Perhaps at the beginning of each day Congress meets, the old proverb, “the road to hell is paved with good intentions,” should be recited. Congress routinely falls in the logically fallacy that Henry Hazlitt called the “isolation” fallacy. This occurs when Congress, in its infinite wisdom, decides to “fix” a problem. However, Congress forgets that this always has a consequence for things outside the immediate area of the problem (which usually isn’t really a problem to begin with). Congress only looks at this one small part, and is either unaware or uncaring about that part’s relationship with other areas. This was made obvious in the Beef Industry.
Ranchers have long noticed that they are having a harder time finding a feedlot that is not owned by a giant corporation. For a while giant corporations, like the Brazilian JBS, have taken over the independently owned feedlots to the point where small, private feedlots are a thing of the past. Is this a problem of natural capitalism hurting and exploiting the little guys? Absolutely not. Instead it is a side effect of government’s “good intentions.”
Congress passed the Wholesome Meat Act in 1967, requiring meat to be either federally inspected or states have the same standards as the Federal Government. The meat that was inspected by the states could only be sold within the states. This caused a 70% decrease in slaughterhouses, and lowered the ability of ranchers to profitably make a living. Some may believe that 70% of slaughterhouses were in poor condition and posed a health hazard; however, they were just as sanitary as the slaughterhouses that survived. The problem comes from the size of the operation. Currently, the Federal inspectors inspect each carcass. By the government’s own admission, this has been harmful to small businesses. According to John Moody at the Farm to Consumer Legal Defense Fund, studies have shown that inspections of large slaughterhouses are not as safe as one may think, despite being carcsass-by-carcass. At small slaughterhouses, very few animals would not pass inspection; however, due to their size, if one animal did not pass, the whole plant was shut down. With large slaughterhouses, perhaps hundreds of animals would fail to pass inspection, but these slaughterhouses would not be shut down because their ratios of bad animals to good animals were still small. This creates a bias against smaller slaughterhouses that were forced to close. And what’s worse, since there are only a few slaughterhouses left, if there is an outbreak it affects a lot more people making it much more dangerous, and the market is affected by massive recalls. By “protecting” its citizens, the Federal Government has actually put them in greater harm.
This left only the big operations. The government often complains of the rich getting richer and the poor getting poorer. The Federal Government only needs to look in the mirror to realize the cause of this growing disparity is itself. Now the only ones that can survive the feedlot and slaughterhouse regulations are giant corporations, leading to virtually a monopoly. Texas attempted to help out the little guy by passing Texas Business Organizations § 2.007, prohibiting corporations from both owning a slaughterhouse and either a feedlot or raising cattle. But this has had a similar consequence as the Wholesome Meat Act: it has instead given the giant corporations the advantage. Due to the increased inefficiency of having two corporations that can do the job of one, the price ranchers get for their cattle is lower and the costs are so great that only giant corporations can afford to create another corporation and profit off of it.
The Federal Government tries to legitimize itself as a monopoly breaker. In this case it is too late to really stop or break up the monopolies in the Beef Industry; however, it isn’t too late to change the law. There is a growing desire to change it as the monopolies have become apparent. Whether the Federal Government will correctly diagnose and actually fix the problem remains to be seen. The Brazilian Government has indicted some JBS leaders, but many in the Beef Industry see this as a power struggle rather than a legitimate prosecution since JBS is a threat to the Brazilian government in regards to its power and wealth. Only time will tell whether the Federal Government properly fixes the problem it created, but given its track record of falling into the isolation fallacy, holding one’s breath is ill-advised.
Learn more about the isolation fallacy and support this blog by purchasing Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics. [Edit: Process of inspection corrected.]