There is a pitch that has been running for over a century, and it still works every time. It goes like this: “Our industry is the backbone of the economy. If we go broke, everyone goes broke. So the government should guarantee us a fair price.” Sounds reasonable. Sounds almost noble. And it is one of the most destructive economic ideas that keeps getting recycled under new names in every generation.

Let me show you how it works, why it fails, and why you are almost certainly paying for it right now without knowing it.

The “Parity Price” Trick

The concept is simple. Pick an industry – historically agriculture, but the logic gets applied everywhere. Then pick a historical period when that industry was doing well. Call it the golden era. Now argue that prices for that industry’s products should be permanently fixed relative to the prices of everything else, using that golden era as the baseline.

This is called a “parity price.” The idea is that if a bushel of wheat could buy a certain amount of industrial goods in 1912, it should buy the same amount in 2025. If it does not, the government should step in with subsidies, price floors, or production controls until it does.

The pitch comes wrapped in serious-looking economic analysis. Special interest groups hire economists, PR firms, and lobbyists to produce thick reports proving that their industry deserves this guaranteed price relationship. The reports look scientific. The numbers look precise. The conclusion is always the same: give us money.

Why Is 1912 Sacred?

Here is the first question nobody wants to answer: why should any particular historical period be the permanent benchmark for pricing?

Conditions change. Technology improves. Costs drop. In the century since the “base period” was typically chosen, cotton yield per acre roughly tripled. Farming equipment went from horse-drawn plows to GPS-guided combines. A single farmer today feeds 166 people. In 1900, one farmer fed 7.

If productivity triples and costs per unit drop dramatically, why should prices stay the same? In every other industry, we celebrate when technology makes things cheaper. Nobody complains that flat-screen TVs cost a tenth of what they cost in 2005. Nobody demands “parity prices” for desktop computers based on 1995 pricing. But when farm productivity improves and food gets cheaper, suddenly it is a crisis that requires government intervention.

The choice of base period is always political, never scientific. You pick the period that makes your case look strongest. If prices were unusually high in 1909-1914, that becomes your “fair” baseline. If they were low, you pick a different period. The entire framework is rigged from the start.

If Parity Works for Farming, Why Not for Everything?

This is the question that kills the argument, which is exactly why its proponents never bring it up.

If it makes sense to fix agricultural prices at their 1912 relationship to industrial prices, then logically it should make sense to do the same for every product. Fix car prices at their 1912 parity. Fix shoe prices. Fix the price of a haircut.

Run those numbers and see what happens. A Chevrolet at 1912 “parity” would cost roughly three times its current sticker price. A basic pair of shoes might cost what designer boots cost today. The logic of parity pricing, applied consistently, would make nearly everything unaffordable.

Nobody actually wants that. The parity argument only ever runs in one direction. When prices are below the “fair” baseline, the industry demands subsidies to bring them up. When prices are above parity – which happens regularly for agricultural commodities during supply shocks, droughts, or demand surges – nobody shows up to demand that prices be forced down. Strange how that works.

The Transfer That Creates Nothing

Let me make the math simple.

Say wheat is at $2.50 per bushel on the open market. The government decides the “fair” price is $3.50 and guarantees it through subsidies or price supports. The farmer gets an extra dollar per bushel. Great for the farmer.

But that dollar comes from somewhere. Either the consumer pays it directly through higher bread prices, or the taxpayer pays it through subsidies funded by taxes. Either way, the city worker hands over a dollar so the farmer can receive a dollar. No new wealth was created. The economy did not grow. One person’s gain is exactly another person’s loss.

Except it is worse than that. Because to maintain the artificially high price, you usually have to restrict supply.

The Part Where They Destroy Food

This is where the policy goes from merely wasteful to genuinely obscene.

If you set a price floor above the market price, farmers will produce more at that higher price. Supply goes up. But demand goes down, because consumers buy less at higher prices. You end up with a surplus. Warehouses full of grain nobody wants at the inflated price.

So the government has to do something about the surplus. Options include: paying farmers to not grow crops, buying the surplus and letting it rot in storage, or literally destroying it.

Brazil famously burned millions of bags of coffee to keep prices high. The US paid farmers to plow under crops and slaughter livestock during the Great Depression – while people were going hungry in cities. The EU accumulated “butter mountains” and “wine lakes” – massive stockpiles bought with taxpayer money that nobody wanted at the supported price.

This is not a side effect. This is the core mechanism. You cannot maintain an above-market price without restricting the amount of goods that exist. Price guarantees require the destruction or prevention of real, tangible wealth. Food that could feed people gets destroyed so that the remaining food can be sold at a price high enough to satisfy the subsidy formula.

Even the Farmer Does Not Win as Much as Promised

Here is an irony that gets buried in the sales pitch. The farmer gains less than the raw price increase suggests.

If the price goes from $2.50 to $3.50, the farmer gains $1 per bushel. But at the higher price, with production controls and acreage restrictions, the farmer grows fewer bushels. So the total income gain is the higher price multiplied by a lower quantity. Meanwhile, the farmer’s costs for equipment, fuel, seeds, and fertilizer are not subsidized (or at least not as much), and those costs are influenced by all the other distortions in the economy.

The farmer’s actual net gain is a fraction of what the headline price increase suggests. But the consumer’s loss is the full price increase on every unit they buy. The subsidy is inefficient even at achieving its own stated goal.

The Sugar Racket

Want to see parity pricing alive and well in 2025? Look at US sugar policy.

The US government maintains a system of price supports, import quotas, and tariffs that keeps domestic sugar prices at roughly double the world market price. Americans pay about 64 cents per pound for sugar that costs 27 cents on the global market.

This costs American consumers and food manufacturers an estimated $3.5 billion per year. It benefits about 4,500 sugar farms. Do the math: that is roughly $800,000 per farm in consumer-paid subsidies. Per year.

The candy and food manufacturing industries – which employ far more people than sugar farming – have been steadily moving production to Canada and Mexico, where they can buy sugar at world prices. American jobs in food manufacturing are being exported so that a few thousand sugar farms can charge double the market rate. The protectors of American industry are destroying American industry.

The EU’s Common Agricultural Policy: Parity at Continental Scale

The European Union spends roughly 55 billion euros per year – about a third of its entire budget – on agricultural subsidies. The Common Agricultural Policy is parity pricing writ large. European farmers receive guaranteed payments, price supports, and protection from foreign competition.

European consumers pay above-market prices for food. Farmers in developing countries who could compete on quality and cost are locked out. Land that would be more productive in other uses gets kept in farming because the subsidies make it artificially profitable.

The CAP is the single largest line item in the EU budget. More than defense. More than infrastructure. More than research. A third of everything the EU spends goes to maintaining price guarantees for an industry that represents about 1.4% of EU GDP. The tail is wagging the dog so hard the dog is getting whiplash.

Dairy Quotas in Canada

Canada maintained dairy production quotas for decades. The system worked like this: farmers received a quota – a license to produce a specific quantity of milk. The quota itself became a tradeable asset worth hundreds of thousands of dollars. A dairy quota could cost more than the farm’s land.

Canadian consumers paid roughly 2-3 times world prices for dairy products. A block of cheese in Toronto cost dramatically more than the same cheese in Buffalo, thirty minutes across the border. Canadians organized cross-border shopping trips to buy American dairy.

The system created a bizarre aristocracy of quota holders. New farmers could not enter the industry without buying a quota for the price of a house. The quota was not a reward for good farming – it was a government-granted license to charge monopoly prices. Innovation was punished, because producing more than your quota was illegal.

OPEC: Parity Pricing With an Army

OPEC is the purest example of what parity pricing looks like when the participants have enough market power to enforce it without a domestic government doing the work.

Oil-producing nations agree to restrict production to keep prices above what the free market would produce. When they succeed, energy costs rise globally. Every factory, every commuter, every airline, every heating bill gets more expensive. Trillions of dollars in wealth are transferred from oil consumers to oil producers.

When OPEC’s discipline cracks – when members cheat on quotas or new producers like US shale enter the market – prices drop and consumers benefit enormously. The 2014-2016 oil price collapse was essentially what happens when a parity scheme fails. Energy got cheap. Consumers had more money. Economies grew faster.

OPEC is parity pricing without the polite fiction that it is done for anyone’s benefit except the producers. At least they are honest about it.

The “Fair Price” Coffee Illusion

Fair trade coffee is a softer, voluntary version of parity pricing. The idea is that coffee farmers in developing countries deserve a minimum price that covers their costs and provides a living wage, regardless of what the market says.

The intention is genuinely good. Coffee farmers are often desperately poor. But the mechanism has the same problems as every parity scheme. The guaranteed price encourages overproduction. It keeps inefficient farms in operation that would otherwise transition to more profitable crops. And studies have repeatedly found that very little of the “fair trade” price premium actually reaches the farmer – most gets absorbed by certifiers, middlemen, and retailers.

The consumers paying $2 more per bag think they are helping a farmer. Mostly, they are paying for a sticker.

The Two Wrongs Argument

There is one more argument that comes up, and it is surprisingly common among people who should know better: “Tariffs hurt farmers, so subsidies are just compensation.”

If tariffs on industrial goods raise costs for farmers, the argument goes, then farm price supports just restore balance. Two wrongs make a right.

Except they do not. If tariffs are hurting farmers, the answer is to remove the tariffs. Not to add a second distortion on top of the first. Stacking bad policies does not cancel them out – it multiplies the damage. You end up with consumers paying inflated prices for both industrial goods (because of tariffs) and agricultural goods (because of subsidies). Everyone loses twice instead of once.

The correct response to a bad policy is to repeal it, not to create a compensating bad policy for every interest group that complains loudly enough.

The Takeaway

Every industry that asks for a guaranteed price tells the same story. We are essential. Without us, everything collapses. We just need a fair price.

But “fair” always means “higher than what people would voluntarily pay.” The guarantee always requires either forcing consumers to pay more or forcing taxpayers to cover the difference. The surplus always has to be destroyed or prevented. The benefits are always concentrated on a small group. The costs are always spread invisibly across everyone else.

Price guarantees do not make an economy stronger. They make it produce less, cost more, and waste resources maintaining industries at scales and costs that no one would freely choose. They reward political connections over productivity. And once established, they are nearly impossible to remove, because the beneficiaries will fight harder to keep their subsidy than millions of consumers will fight to save a few cents per purchase.

The next time someone tells you an industry needs a “fair price” guaranteed by the government, translate it honestly: “We want to charge you more than our product is worth, and we want the government to make sure you cannot say no.”

That is what a price guarantee is. Every time. No exceptions.