Whenever a call comes in before 6:00 a.m., I know that it is either a death in the family or an ordinary business call from my brother-in-law, Rich. Rich is a dairy farmer and likes to get business out of the way before he goes out to milk. When he rang a few weeks ago but did not get immediately down to business, I knew it was something very important.
After a few minutes of small talk, he finally broached the reason for his call. He has rented 220 acres of farmland from me for the past 16 years. He had already paid the half of the rent due on March 1. But then a nice farm immediately adjacent to his home place had come up for sale. If he bought that farm, he did not want to rent my land anymore. Would I be willing to take it back at this late date or allow him to sublease it to someone else for the reset of the year?
It was clear that this was a great opportunity for him, and I did not want to stand in his way. It was also pretty clear that I would suffer no financial loss. We reviewed a list of possible sub-lessees, and I gave him my OK. A few days later he called to confirm that he was buying the other farm and that my cousin, Ike, was eager to rent my land.
That Saturday morning the phone rang at 7:00 a.m. It was Bob, an old neighbor and friend. He had heard that Rich was buying some land nearer his home and wondered if mine might be available for rent as a result. Bob’s son is home from college and wants to farm, but there is no land available within a reasonable radius of their home farm.
When I informed him that someone else had already spoken for it, he responded in a crestfallen tone. “I guess I’m not pushy enough. Whenever I hear about a piece of land, it is already taken.”
Now for those of you who aren’t familiar with farming, the last three crop years were financially punishing for many farmers. Crop and livestock prices have been low, and fuel and fertilizer prices are rising.
Many farmers say they cannot survive, but the demand for farmable land is such that a hoary old joke from the boom years continue to circulate: Old Joe dies suddenly of a heart attack. Even before the funeral, the grieving widow begins to get phone calls along the following line: “Say Alice, I just wanted to call and tell you how bad I feel about Joe passing away. By the way, has anybody spoken for the land yet?”
This is very similar to the dire straits of day-care providers. Periodically someone voices a complaint about how little they earn relative to other professions or to the time and effort of caring for their little charges. But when day-care centers raise their rates, many parents quickly seek other providers who charge less.
Some time ago I wrote a column arguing that if we really face a shortage of teachers and nurses, the solution is to raise their pay. I got several emails from teachers thanking me for sympathizing with them and the injustice of their situation.
I do sympathize with teachers, nurses, day-care providers and farmers. But my message was one of harsh reality and not of justice. As long as many people are willing to work for very low levels of financial return, it is unlikely that compensation will rise. It may be just or unjust, fair or unfair, but that is the way it is.
I personally do not like to use the word “law” in regard to economic behavior. But if there are any economic phenomena that approach being laws, they are supply and demand. If the supply of workers is large, even at a low wage rate, and demand does not change, wages will not rise. If the demand for farmable land remains strong—even though prices and returns in farming are low—farm prices are not likely to rise.
Many people do not like that, but it is one of the consequences of living in a market economy. Unless farmers and day-care providers are willing and able to organize and gain some monopoly power to bargain collectively, their situation will not change much. Some farm groups have tried this for decades without success.
Nor have organizing efforts among day-care workers been able to get around the fact that there are few barriers to entry in providing day care. If one group of workers organizes and obtains higher wages, other individuals offering such services immediately spring up, undercutting the newly organized centers.
And if supply and demand are so inexorable, you may ask, why didn’t I auction off my land for the highest rent. I could have gotten more money that way, rather than accepting the first good renter Rich found. Well, perhaps economists themselves are not as rational as the people who inhabit their theoretical worlds.
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.