Our Rotting Tomatoes

The American economy is the best in the world. There are many reasons why historically Europe can’t touch it, why South America can only dream of our success and why Soviet Communism rose and fell during a time of our prosperity. The main reason, however, is the law of the harvest. Sure, we all know a jackass kid that will ride the coat-tails of his father’s name and bank account to success. It is a flaw in the system, but as annoying as that is, it isn’t a fatal one. For the most part in America you get what you earn. Because of that structure, there is very little waste in our system. In the Soviet Union it was not uncommon to see a truck sitting on the side of the road loaded with rotting tomatoes. It didn’t sit there because the truck was broken down. The truck was fine. It was the system that was broken. Those tomatoes were grown by, Farmer “A”. Farmer “A” was assigned to grow the tomatoes and sell them to store “1” and only store “1”. If store “1” didn’t want the tomatoes, Farmer “A” wasn’t allowed to sell those tomatoes to store “2”, “16” or any other store but the store that the government had assigned. It didn’t matter which store was closer or needed his type of tomatoes. The only thing that mattered was the government’s decision. If he did sell the tomatoes to anyone besides his assigned store he was either 1) sent to a Siberian labor camp, also known as a gulag, 2) his farm was confiscated without compensation, 3) both, or 4) he was found by his neighbors a week later, dead, outback with his family. You are probably fairly certain that no matter what our financial state is, Obama is not going to send his brute squad around to sentence you to some labor camp somewhere between Bismarck and Rexburg. I agree with you. But if you think that is the only consequences that sprung from that type of rule then listen to Rafiki and look harder. You are probably wondering what this system has to do with our current economy. I’ll get there. First, put yourself in the shoes of the farmer. The government has given you a customer. They have regulated the price you will receive for your tomatoes. They have guaranteed your business a provided a safety net when you fail. After all, everyone deserves a job. So what motivation do you have to grow good tomatoes? Their condition means nothing to your reputation, who will buy your tomatoes, or how much they will pay for them. Unfortunately for the state your human nature will eventually take over your love of country and as a result your product will suffer.
Now try to look through the store owners eyes. You have to stock your store with small, mushy tomatoes that were grown by a farmer that doesn’t give a damn. Go ahead and try to sell those tomatoes. You won’t be able to. So what do you do? Do you cut their price? If you do cut the government price it could be you in the Siberian gulag. Do you ditch farmer “A” and buy someone else’s tomatoes? If you do you will have your store taken from you. Do you become innovative in your marketing technique? Why would you? Your salary does not depend on your ability to sell tomatoes. You get paid by the government for having your doors open. So you do NOTHING except let those tomatoes sit on a shelf. Because your shelves are full of tomatoes, you tell farmer “A” you don’t need his shipment. He then parks his truck on the side of the road and lets the tomatoes rot. In some instances the tomatoes passed several stores needing those very vegetable on the way to their destination. So there is no innovation, no quality, no marketing. Just a lazy farmer, an ineffective store owner, and a truck full of rotting tomatoes.
So the lesson in all of this should be that if a government will bail out the man that fails, then production, inefficiency, and quality will fail also. Understand, this example is not a theory, it is not a story, or something you would find only in a history book. The scary thing is it’s not a concept that we don’t understand. Not only did we understand it, but we fought it. This reality is what we fought in the Cold War. Our desire to avoid this government influence is why we risked nuclear war. Think about that for a moment.
Fast forward with me from 1973 Russia to mid 90’s America. President Bill Clinton saw that the lower class was growing. That is not the kind of growth we want. He saw a cycle of poverty and he came up with a plan to end it. He wanted to help low income households make the jump from poverty to middle class. Typically, democrats are accused of attempting to redistribute the pie but on this occasion, much to his credit, I believe President Clinton was attempting to grow the pie. His idea was to give low income households the opportunity to become home owners. Renting just drained the lower class of its money. However, if they could become home owners, then instead of losing their monthly house payment, which they were making anyway in the form of rent, it would become equity. A sense of pride would develop within them like it does with most home owners. The maintenance on an owned home would increase over that of a rented one causing property value to increase which would also further the equity of the house. Wealth would begin to build. Maybe someday down the road, that waitress of 30 yrs would have 150K worth of equity and no house payment. Then just maybe that would lead to an inheritance for her kids and head start for a family line that never enjoyed anything like it. The idea was cutting edge, it was innovative, and it was made with the best of intentions. But just like the Soviet ideal to secure a job for everyone, the American ideal of making everyone a homeowner failed miserably.
Home loans were given that were a poor investment just like tomatoes were sold that had no business being on the market. Slowly but surely the loans, just like the tomatoes failed, but nobody cared. The farmer and the banks still got their money from the government and therefore produced more poor products. After all, every Soviet had the right to a job without accountability just like every American had a right to a home despite their qualifications.
So here we are in 2009. Our housing market has crashed. Instead of growing the pie, we have made it all but disappear. In the last year as I have walked through neighborhoods from Atlanta to Boston, from Miami to Salt Lake, from Rexburg to Houston I can’t help but think that each foreclosed house looks an awful lot like a truck full of rotting tomatoes.