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Thursday, February 25, 2010

The Dynamics of Interventionism Strike Again!

Here’s an interesting item from The Wall Street Journal… India produces barely half as much rice per hectare as China…3.4 tons per hectare as compared to 6.5 tons in China. Even dirt poor Bangladesh gets a better yield on its rice land – with 3.9 tons per acre of output.

What’s the matter with India’s farmers?

We return to a Daily Reckoning dictum to explain it. Anyone can make a mess of things, but to really cause a catastrophe you need taxpayer support.

Yes, Dear Reader, India’s agricultural sector gives us yet another example of central planning at work. In the ’70s, when India was even more of a socialist country than it is now, the government decided to boost production by giving farmers subsidized fertilizers. This led, as might have been predicted, to the overuse of fertilizers…one of which – urea – severely damaged the soil. Subsidies, bailouts, quantitative easing, fiscal stimulus – all produce perverse effects. In this case, the effects are so perverse that India can no longer feed itself. It’s forced to import a large part of its food. Naturally, food prices are rising – up 19% last year.

But the cost of food itself is only part of the story. There’s also the cost of the subsidies. In 1976, the fertilizer subsidy program cost $640 million. Now the price tag is up to $20 billion.

Both the soil and the budget are getting worn out. As crop yields decline, desperate farmers put on more and more cheap fertilizer. And then, as the food output goes down, the government thinks it has to ‘do something’ to fix the situation. What can it do? Provide more subsidized fertilizers!

Way to go, feds.
--from "Central Planning and the Parasites It Creates" (02/24/10) by Bill Bonner.


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