Sure, You Can't Afford Food, But At Least You're Buying Local

From the New York Times travel blog comes a humorous - and totally unintentional - economics lesson in a routine story about traveling in Scandinavia on a budget:

WHY IS NORWAY SO EXPENSIVE?

Most people assume Norway costs so much because of its high tax rates. Not so, said Nils Henrik von der Fehr, chairman of the economics department at the University of Oslo. Taxes play a supporting role — there is a 25 percent value-added tax on most products, for example — but the real reasons are labor costs and agricultural protectionism.

“The most important factor is the way our labor market works: centralized bargaining,” Mr. von der Fehr said. “One has made an effort to have an egalitarian wage structure. While people like me are not well paid compared to our colleagues in other countries, people at the lower end earn much more. You don’t have cheap labor in Norway.

“All the things you want as a tourist — hotels, restaurants — are labor-intensive,” he said. “That’s why it’s nice for us to be a tourist in the U.S.: everything you want is cheap because of the abundance of cheap labor.”

Another factor is the high tariffs on agricultural imports that keep Norwegian farms in business: “We have perhaps the most protected agricultural system in the world,” he said. “It’s not a particularly easy place to grow anything. Farms are small and the season is short.”

That may mean higher food prices, but at least you are buying local.

The NYT earlier notes that a cup of coffee will cost you $4.50 in Oslo, a fast food burger and fries is a whopping 23 bucks, and - most depressing - a six-pack of "mediocre beer" goes for a buzz-killing $30!  When asked how they cope with these prices, a Norwegian pharmacist quips "It's easy. We buy everything in Sweden."

Smart dude, but I'm not so sure that's the result of a sound economic policy.

Now, I freely admit that I don't know anything about Norway's labor regulations, but the bit about agricultural tariffs finds strong anecdotal support in last December's blog post on how Norway's import-prohibitive dairy protectionism caused butter prices to spike to an insane $450 per pound, thereby threatening a "cookie-less Christmas" in the world's butter cookie capital.  And if economist Mr. von der Fehr is correct about Norway's labor regulations, you just have to love how an obsession with income inequality has - combined with fierce protectionism - created shared misery in its attempt to prevent unequal prosperity.

But, hey, at least you're buying local!

(Or rich enough to afford traveling to Sweden and smuggling back some reasonably-priced cookies.)

How Protectionism Caused a Cookie-less Christmas in Norway

If you're like me, you've spent the last few days over-indulging on all sorts of Christmas goodies.  Here in the South that includes things like ham biscuits, toasted pecans, caramel cake and other types of glorious, artery-clogging awesomeness that depend on lots and lots of butter.  For folks in Norway, however, the holiday season brought no such buttery-love because serious butter shortages have caused prices there to go through the roof.  And, as Forbes' Tim Worstall explains, the primary reason for this debacle is good ol' fashioned protectionism in the form of butter import quotas and a 29% tariff:

So, here’s the full picture. In order to get people to farm, thus providing local food (you know, local is good, right?), in a place which is snow and ice for half the year it is necessary to put up huge trade barriers to food coming in from places with more grass and more cows.

These trade barriers raise the internal price of milk and butter, which is the whole point of having them so as to encourage people to farm in such a frozen wasteland. However, now that you’ve got these incredibly high prices for milk and butter you find that every roadside verge supports a cow or two as the locals cash in on the incredibly high prices. Thus you now need to fine people for producing too much milk.

The fines reduce the amount of milk produced, there is now a shortage of milk and butter and you need to lift the import restrictions so that the citizenry can have a butter biscuit at Christmas time. It really would be simpler just to buy the darn butter from Denmark in the first place, like the UK does....

Update on 12/15. I’ve been sent this very interesting link. It’s to perhaps the Nowegian equivalent of Craigslist. And it shows the offers of butter in, well, it’s not a black market as it’s legal, but a grey market perhaps. 500 NOK ($83.50) for a half kilo, a little over a pound, of butter.

Thank goodness for farmers’ protection, eh?

Worstall's entire article is worth reading, if only to fully grasp the absurdity of Norway's butter policies and their utterly predictable results.  I hope that Norwegians families were still able to make those butter cookies for Christmas, but I'm not holding my breath.  In fact, some news reports from earlier this month noted that butter hit over $450 per pound there!

That's some crazy expensive cookies, folks.

In fact, at about $80/pound for butter, you would have to spend about $1140 on butter alone to make everything in Paula Deen's latest cookbook, which requires a fantastic 57 sticks of butter.  At $450/pound, that same cookbook would require over $6400 worth of butter!  (Butter's about $3.50/lb here in the United States, despite our own stupid protectionism.)

Now, as bad as Norway's policies are, they are helpful in one sense: they provide a fantastic example of the economic distortions, system-gaming and consumer pains that are the inevitable result of import protectionism.  As I've repeatedly mentioned here, the United States maintains high tariffs on lots of fairly-traded products, thus forcing US consumers to pay higher prices for those goods and thereby subsidize well-connected industries (including the US dairy farmers).  Those policies haven't caused $450 butter, but they're just as wrong-headed.

So maybe Norway's butter crisis will cause the Norwegian government to wise up and eliminate harmful tariffs on butter and other products.  If only the United States would follow suit.