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Farmageddon Is Real And Farmers Are Suffering

Farmageddon Is Real And Farmers Are Suffering

Farmageddon is real and very painful for a small segment of America. According to the Book of Revelation in the New Testament of the Bible, Armageddon is the prophesied location of a gathering of armies for a battle during the end times. Today many farmers living in America’s farm belt are facing tough times with no end in sight. The trade war with China has taken a toll by bringing grain exports to a near halt.  This has caused grain prices to tumble adding to the list of blows hitting farmers. While the number of people employed on farms has declined over the decades farming remains a big business and has a huge impact on many communities. In these areas, themoney flowing into local businesses as farmers sell their crops is evident in everything from truck sales to the little things common in everyday life such as dining out or getting a haircut. 

Net Farm Income (click to enlarge)The USDA’s farm income forecasts are released three times a year. 

While little noticed by the average person living on the coast or in one of our many large cities this is a big deal. As mentioned earlier in this article farm income is not contained in a closed-loop but spills into other parts of the economy. Many areas in the heartland of America have not experienced the benefits showered upon Wall Street, because of this we should not be surprised if the gloom covering many areas of the country does not lift anytime soon. The chart to the right shows a “forecast of income” but fails to take the impact of the trade war into full consideration.

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The CPI Understates Inflation Skewing Our Expectations

The CPI Understates Inflation Skewing Our Expectations 

The purpose of the consumer price index (CPI) is to reflect just how much inflation is eating into both our incomes and our savings. Consumer inflation has been estimated since the 1700s, by measuring price changes in a fixed-weight basket of goods. This method was seen as a way of measuring the cost of maintaining a constant standard of living. In the last 30 years, a growing gap has become obvious between government reporting of inflation, as measured by the CPI, and the perception of actual inflation held by the general public.

Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This extended into the BLS re-weightings sales outlets such as discount or mass merchandisers with Main Street shops. Those promoting this change claim it is simply another way to measure inflation and it still reflects the true cost of living. Politicians touting the benefits of this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water as to just how much we are being impacted by inflation.

The general argument was that changing relative costs of goods results in consumers substituting less-expensive goods for more expensive goods.  Allowing for a substitution of goods within the formerly “fixed-basket” would allow the consumer flexibility in obtaining a “constant level of satisfaction.” This adjustment to the inflation measure was touted as more appropriate for the GDP concept in measuring shifting demand and weighting actual consumption. Other tricks were also used to give the illusion of less inflation.

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Olduvai IV: Courage
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Olduvai II: Exodus
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