Occupy Wheat Board!

I walk by the local franchise of the Occupy Wall Street movement on my way to and from work every day. It's got me thinking a little about the implicit and explicit assumptions that political movements make about the social value of some economic activities over others. For instance, it is fairly obvious that the OWS brigade is furious about bailouts for the wealthy financiers on Wall Street and beyond. This is very, very understandable.


But what do they think about bailouts for Canadian wheat farmers?


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As a general rule I try to keep away from commenting on all things related to the domestic politics of my home country, Canada - it's a poor career move and I usually don't know what I'm talking about anyway. That said, there has been quite a kerfuffle around here lately because the Conservative majority government has recently decided to ditch the Canadian Wheat Board's (CWB) monopsony over a huge chunk of the Canadian wheat market.


Before going any further, it will be helpful to understand what the CWB is: for starters, watch this awesome video (alternatively: the CWB's Wikipedia page or, if you're really sadistic, the CWB Act). In a nutshell: wheat and barley farmers are required to sell their stuff to the CWB, who in turn aggregates it and sells it in the market. In exchange, theoretically, the CWB provides economies of scale in the market and in marketing, resulting in a better deal for farmers. Also, there is no opt-out: it is illegal to sell your wheat any other way. Farmers who think they can compete in the wheat market on their own have to lump it. I should also add that the CWB only applies to wheat farmers in Western Canada - farmers elsewhere can do as they please.


Crucially, the CWB guarantees a minimum price to farmers for their wheat to protect against volatility. Since the CWB is backed 100% by the Government of Canada, in effect it is the taxpayer who guarantees the farmers the price of their wheat. The CWB is also entitled to carry out financial activities, like issuing bonds, debentures or other debt instruments to fund its activities. Any losses on those securities are - you guessed it - covered by the Government and paid for by the taxpayer.


So for various reasons the Government wants to ditch the CWB. The wheat farmers who benefit from the CWB are naturally upset by this, as are the employees of the CWB itself. The political opposition, as is their wont, are strongly opposed.


Here's a though experiment: what would happen if we replaced the words "Canadian Wheat Board" with "Big Banks" - what would happen then? Hmmmm. Let's review the parallels:

• The big banks are directly protected against loss by the taxpayer via deposit insurance; the wheat farmers are directly protected against loss by the taxpayer through minimum price guarantees.
• If there is a credit drought, the Central Bank lowers rates to make credit cheap again; if there is a flood of credit, the Central Bank raises rates to protect Bank profits from erosion by inflation. If there is an actual drought or flood affecting wheat farmers, they are bailed out by emergency funds set aside by the CWB.
• Big banks can raise capital more cheaply because they are Too Big To Fail; the CWB can raise capital more cheaply because they are Too Wheatey To Fail and any losses are covered by the taxpayer.
• Big banks are heavily supervised by independent agencies and extensive regulations; the CWB is... er... um...

Okay, so the parallels aren't perfect. But you get the idea: Heads and the banker/farmer wins; Tails and the taxpayer loses. Unless of course you're a Western Canadian wheat farmer who could actually be more competitive on your own, in which case everybody loses, except the CWB.


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Which, I should stress, may still be the best possible outcome. It could well be that there are valid arguments for why the existence of the CWB is good for Canadians. But fundamentally my point is this: if you're prepared to defend the bailouts and implicit taxpayer subsidy of our big banks, you had better be prepared to explain why the role of finance in society serves such a critical economic function that it can be no other way. Similarly, if you're going to defend the bailouts and explicit taxpayer subsidy of the CWB, you had better be prepared to do the same.


I'm all ears.


On the other hand, if you hate bailouts, if bailouts make you angry - man oh man, go ahead and Occupy Wall Street, Occupy Wheat Board, hell, Occupy Grandma's House!


But, for the love of God, be consistent.*


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(*your humble blogger accepts that expecting rationality from partisans and protesters is akin to expecting rationality from YouTube comments, but, what the hell - a man can dream can't he?)