yielding crops, then why not give them that information, instead of the taxpayers’ money? I don’t see how dulling competition with subisidies is going to solve this at all.
To Dr. Mahabir’s credit, he does point out the obvious: that the run up in food prices is *global*, something that frequently gets lost when Trinidadian media address the issue. There are a lot of things that are the PNM’s fault. This isn’t one of them. Of course, he makes some rather stupid comments about how farmers are UNC and so the PNM hates them, as though (1) the UNC did much of anything for poor farmers when it was in power and (2) the PNM doesn’t depend on people who, you know, have to buy food for its votes. So it’s a mixed bag, but it’s like 80% crap.
Frankly, it’s pretty disheartening to see an economist spouting this sort of thing. Neither of these plans is likely to work. Perhaps it’s a reflection of how desperate the food situation is becoming that learned folks are running around calling for price controls and farm subsidies and other plans that just. don’t. work.
Not that I can think of anything better, to be honest.
