First Things First

...The result is always the same -- the consumer pays more:

MERRILL, Wis. -- A service station that offered discounted gas to senior citizens and people supporting youth sports has been ordered by the state to raise its prices.

Center City BP owner Raj Bhandari has been offering senior citizens a 2 cent per gallon price break and discount cards that let sports boosters pay 3 cents less per gallon.

But the state Department of Agriculture, Trade and Consumer Protection says those deals violate Wisconsin's Unfair Sales Act, which requires stations to sell gas for about 9.2 percent more than the wholesale price.

In a capitalist free-market society, why, exactly, is a vendor required to have a certain markup? Doesn't a free-market society imply, well, competition? Why, it's almost as though the politically connected can get Uncle Sam to pick our wallets.

You may or may not know that there are price controls on milk -- that is, your local store is forbidden from selling milk below a certain price. A paper titled Milk Pricing in the United States (PDF) attempts to explain why:

All the various government and private institutions making up the system are expected to work together to ensure that the public gets the milk it wants, while dairy farmers get the economic returns needed to provide the milk. The major institutions are the Federal milk price support program and milk marketing orders, the Northeast Interstate Dairy Compact, State regulations, dairy cooperatives, and milk and dairy product futures and options markets.

That's a lot of government (and government-backed) muscle to help out "dairy farmers," a term which evokes a nostalgic image of Farmer Brown milking his cows in the dawn's early light. There are still a fair number of such small businesses out there, but most milk is produced by large corporations these days. Regardless, this doesn't tell us why dairy farmers should be guaranteed "the economic returns needed to provide the milk". The paper's authors gamely attempt to do so:

Economic theory posits that the milk pricing system must balance the supply of milk with the demand for milk. [But] The physical uniqueness of milk complicates many of the pricing arrangements that are available for other products or commodities.
[...]
Milk is produced every day and must move to market at least every other day -- thus it is a flow commodity. [...] In the short run (day to day), milk supply is not attuned to milk demand. The cows produce every day and the milk must go to market, even if the demand on a particular day is low.

That's true; you can't shut off (or even slow down) a cow like you would, say, a gasoline refining plant. The only way to get a cow to stop producing milk is to slaughter it.

But supply-and-demand issues aren't unique to dairy farmers. If the supply of gasoline exceeds the demand, the refiners end up with a lot of unsold petrol. So what do they do? They cut prices to stimulate demand. That's what businesses are supposed to do.

But not if you're in the dairy business, where you live by the government's rules whether you like them or not. Case in point: last year, a dairy farmer tried to leave the price-fixing reservation, only to be amazed at how fast the government slapped him down (hat tip: Mises Economic Blog):

On Tuesday, President George W. Bush quietly signed into law S. 2120, the so-called Milk Regulatory Equity Act of 2005, a carefully crafted piece of legislation which was aimed squarely at preventing Hettinga's dairy farm from offering milk at lower prices than Dean Foods and other large milk distributors such as the Dairy Farmers of America.

"Basically, I'm a pebble in the shoe of DFA and Dean Foods," Hettinga said. "The only reason I'm a success is they are a milk monopoly and they have raised the price too high. The consumer is getting ripped off."

So the days of buying two gallons of Hettinga's Sarah Farms milk for $3.99 are over.

The bill, passed in both the House and Senate with almost no debate, amends the Agricultural Adjustment Act, part of the Agricultural Marketing Agreement Act of 1937, and will require Hettinga to participate in federal milk marketing order requirements, effective May 1.

The federal milk marketing program requires most milk producers and handlers to set minimum prices on their products and to pool their revenues. It also tries to balance the supply and demand of milk and milk products, which can vary widely from day to day.

Whether that's actually true, or the milk marketing program is even needed, is debatable, as Hettinga's success shows. The new law would, in effect, require Hettinga to pay his competitors to stay in business.

And, of course, it's a direct transfer of money from we, the people, to another politically-connected industry.

It's absurd that the state of Wisconsin is threatening to sue a gas station for the crime of giving consumers a break on the price of gas. Evidently, the law refers to protecting businesses rather not consumers.