For Release August 17, 1999
The Myth of Short Term Economics
by Chuck Otte, Geary County Extension Agent
I spent a lot of time in economics classes in college. I have a natural inclination to be a number cruncher. I spent a lot of time learning to calculate and analyze the bottom line. I can put together a cost return projection on an ag enterprise as well as anyone. But something has happened the past few years. Something has started to become very unsettling to me. To put it in a nutshell, I have come to the realization that the bottom line is not necessarily the bottom line.
The problem is that many of our economic analyses are made on a very short term basis. Sometimes annual analyses, occasionally two or three year projections and rarely, what are called long term projections, looking out four or five years. Most economists dont seem to like to work on an analysis that far out in the future though. Just too many unknowns to be dealt with. But sadly, too few have gone back to reexamine projections made ten or twenty years ago and then analyze what has happened from those decisions.
We can create short term situations, one to two years, in any ag business that will look very positive. The classic case is where a cow herd operator liquidates a cow herd over a couple of production seasons. For those couple of years the economic picture looks pretty good. The problem is that in addition to selling the production were also selling the factory. Once the sell off is complete where will the cash flow come from?
Another example may not be quite so obvious. What happens if you put more cattle on a summer pasture than is recommended? The first few years you will see a definite increase in production on each acre of pasture. The total pounds of beef that are raised on each acre will be more and the cost of production on each animal will be less. But after about five years of this you will see a shift in plant species. There will be more brush and scrubby weeds and a lot less grass. The overgrazing has effectively killed out most of the desirable plants. The only way to fix this problem is to remove most or all of the cattle for several years and give the grass a chance to recover while you spend time, money and effort to eliminate the weeds and brush.
If this was a pasture that you were renting for five years, you just quit renting it and move on to greener grass and repeat the cycle. But what about the land owner and the overall cost to the agricultural society. The ecosystem was plundered for short term gain and then left for someone else to clean up. Did the income received pay for the damage repair?
In parts of the corn belt feet of topsoil were literally lost over several decades of erosive farming practices. Now, the farmers have to spend a lot of money on terraces and soil saving measures. Extra fertilizers have to be used to try to make up for the lost inherent productivity of the top soil that washed and blew away. Sure, there were several decades of cheap corn production, but who is paying the price now?
We all know that it is cheaper to prevent a problem than to fix it. But we all seem to look for the short term, cheap way out, leaving the fix to the next generation or someone else, or "the government". Yet are "we" not the government? So who pays? One researcher, who has been following the cleanup of environmental problems, has done their homework and has shown that it often costs ten to one hundred times more to clean up the problem in the future than it would have to prevented it to begin with. It doesnt matter whether it is agriculture, small or big business, urban development or around our own homes, we need to pay more attention to the long term impact. Do we try to save a few dollars now, just so we can spend many times that in the future? Youll have to answer that yourself.
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