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Monday, January 27, 2003

Feeding Bread to Pigs

Years ago a Detroit newspaper reported that in the countryside of the former Soviet Union there were billboards that read, “Comrades, it is unpatriotic to feed bread to your pigs.”

As a guy who grew up in rural Nebraska, I found my curiosity aroused. I know something about the eating habits of pigs. They’ll eat almost anything. I’ve seen them eat cow manure. I read on.

When I learned that the bread referred to was freshly made, perfectly good loaves, I became even more curious. Surely this was a foolish practice. This was definitely bad economics. Why go to the trouble and expense of converting grain into flour and flour into bread? I’m sure the pigs would enthusiastically eat the grain directly. What was going on here?

The explanation for what was happening was really quite simple. The Soviet government at that time had a policy of subsidizing bread bakers. Thus bakers didn’t have to charge their customers the full cost of the bread. I surmise that the goal of the policy was to make it possible for even poor people to afford what historically has been an important component of that nation’s diet. (Even before they took power, the Bolsheviks had promised bread to thefrom the outset expected to have to tax some of the nation’s citizens to pay for the subsidy to the bakers.

But the policymakers didn’t anticipate some of the not-so-obvious, long-run consequences of their policy. They probably never learned what Henry Hazlitt’s classic, Economics in One Lesson, teaches: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

The hog farmers throughout the country were probably continually monitoring their options. Since pigs aren’t particular about what they eat, the farmers had lots of alternatives. Almost certainly those included traditional feeds such as corn and wheat. But they also included, once the policy of subsidizing bakers was adopted, an untraditional feed, freshly made bread.

My guess is that the hog farmers opted for the fresh bread when, because of the subsidy, it became the cheapest alternative. That’s what producers in a profit-and-loss system do, even in the highly distorted Soviet system. They strive to keep their costs down. They buy the cheapest inputs that will serve their purposes. And, in isolation, what the hog farmers did was perfectly rational.

The bakers probably didn’t ask their customers what they were going to do with the bread. They probably didn’t care. But the more bread that was produced for hog con- 22 sumption, the more the policymakers had to subsidize the bakers. And the more they had to subsidize the bakers, the more they had to divert tax revenue to that purpose.

Perhaps whoever approved the wording on the billboards reasoned that the revenue wasted on subsidizing hog consumption could have been used a better way. He probably also thought that taxation to subsidize bread produced for human consumption was all right. That, after all, was what the government’s policy intended.

But one of the unintended consequences of Media Research Center EC8554# paperback, 107 pages List price: $16.95 Our Price: $12.75 You Save: $4.20 (25%) the policy was that hog farmers were probably not conscious of the full cost of the bread. The artificially low price was a false signal misleading them into choosing a more expensive feed over a less expensive feed. This was an economic mistake. The pleas on the billboards were designed to stop hog farmers from “wasting” revenue.

What a paradox. Someone in a communist country (whoever authorized the billboards) perhaps grasped, implicitly, the value of freemarket prices, namely, they assign the true costs of choices to the appropriate people.

  • Dr. Dale M. Haywood taught economics and philosophy at Northwood University from 1965 until his death in 2006. He was loved by students and faculty, and famous for his 12-cell matrix which the Mackinac Center for Public Policy believes properly "describes why private property, a free market, a profit and loss system and limited government are necessary components for allowing people to prosper." Dr. Dale M. Haywood served on the board of scholars for the Mackinac Center for Public Policy and delivered his 12-cell matrix speech to an audience of summer interns over two-days.