In the Planet Money podcast Big Government Cheese I was reminded of stories my dad told me of eating government cheese growing up poor in Georgia. So it was interesting to listen to an in depth program examining how this program came to exist. Like many bad things this idea came from the desire to support American farmers financially. Jimmy Carter was interested in supporting American farmers and as a campaign pledge wanted to raise the price of milk as a way of giving farmers more money. To increase the price of a product in such a way the government had two options lowering the supply or increasing the demand. Canada is an example of a country that maintains the price of milk by lowering the supply, after a certain quota of milk is produced the farmers are ordered to stop producing. America chooses not to take this route and instead tries to increase the demand. The easiest way for the government to do this is by buying the product and storing it, it had done this before with corn and other grains. However the properties of milk make this impossible milk spoils quickly and is harder to store. It is here that cheese comes into the picture, USDA looks at what dairy products can be storeable one of the best of these dairy products for storage was cheddar cheese. So the government decided to buy as much cheese as the cheese producers would sell them at a fixed price. By buying as much cheese at an artificially high price as the cheese makers could make, the cheese makers would buy more milk thus increasing the price of milk and accomplishing the goal of the Carter administration. This artificial demand would raise the price of milk but the government would have to keep buying all the cheese the makers were willing to sell to keep milk prices at the level they wanted. Buying this large amount of cheese created a storage problem, eventually the government had to resort to renting out large cave spaces in Kansas to store the cheese. It was this silly situation that brought attention to the massive amounts of money that the government was spending on buying cheese only for it to have to be stored and rot. So the government started looking for ways to get rid of the cheese without harming the very market they wanted to support. If the government sold the cheese on the open market there would have been commercial displacement destroying the cheese market and thus milk market with a flood of cheap cheese. Instead the government decides to give the cheese away to consumers who would not have otherwise bought the cheese. The cheese was processed and made into 2 and 5 pound bricks and given away as food aid to the poor of America. It was this spectacle of millions of pounds of expensive cheese being processed and given away that created a popular cultural icon and an example of bad government spending. The government eventually tired of being involved in this business and eventually extracted itself from buying cheese slowly by increasing milk ads and giving farmers direct subsidies instead.

There are a lot of “Big Ideas” to discuss in this podcast but the obvious one is one which the podcast points out itself, the problem of unintended consequence. The goal of the government was to support American farmers by price controls but this led to the government buying billions of dollars of cheese every year that they had to inspect, store and eventually give away. Another would be how business, state and society interact the various pressures and values that guided the way government cheese came about, For instance unlike Canada we did not impose a production limit on milk largely because that seemed un-American to have limits on production. The way the farmers as an interest group gets the government to engage in the market also reminded me of the case of Nixon subsidizing corn production and increasing the use of high fructose corn syrup as a way to lower the cost of food to the average household for political gain. I don’t think these unintended consequences will ever go away and we live with some greater and more unknown than government cheese.

Luke Jones

When thinking about what modern business market I knew the least about, cryptocurrency came to mind. I’m not much of a tech-minded person, so it had always seemed above my head. Specifically, the incident of the Bitcoin market crash of 2017 came to mind. In my research on the topic, I came across Nick Paumgarten’s longform article “The Prophets of Cryptocurrency Survey the Boom and Bust,” from The New Yorker. In it, Paumgarten goes deep into the story of Vitalik Buterin, founder of Bitcoin’s less known but arguably fiercest competitor Ethereum. The article covers both the founding story of Ethereum itself, the history of the American cryptocurrency market as a whole (with a focus on Bitcoin, Ethereum, Litecoin, and Ripple, the top competitors in the market), and the modern problems that have arisen with the growth, explosion, and crash of cryptocurrency that has given it such a bad reputation in the last couple of years.

One of the biggest areas covered by this article was Big Idea 4, unintended consequences and unacknowledged assumptions. There were multiple examples of this idea shown throughout the article, but two specifically stood out as the most impactful. 

The first example of this is with the unforeseen negative impact that e-currency would have on the environment through its massive demand for energy for the algorithmic processing process known as “mining”. Mining is when a computer, in competition with dozens, hundreds, or potentially even thousands of other machines, tries to solve a complex mathematical algorithm. Once it does this, the algorithm gets inputted into the cryptocurrency monetary system, creating one bitcoin, worth about 6400 USD. This incredible amount of processing power needed for large scale mining consequently uses a lot of electrical energy, which in turn means more power and pollution is created in power plants.  

“This year, it is said, the Bitcoin network will use as much energy as the nation of Austria, and produce as much carbon dioxide as a million transatlantic flights. Mining rigs—computers designed specifically to do this work—are thirsty machines. Mining farms tend to sprout up where juice is cheap (typically, in proximity to hydropower projects with excess capacity to unload) and where temperatures are low (so you don’t have to burn even more electricity to keep the rigs cool). There are open-air warehouses in remote corners of sub-Arctic Canada, Russia, and China, with machines whirring away on the tundra, creating magic money, while the permafrost melts.”

The pseudonymous original creator/creators of Bitcoin, Satoshi Nakamoto, was only concerned in making as secure of an online bank as possible, and once Nakamoto decided to launch this peer-to-peer payment system in 2008, it was then out of his/her/their hands. As part public domain on the world wide web (and not any private individual, company, or government), there was no oversight as to how the market forces of the cryptocurrency were to be reined in in cases of a greater public need, such as in this instance with the potential increase in pollution and global warming. Mining conglomerates, private groups that own their own massive collections of mining computers, have been slowly converting their privately-owned machines into public goods, relinquishing even more power. 

One of the other unintended consequences of cryptocurrency was the unanticipated conflict in the governance of cryptocurrency blockchains. Blockchains are the systems that record and protect any transactions made in a cryptocurrency banking system. They are also heavily controlled by the managers of the systems themselves. For the money to be protected, there are rules that must be put in place by the managers (in a public system) or owners (in a private system) to keep everyone else in check. The biggest problem that must be overcome is that for the rules to be followed well, the checks and balances between the people on the system must be simple but very thorough, a paradox if there ever was one.  

A good way to understand the extremely complicated and confusing relationship between people using cryptocurrency and the system rules is to compare it to a person following the law in the real world. The best way the American government protects its people is through its creation and enforcement of laws. There are many simple laws that everyday people can understand (such as don’t murder, don’t steal, pay taxes, etc.). However, in order to prevent problems in complex areas such as big business and healthcare, specialized lawyers are the ones who learn the specific law instead of your average citizen. They are the ones who help coach people how to follow the law, and they are the ones that prosecute people who break it as well.  

The same holds true for rules on an e-currency platform. There must be a balance between simple rules that an average miner or currency trader can follow (such as how to properly mine in a legal way on other people’s computers) and the complicated rules that only lawyers specializing in the cryptocurrency field can understand completely in order to properly advise the systems managers (such as how to handle system controls in a way that doesn’t steal miner’s money). Where cryptocurrency was created to be both user- and manager-friendly, people trying to negatively control the system have ruined it for everyone. Cryptocurrency, an online banking platform first praised for its simplicity and independence from the many human errors and corruption found in real world banking, now needs the human interaction and management it once fought against. Not even the “magical fake money” of cryptocurrency can remain untainted by greed in America forever.

Preston Taylor

In a recent article of the well-read “Washington Post,” Antonia Noori Farzan explains how the famous department store Sears circumvented Jim Crow laws during the early 1900’s by the use of mail-order catalogues.  Entitled “Sears’s ‘radical’ past: How mail-order catalogues subverted the racial hierarchy of Jim Crow,“ this shows an interesting connection a well known business has with society and the laws that governed it almost a hundred years ago.

(Image from Amazon)

This article caught my eye because I enjoy analyzations of the ways companies interact with the communities in which they do business.  Since the main function of any entrepreneurial venture is to make money for those who start it, I feel that often times, businesses get a reputation of being greedy, and not benefiting anyone but themselves, as seen in this article by Harvard Business School.  This predisposition towards a distrust of big businesses is something that can be justified in certain circumstances, but more often then not, companies help society more than they hurt.  I enjoyed this article because it was a prime example of a business having a positive impact on its customers and the people that it served.  With this in mind, the article seems to closely follow the relationships between Business, State, and Society that we have been analyzing in class.

The very title itself mentions a particular law, a people group, and a corporation and how they interacted with each other during this time period.  The article describes how, from the end of slavery in the south to the end of the Jim Crow laws in 1964 and even beyond, African Americans in the south were widely discriminated against when it came to purchasing supplies from their local stores.  Thanks to these laws, it was legal for the white store owners of the small general stores that African Americans were forced to shop at to use extremely prejudice techniques when dealing with their black customers.  Typically, shopkeepers would refuse to give honest and fair credit, only offer them inferior goods, and gouge prices so African Americans had a difficult affair any time they needed supplies.  This changed drastically when Sears’ mail order catalogs began to circulate.  Instead of facing the unjust general store environment, African Americans simply had to write in their orders on a piece of paper to receive them in the mail a couple weeks later.  Made possible by a particular government regulation, the Rural Free Delivery Act, the mail service was opened to rural areas throughout the south, areas highly populated by African Americans.  This is a great example of the government helping businesses in the late 19th century expand, as it would increasingly do until the Gilded Age.  The catalog business helped black culture to broaden and expanding the minor freedom it gave from Jim Crow laws.

Julius Rosenwald, who had become a part owner of the company after Alvah Roebuck sold his share of the business in 1895, became a well-known philanthropist to the black community. He donated $4.3 million — the equivalent of more than $75 million today — to open nearly 5,000 “Rosenwald schools” in the rural South between 1912 and 1932, when he died.

Antonia Farzan goes of to explain other ways that Sears company and its executives helped African Americans free themselves from the oppression of the Jim Crow Laws.  This article provides more information about Julius and his schools, as well as the ways they benefitted the black community.

In all, the capitalistic nature of the Sears corporation had, opposite to one’s initial assumption, a positive impact on the communities within which it served.  Sears bypassed Jim Crow to expand their business, helping thousands of African Americans in the process.  Rural blacks gained access to needed goods and, as the article says best, their dignity.

When I think of Sears, I think of the holidays when I was young and my dad would take me out for some last minute Christmas shopping for the other members of my family. However, this holiday season there will be no last minute gift runs as Sears is the latest casualty of the retail industry. But before they were a name associated with my holidays or a case study in “creative destruction,”  Sears seemingly filled a role as an equalizer in a segregated society.

A Washington Post article dives into the Jim Crow South to examine the anomaly in conducting business that the Sears Catalog was. At a time when segregation was a societal norm, reinforced by the laws that state governments had passed, certain businesses reaped great rewards from moving past these boundaries and courting a market that many in the South had spurned, African Americans. This article brings to the forefront the relationship between business, state, and society as Sears acted in a way that diverged from the norms of state and society at the time.

During this time, African Americans attempting to shop at brick and mortar stores faced many challenges:

…Store owners fiercely defended the white-supremacist order by making black customers wait until every white customer had been served and forcing them to buy lower-quality goods. “A black man who needed clothing received a shirt ‘good enough for a darky to wear’ while a black family low on provisions could have only the lowest grade of flour,” historian Grace Elizabeth Hale wrote in an essay published in “Jumpin’ Jim Crow: Southern Politics from Civil War to Civil Rights.”

Things changed with the Sears catalog. The Sears Catalog enabled African Americans in the South access to the same quality of goods as their white counterparts without fear of antagonism and humiliation. In addition to this, the Catalog appealed to rural Southerners who were not as highly educated by allowing requests written illegibly or in broken English to be processed and have the goods shipped.

In addition to business, state, and society, we also see the appearance of unintended consequences  and unacknowledged assumptions. While the owners of Sears may not have been intentionally championing consumer equality, store owners in the South would have you believe that was their exact intention.Threatened store owners spread the rumor that Sears was actually being run run by “black men” who “could not afford to show their faces as retailers.” They took to organizing burnings of the Sears catalogs and offered rewards for those who brought the most to be burned. The company responded by publishing pictures of their owners, clearly showing they were white, to put down these rumors that (tragically) could have affected their operations.

We have talked in class about how firms adjusted their strategies to different groups in society dividing them along lines of gender, region, class, and ethnicity, however the Sears catalog strikes me as something different and perhaps as something revolutionary for its time even if that was not is intention. Justice in our society is often portrayed by Lady Justice wearing a blindfold as if to view each case impartially and not let certain biases cloud her judgement, “Justice is blind.” It seems that Sears created a somewhat similar effect in the marketplace. It did not matter who you were, what color your skin was, your gender, or even your education. The sears catalog simply provided goods to be bought, and if you requested goods and provided the money, you would receive the goods. In this way, Sears made commerce blind, and whether it was their intention or not, they challenged a societal structure rooted in discrimination and enabled a generation of African Americans an equal access to the market place.

[Image from amazon.com]

Most people would never guess that the slightly odd smelling, usually abandoned Sears at your local mall was on the leading edge of the civil rights movement in the early 1900’s. Antonia Noori Farzan seeks to enlighten the public on Sear’s racially progressive ideas in her article “Sears’s ‘radical’ past: How mail-order catalogues subverted the racial hierarchy of Jim Crow”

The Big Idea that is tackled by Farzan is business, state, and society. She begins the article by stating her overarching belief in what Sears was able to do for the black community.

[Sears] revolutionized rural black southerner’ shopping patterns in the late 19th century,                         subverting racial hierarchies by allowing them to make purchases by mail or over the                             phone and avoid the blatant racism that they faced at small country stores.

Let be begin by breaking down this quote in terms of our Big Ideas. Sears business model was relatively simple, they were a large department store and in order to extend their business to rural areas, where it wasn’t feasible to build a brick and mortar store, they began sending out mail-order catalogues so that customers could call in their orders and have them shipped to their homes. Incidentally, this led to blacks using the catalogues as a way to avoid the discrimination that they were facing in their local country stores. Regarding the effects of government, the Sears catalogues were being shipped during the peak of Jim Crow laws. In Sears actual stores they had to comply with Jim Crow laws, so blacks could only have jobs in the warehouse or as janitors. Lastly, in terms of social situations, blacks were outwardly discriminated against. Farzan writes about how in their local stores black were always served last and given the lowest-grade items. Because there was no discrimination when the business couldn’t see the color of your skin, blacks took to the Sears catalogue where they could get high quality items without fear of prejudice.

The Sears company influenced black culture in other says. Culturally, their cheap steel-guitars allowed for a whole new genre of music- Delta blues. Without the catalogue, blacks wouldn’t have been able to afford these steel string guitars, but at Sears, they were only $1.26 ($50 in today’s dollars), giving low income individuals access to music. Furthermore, Rosenwald, a part-owner of Sears, donated over $75 million (in today’s dollars) to education. His money created over 5,000 schools in the rural south, leading to the advancement of education for black children. In the 1930’s 1 out of every 3 black students went to a Rosenwald school until they were shut down after Brown v. Board of Education.

Sears policy of commercial inclusion for minorities wasn’t without backlash. Local merchants were known for paying people to steal/ collect Sears catalogues and having bonfires with the collected books. The reasoning behind this is two-fold. First, Sears was taking business away from them because the customers that were usually buying items from the store were instead ordering from Sears. Second, they didn’t want blacks to be able to have access to the same quality products that they did.

Overall, we see that Sears had a large part in introducing minorities, and specifically blacks, into the marketplace following the Civil War. Although the company was not without its flaws, it paved the way for the Civil Rights movement and the equality between all groups that we now enjoy in America.

While Reading “Is the Government More Entrepreneurial Than You Think?”, this article initially reminded me of how my parents would likely think about the government and business. My parents are both conservatives from the South and they would likely argue that the government needs to get out of business and leave the free market alone. I began reading this article with skepticism, considering the rhetoric I had raised hearing and possibility that it was not true. I was very intrigued about the idea that the government could have a positive role in business and that capitalism feeds off of the government’s initial investments. The logic behind this makes total sense and knowing the reality of the government’s involvement is enlightening.

My critique of the government in this role, however, is that they do not say anything about their contributions, much less the size and extent of those contributions. Like Mariana Mazzucato likes to remind people, “Plato said that storytellers rule the world.” My frustration comes out of the lack of storytelling about this coming from the government. She was right to criticize the companies on the receiving end of the investments, benefitting from the technology and research, for not giving credit where credit is due (literally). She raises many interesting points and ideas about how to change the rhetoric and the policies that are becoming problematic and putting the government at a disadvantage. She also, towards the end, mentions that she is a thorn in both the government and the capitalists’ sides which makes me think of her work more seriously. To be disliked by both sides gives her some legitimacy that I did not previously see in her work.

I especially appreciated her inclusion of the problem with pharmaceutical companies as someone who deals with medications frequently. She is very right about the idea that someone would do anything to get their medications and that the companies are basically playing a game with patients. Large companies raise prices for seemingly no reason, formerly justifying it by saying it was to cover their own expenses, but this is not the case. I’ve noticed in my own experience when a medication will become more or less expensive, seemingly randomly. I am grateful to have insurance, because some medications can cost hundreds of dollars even when a similar medication may cost much less. I have a few medications that I’ve been on for a while and pay for them with insurance assistance. One has a much higher price that sometimes increases, while one medication has stayed the same price regardless of how much I’m taking, and another medication is very inexpensive and has fluctuated in price slightly but occasionally decreases. The idea that these medications actually cost hundreds of dollars to produce and that I would then need to pay for this every month is ridiculous considering that most medications are generic and therefore not under a patent. If anyone could make something, it seems a little suspicious that several companies are all charging a lot of money for the same thing. Mazzucato has a lot of very interesting thoughts and ideas about this industry and I sincerely hope that at least some of them will be implemented.

This article was fascinating because it presented a different side of the business-government relationship that I had not previously known about. I am not business-minded so some of the terms and concepts went over my head, but I really want to do more research into some of these ideas because they fascinate me and have piqued my interest in the government-business relationship. Personally, I think the government should be more entrepreneurial.

Preston Taylor

In an episode of the popular podcast “Planet Money,” Kenny Malone and Karen Duffin investigate the effects of Jimmy Carter’s plan for the government to buy dairy products during his presidential term.  Entitled “Big Government Cheese,”  this explains the downside of a specific government subsidy and the impacts it may have down the road.

(Image from Twitter)

I was interested in this particular podcast because I love observing the impact when government interferes in the economy.  It seems to me that often enough, the end result is worse off than before the original meddling.  With this in mind, this topic immediately seems to follow the business, state, and society Big Idea that we have been focusing on.  According to the podcast, this whole idea started as a far-fetched campaign promise to increase income for dairy farmers.  In truth this is a fairly common occurrence as government subsidies are given to those who grow corn and many other agricultural products to increase production of certain goods.  The problem with this particular subsidy is milk products cannot easily be stored in a silo for long periods of time as corn can.  The solution was to turn it into cheese, which can be kept for a longer time than regular milk.  So the government began buying large quantities of cheese which they stored in underground caves that served as natural refrigerators.  They then processed the cheese into two and five pound blocks, wrapped in simple brown paper, and redistributed them to schools, the military, and food banks at no cost to consumers.

DUFFIN: This is a basic supply-and-demand problem. The government was demanding an unnatural amount of milk and so farmers were supplying an unnatural amount of milk.

Any time you have a greater production of a good than the popular demand for that good, as occurs with government subsidies, there are multiple problems that arise.  A surplus of cheese was created, essentially meaning that there was more cheese available than people were willing to buy.  If the government attempted to sell the cheese to ordinary consumers the price would drop below profitable rates for the farmers who were supposed to benefit from the subsidy in the first place.  Thus the government gave the cheese away to a consumer group that would not have the resources to buy cheese in the first place:  the homeless and impoverished in many urban centers.

The government now needed to wean the production of dairy down back to its normal rate, so instead of simply purchasing cheese, they implemented a policy of direct subsidization where the government directly paid dairy farmers to NOT produce milk.  They also created ad campaigns like the famous “Got Milk?” to try and increase consumer demand, and slowly return the supply and demand curve to its normal, equilibrium state.

This is just one example of government subsidies creating conflict in the free market.  The creation of surpluses rarely ends in a societal benefit and this article about fossil fuels serves as another instance where government interference in business creates problems for the average consumer.  When it comes to topics of business, state, and society, it is my opinion that the market works best when left to fluctuate according to its natural processes.  And the idea of making cheese purchases to bolster the economy is as far fetched as it truly sounds.

While thinking of what sort of businesses within American business history are the most fun to study, I realized that the most interesting markets are those that have totally and completely failed, only to find an unlikely way to rebound (although with today’s average consumer intelligence level, this has become much more common). Inferior products now have a fighting chance because of a generation of economic incompetents. 

In realizing this, I remembered a certain conversation that I had with a high school (and economically handicapped) friend a year or so ago. There’s no reason to go through the whole conversation, but in basic shorthand, she first told me the approximate sum of money that she had spent on vinyl over the years, I then thought for a second about the abundance of free music on sites such as Spotify and YouTube, and, lastly, I promptly called her an idiot. 

In remembering that story, I decided that I would show her why vinyl died in the first place (Hannah, this is for you): it was an inferior product beat out by unforeseen technological innovation. This inferiority, mixed with a consumer base with an eye for objectively better products, cause the downfall of vinyl and its subsequent replacement with alternative products, such as the cassette, the CD, and the MP3 player. 

In her article “Chronology: Technology and the Music Industry” on the PBS Website (https://www.pbs.org/wgbh/pages/frontline/shows/music/inside/cron.html), Callie Taintor describes the evolution of music technology leading to and following vinyl. Thomas Edison created the first ever voice recording in 1877 on what he named the phonograph (literally translated from Greek, it means ‘sound writing’), and competitiveness in the market only improved upon his idea. With lookalikes of his work being created, Edison made the first improvement upon his idea by replacing his original hand crank with an electrical motor to create better sound quality and an easier listening experience, common goals that would be the driving force for future innovation. This innovation of changing the old device into something much better allowed Edison to remain ahead of the game, at least for a while.  

Several “Big Ideas” appear throughout time in this piece:

The first “Big Idea” that we see is the idea of capitalism through expansion, innovation, and competition. In 1888, the cylindrical recording device of the phonograph was first replaced with a disk recording device in a new contraption dubbed the gramophone. This would be the first circular precursor to the vinyl we know and (don’t) love today. Improvements continued with materials and production techniques, eventually spurred on even more by competitors in the radio market. After a plethora of production types and a long list of materials were used to create the perfect sound quality, in 1943, polyvinyl chloride (also known as PVC or, as its popularly known, vinyl) was discovered to best fit the bill. The quiescent vinyl was born from the forge of capitalist growth, creativity, and business rivalry.

The second “Big Idea” revealed is that of unintended consequences and unacknowledged assumptions. The entirety of the professional music production industry was built on the belief that music created by a company would always be distributed by that company, and thus the revenue would always flow to that company as well. However, with the introduction of cassette tapes, made popular by the Sony Walkman in 1979, the issue of illegal music copying (AKA piracy) became a serious problem that would continuously plague the music production industry for years. Opportunity cost of producing the same amount of music at a certain quality and price fell. All it took was a new technology shattering the assumption of monopolized retail to make music prices to rise and quantity/quality to fall.

The third “Big Idea” shown is the idea of complexity. Music Consumers have turned out to be extremely fluid in their demand expectations. Where consumers previously fought for cheaper, better sounding, and more readily available music, the tide turned with the modern-day vinyl resurgence movement. With the vastly improved music available on the world-wide web today, music producers have found niche music consumers really care much more about appearance than music quality itself, which is the real reason vinyl has reappeared in such a massive way.