Milking the Customer
Nationwide, milk prices are soaring and consumers are angry. In the Midwest, the Minneapolis Star-Tribune recently predicted a jump of more than 60 cents per gallon in May. What’s going on here? It turns out this is no market hiccup: this is federal policy!
On May 1, the federal government hiked the minimum price for raw milk from $1.17 to $1.69. Now a gallon of milk that used to cost $2.99 might jump to $3.79. Why is the federal government doing this? Dairy farmers have been complaining that they need the higher prices due to rising costs and the devastating effects of Mad Cow disease. Besides, after adjusting for inflation, milk prices had hit a 20-year low. Sounds reasonable.
But wait a second. We live in a free country with a market economy. Why is the government setting the price of milk in the first place? Price controls cause real problems. If milk prices are set too low, dairy farmers will have trouble making ends meet, some will produce less, and some will go out of business. The result: milk shortages and less consumption.
High milk prices are just as bad, leading to higher grocery bills and less consumption. As commercials constantly remind us, milk is good for you. So the market price isn’t just the point where supply and demand meet. It’s also where consumers get the most calcium and the healthiest bones. Letting markets work would yield a cheap, reliable supply of milk without shortages or wildly swinging prices. Maybe we need a slogan: “The free market: it does a body good.”
This is Common Sense. I’m Paul Jacob.
