#862: Big Government Cheese That time we accidentally created a cheese surplus so large it had to be stored in a ginormous cave.
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#862: Big Government Cheese

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#862: Big Government Cheese

#862: Big Government Cheese

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KENNY MALONE, HOST:

So you know how to milk a cow by hand?

ANDY NOVAKOVIC: Oh, yeah. Oh, yeah. Yeah.

KAREN DUFFIN, HOST:

Andy Novakovic spent his summers as a kid working on his grandparents' dairy farm in Wisconsin.

MALONE: Andy is still in the dairy world. He is now a dairy economist at Cornell University.

And what percentage of economists would you say are able to milk a cow by hand?

NOVAKOVIC: Well, probably, you know, close to a hundred percent are able.

MALONE: (Laughter).

NOVAKOVIC: But 99.9 percent wouldn't have the foggiest clue how to get started.

DUFFIN: In the pantheon of milk-related economic disasters, there is one that rises above the rest. And Andy had a ringside seat to it.

MALONE: This is one of those slow-moving train wrecks that you can see coming from a mile away.

DUFFIN: It was 1976. Jimmy Carter was running for president. And he started floating this idea.

(SOUNDBITE OF ARCHIVED RECORDING)

JIMMY CARTER: Now, although I am a farmer, I'm not in favor of guaranteeing farmers a profit. But I am in favor of giving farmers an equal break.

MALONE: One of the ways Carter proposed giving farmers an equal break was to raise the price of milk by about 6 cents per gallon, which was kind of a lot at the time.

NOVAKOVIC: Yeah. It certainly was on the edge of that. It was a big enough number that it sounded like one of these campaign promises that you really didn't expect they would actually fulfill.

MALONE: So a campaign promise - that's what we call those.

NOVAKOVIC: Yeah, there you go.

DUFFIN: This was not just political pandering. There is an argument that our country has to be able to produce its own food because if our farmers go out of business and we become reliant on other countries for food, then that is a kind of national security risk.

MALONE: And so our country has a tradition of programs to help farmers. But what Andy Novakovic knew is that it's one thing to provide stability, it is another to step into the market in a big way at maybe the wrong time because playing with price controls is playing with fire.

DUFFIN: Nevertheless, when Carter got elected, he goes all in.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #1: The retail price of milk is going up more than 6 cents a gallon - soon. It's going up because the government...

MALONE: And do you - you hear of it. And do you, like, smack your forehead? Oh, boy - here we go.

NOVAKOVIC: It was pretty hard to predict that it would get as bad as it got. But every instinct I had said, oh, this - I'm not so sure this is going to work out so well.

(SOUNDBITE OF FREDERIC AUGER'S "SUNBURN")

DUFFIN: Hello. And welcome to PLANET MONEY. I'm Karen Duffin.

MALONE: And I'm Kenny Malone. Today on the show, the story of what happened when the president of the United States decided he was going to help America's farmers by buying milk, lots of milk.

DUFFIN: It is a case study in what happens when price controls run full speed into the realities of the market.

MALONE: There will be a cave in Kansas City, a van down by the river and a touching exchange between Martha Stewart and Snoop Dogg.

(SOUNDBITE OF TV SHOW, "MARTHA AND SNOOP'S POTLUCK DINNER PARTY")

SNOOP DOGG: Yeah, government cheese?

MARTHA STEWART: Where do you buy government cheese?

SNOOP DOGG: You don't buy it. You've got to be on they special mailing list.

(SOUNDBITE OF FREDERIC AUGER'S "SUNBURN")

MALONE: So it's 1977. Jimmy Carter has announced his plan to help farmers. And Congress is like wait - no, we also love the farmers. And so they pass a law saying that they want the price of milk to go up automatically every six months.

DUFFIN: It's one thing for politicians to say, we want the price of milk to go up. But the government then actually has to figure out a way to step into this market and make it happen.

NOVAKOVIC: So it's fundamental economics.

MALONE: Again, our dairy economist Andy Novakovic.

NOVAKOVIC: You've got two levers you can pull on. You can do something to make demand greater, or you can do something to make supply less. Either one should get you a higher price.

DUFFIN: Lever 1, lower the supply - you could do what they do in Canada and say - hey, no more milk - you can only produce so much milk.

MALONE: But this is America. We don't do milk quotas - no Lever 1.

DUFFIN: OK. Lever 2, more demand - you could try to convince the public that they want to drink more milk.

MALONE: Doesn't it look delicious?

DUFFIN: Right?

MALONE: Don't you want a glass?

DUFFIN: OK. The easier solution - maybe - the government could just start buying a ton of milk themselves.

MALONE: Yeah. This was generally the approach that we would use to support other kinds of farm industries. The government would buy up, say, massive amounts of corn or wheat and then just throw it into a silo until we needed it for some reason.

DUFFIN: But that does not work for milk because milk starts going bad the minute it comes out of the cow. It's also mostly water, so you've got to haul it around in those, like, gas tankers.

NOVAKOVIC: The federal government wouldn't have the foggiest idea what to do with tanker loads of milk. What would the government do if you drove this into downtown Washington and said, here you go? So the clever folks at USDA said, what if we went down the supply chain one step...

MALONE: Aha.

NOVAKOVIC: ...And looked at dairy products that are storable?

DUFFIN: So the basic question was, what kinds of milk products can the government buy and store?

NOVAKOVIC: Butter was one, nonfat dry milk and cheese - and in particular, cheddar-type cheese.

MALONE: So to raise the price of milk, the government basically opened up the world's largest cheese shop - you know, and powdered milk and butter, too.

NOVAKOVIC: So the way this program works, literally, is the federal government puts out a piece of paper that says, we will buy as much cheese, butter or nonfat dry milk as you want to sell to us at these prices. Our operators are standing by. Let us know.

DUFFIN: The USDA figured out that if they paid about 39 bucks for a 40-pound block of cheese, then it would have this ripple effect. Government buys more cheese. Cheese-makers buy more milk. And the resulting demand just pushes the price of milk up.

MALONE: The government is creating a price floor. And in order to do this, they have to be willing to buy all of the cheese that anybody wants to sell them at this price.

DUFFIN: And if you're a cheese seller and you hear this - that someone is going to buy your cheese at this high price - you're like, well, I'm going to sell them my crappiest cheese at that price. So to prevent this, the government said, look - if we're going to buy your cheese, first, you have to meet with Bob.

BOB ASCHEBROCK: Yes. I started in 1967 with the USDA, and I was hired as a cheese grader.

MALONE: You were hired as someone to show up with a metal thing...

ASCHEBROCK: Not - no, no, no. A grader, where you do quality checks on it.

MALONE: This must be a common confusion in the industry.

ASCHEBROCK: Yeah - a grader, yeah.

MALONE: Bob Aschebrock was one of the government's cheese graders. He spent 30 years testing and tasting cheese for the United States government.

DUFFIN: Yes, this is a real job. It sounds amazing.

MALONE: Are you pretty annoying to eat cheese with? Like, are you the most picky cheese-eater in your group of friends?

ASCHEBROCK: I am absolutely not. I...

MALONE: Oh.

ASCHEBROCK: ...Will eat any cheese. In fact, if you see my shape, you would know that I eat enough to keep the tank full.

MALONE: (Laughter).

DUFFIN: Bob's job was to make sure that all of the cheese met USDA grade A cheddar standards - the right moisture level, the proper shade of yellowish-orange, the correct flavor profile.

MALONE: So if you wanted to sell cheese to the government, Bob would show up with this, like, hollow rod called a cheese trier.

ASCHEBROCK: And you insert it in through the block or the barrel or whatever. And you turn it, and you pull out a core of cheese.

MALONE: A little core sample of cheese?

ASCHEBROCK: Yeah.

MALONE: Ooh.

ASCHEBROCK: And that's what you grade. And there are 17 flavor defects that could happen in cheddar cheese. I can tell you what we had to reject it for - flat, bitter, yeasty, malty, old milk, fruity...

MALONE: Fruity?

ASCHEBROCK: Yeah.

MALONE: That seems great.

ASCHEBROCK: It tastes like apples.

MALONE: That sounds lovely. You don't want that?

ASCHEBROCK: Nope. Metallic, sour, whey taint, weedy, onion, barny, lipase and sulfide.

MALONE: And you can taste all of those things in a piece of cheese?

ASCHEBROCK: You betcha.

MALONE: Bob says the No. 1 flavor defect he had to look out for was acidity. A teeny bit was allowed but not too much.

Anyway, the government had its plan in place. It was ready to start buying cheese. And it took a few years, but a flood of cheese starts to come in.

DUFFIN: So much cheese that Bob starts having to spend more and more time on the road because he has to actually go to the cheese to grade it.

MALONE: He and his colleagues are drowning in cheese. And they go to their bosses. And they're like, we need more cheese graders. And so they try to hire more cheese graders.

ASCHEBROCK: I traveled 39 states, and I was gone as long as 10 weeks at a time doing that. So getting people to do it was always a challenge. The young people do - they say, well, I can't go out with a girl or I can't go out with a guy because I'm on the road all the time.

MALONE: Who's got time for dating when you're traveling around eating cheese everywhere?

ASCHEBROCK: Well, I think cheese eating is better than dating sometimes.

MALONE: I don't disagree with you.

ASCHEBROCK: (Laughter).

MALONE: I don't disagree with you.

DUFFIN: More graders grading more cheese that the government then buys.

ASCHEBROCK: But then we had the issue of storing the stuff. I mean, every warehouse in Wisconsin was full. All our area around here - everybody had cheese. Even the beverage distributors, they had cheese in the storage. I mean, we had cheese in every cold storage in the United States, including the caves in Kansas that were full of that stuff.

MALONE: The caves in Kansas?

ASCHEBROCK: Yeah, the underground caves.

MALONE: The government of the United States of America had caves full of cheddar cheese.

DUFFIN: And when news gets out that the government is filling a cave with cheese, the press goes nuts because this is exactly what people think of when they think of a government program gone awry. Like, this is the original bridge to nowhere.

MALONE: This is a cave full of cheese in Kansas City.

(SOUNDBITE OF FLIGHT ANNOUNCEMENT)

UNIDENTIFIED FLIGHT ATTENDANT: Ladies and gentlemen, Delta Connection would like to welcome you to Kansas City, where the local...

MALONE: I had to. Karen, I had to.

DUFFIN: Of course you did.

MALONE: (Shouting) Hello.

I am currently about 35 feet underground in an old converted limestone mine that is the size of 120 football fields.

(Shouting) Government cheese.

That was pretty good. You don't do that, huh?

DAN CALLAHAN: No, I've never thought about it.

MALONE: Yeah, it probably gets old.

This is Dan Callahan. He's been working here since the 1970s, since the cheese debacle. And he tells me, these were never government-owned caves. But one day, the government rented out a ton of cave space, and then cheddar cheese started to show up, massive blocks of the stuff, pallet after pallet. In fact, he remembers the exact room it went into.

(SOUNDBITE OF DOOR MOVING)

MALONE: Oh, yeah.

We walk inside. There are these massive columns, and it looks like something the "Lord Of The Rings" dwarves built. And it is also very cold - good for the government cheese, though.

CALLAHAN: So it'd be all the way to the ceiling.

MALONE: How high is the ceiling?

CALLAHAN: So you'd be - it's 17 feet, 16 feet.

MALONE: Dan says that the cheese took up about half an acre of space.

So just wall-to-wall, floor-to-ceiling...

CALLAHAN: Floor-to-ceiling - and then as you kept filling it, you just worked your way right back out.

MALONE: Until there was no more room for you to be in this room.

CALLAHAN: Right.

DUFFIN: By the early 1980s, the dairy support program was costing taxpayers around $2 billion a year. The government was buying 1 in every 4 pounds of the country's cheddar cheese. They actually had to rent out space in multiple caves. At one point, the government was storing two pounds of cheese for every single American citizen.

MALONE: By this point, Jimmy Carter was out of office. And the Ronald Reagan team was stuck dealing with these caves full of cheese. And not all of it was aging well. There was an incredible press conference where Agriculture Secretary John Block went before reporters and held up a giant hunk of cheese like it was a national emergency.

(SOUNDBITE OF PRESS CONFERENCE)

JOHN BLOCK: You see that cake of cheese? We've got 60 million of these that the government owns with mold. It's deteriorating. We can't find a market for it.

DUFFIN: Finding a market for this stuff is in fact a pretty fascinating puzzle because getting rid of government surplus anything is an economically tricky thing.

NOVAKOVIC: Exactly. So the thing that the government was concerned about is what's called commercial displacement.

MALONE: Again, economist Andy Novakovic. And he says the government could not just release a flood of surplus cheese onto the market because it would crush cheese producers.

NOVAKOVIC: As you can imagine, the cheese company that's in the business of selling cheese is going to say - hey, what's the deal here? You took away my customers. This is, you know, important to me.

MALONE: So this leaves a couple of options. You could destroy the surplus, but that looks pretty bad.

DUFFIN: Or you can try to get your surplus goods to people who were not going to buy it anyway. And thus, you won't be flooding anyone's market.

MALONE: When we have a surplus of grain or soy or even powdered milk, we can send that stuff overseas as part of foreign aid.

DUFFIN: But cheese just doesn't travel well. So the government gave a bunch to schools, then to the Army. But this was not putting even a dent in the surplus. So they created a brand-new special program to give the cheese away through food banks.

MALONE: The idea was that if you give this food to people who suffer from food insecurity, then maybe it is going to go to somebody who wasn't going to buy cheese anyway so you're not hurting the market as much.

DUFFIN: But the problem, Andy says, was that a lot of this was not easy-to-give-away cheese. There were 40-pound blocks and 500-pound barrels.

NOVAKOVIC: So you can imagine, you know, you don't just kind of roll down one of these barrels down Seventh Avenue in New York City and say, anybody want some cheese?

MALONE: (Laughter) And you just have a big knife.

NOVAKOVIC: Yeah. There you go. Help yourself.

MALONE: So instead, the cheddar cheese was processed - that helps it keep longer - and then it was repackaged in two and five-pound, like, bricks.

DUFFIN: And this is what people will remember as government cheese because when a government starts to give away hundreds of millions of pounds of cheese, people notice.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #2: The great cheese giveaway began today in California. San Francisco is one of three cities in which needy people lined up to get the surplus cheese.

MALONE: This footage is amazing - just massive crowds of people being handed bricks of cheese. And it's the most government packaging you will ever see - just, like, brown cardboard, some black USDA stamps on it.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER #2: A state official estimated 300,000 people will get a taste of today's cheese.

DUFFIN: It is this moment that government cheese truly enters the American bloodstream. As we unloaded the caves full of this stuff, government cheese started to show up everywhere - food banks and schools, military mess halls.

MALONE: For a lot of people who grew up in the 1970s and '80s, you cannot overstate how influential government cheese became.

(SOUNDBITE OF TV SHOW, "SATURDAY NIGHT LIVE")

PHIL HARTMAN: (As character) Matt, we're ready for you.

MALONE: Many listeners may remember "Saturday Night Live's" Matt Foley, as played by Chris Farley, the world's worst motivational speaker.

(SOUNDBITE OF TV SHOW, "SATURDAY NIGHT LIVE")

CHRIS FARLEY: (As Matt Foley) I'm here to tell you that you're going to end up eating a steady diet of government cheese and living in a van down by the river.

DUFFIN: Government cheese starts to show up in all kinds of popular culture.

MALONE: A short story by Junot Diaz.

(SOUNDBITE OF ARCHIVED RECORDING)

JUNOT DIAZ: Clear the government cheese from the refrigerator. If the girl's...

MALONE: Government cheese also shows up in tons of songs.

(SOUNDBITE OF SONG, "F.U.T.W.")

JAY-Z: (Rapping) After that government cheese, we eatin' steak.

(SOUNDBITE OF SONG, "EVERYDAY")

G. DEP: (Rapping) Can't buy trees with government cheese.

(SOUNDBITE OF SONG, "GHETTO")

SNOOP DOGG: (Rapping) And we ghetto like a [expletive] hot buttered toast in the mornin' with some government cheese.

DUFFIN: But maybe government cheese's most surreal moment came on a television show where Martha Stewart cooks stuff with Snoop Dog.

(SOUNDBITE OF TV SHOW, "MARTHA & SNOOP'S POTLUCK DINNER PARTY")

STEWART: I'm a suburban girl.

SNOOP DOGG: Martha's never had a bite of government cheese in her life.

STEWART: Where's the knife?

UNIDENTIFIED PERSON: That's government cheese. You need a hacksaw.

(LAUGHTER)

MALONE: Government cheese became a symbol of a crappy government handout. And to be fair, it was processed cheese kind of like a brick of Velveeta. But remember; the raw ingredients were grade A cheddar cheese, some of it personally certified by Bob Aschebrock.

ASCHEBROCK: It was 10 times better than - I hate - you know, Velveeta is OK. It's got its flaws.

MALONE: OK. OK. We're not here to make fun of Velveeta.

ASCHEBROCK: I'm not running down Velveeta, but I'll tell you, the government processed loaf was 10 times - 100 times better. It was - some of it almost taste like natural cheddar. I mean, it was really, really good product.

DUFFIN: This is why there is also a community of people who are still obsessed with government cheese - Internet chat boards trying to find something comparable, restaurants claiming they have a recipe for it.

MALONE: At one point, Donnie Wahlberg of the New Kids On The Block said, quote, "there's nothing like it. The way it melts for a hamburger - there is nothing better."

(SOUNDBITE OF NEW KIDS ON THE BLOCK SONG, "YOU GOT IT (THE RIGHT STUFF)")

MALONE: Karen's doing the dance. Karen's doing the dance.

DUFFIN: (Laughter) That's right. But here is why government cheese has become a kind of parable of how government intervention in markets can have this, like, butterfly effect. In 1976, Jimmy Carter got on a stage and said something seemingly innocuous.

(SOUNDBITE OF ARCHIVED RECORDING)

CARTER: But I am in favor of giving farmers an equal break.

MALONE: And then within five years, the government was spending billions of dollars filling caves with cheese that they could not get rid of fast enough.

NOVAKOVIC: Well, I think there's two basic lessons.

MALONE: Again, economist Andy Novakovic.

NOVAKOVIC: One is it's really hard to balance what you want to do socially or politically with what you can get away with economically. The second lesson is you got to pay attention to the unintended consequences because they can come back and bite you and bite you hard.

MALONE: Even if that bite just looks like some delicious cheese.

NOVAKOVIC: (Laughter) Well, that was the unintended consequence that was fun, but the bite came in terms of how much it cost for that opportunity.

MALONE: Right. Very, very expensive cheese.

NOVAKOVIC: Indeed.

DUFFIN: After the break - how the government finally got out of this mess and why the government may be getting back into the cheese game.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

MALONE: The government cheese caves started to empty out. The guaranteed milk price, which had been going up automatically every six months, was eventually frozen. But that does not mean the government had fixed the problem.

DUFFIN: The thing about price controls is that once you start them, they are really, really hard to unwind.

NOVAKOVIC: So we have, you know, this immense surplus, and now you have the political problem. How do we - how do we get this cat out of the tree?

MALONE: The government asked economists, including Andy Novakovic, to figure out how it could get out of the cheese buying business without devastating the farmers they were trying to help in the first place.

DUFFIN: This is a basic supply-and-demand problem. The government was demanding an unnatural amount of milk and so farmers were supplying an unnatural amount of milk.

MALONE: One part of the solution then was to gently get that milk supply down.

NOVAKOVIC: To persuade farmers to produce less. We literally paid them money to stop producing milk.

MALONE: That did some good. And then on the other side, the government tried to replace some of their artificial demand for milk with new real demand for milk.

DUFFIN: Like, hey, people of America, wouldn't you like to drink more milk?

MALONE: (Laughter).

NOVAKOVIC: We took a small amount of money from every dairy farmer, collected on every pound of milk they sold, and we created the National Dairy Board. But this is what gave us, you know, the got milk and the milk mustache and all those kind of iconic programs that we remember.

MALONE: That is right. Jimmy Carter's campaign promise to help farmers in 1976 not only gave us government cheese but also milk mustaches.

DUFFIN: With a few other programs and some time, things eventually got under control, and the government put the milk support program on a kind of permanent suspension. So these days, if the government wants to help farmers, what you'll generally hear about are direct subsidies as opposed to buying cheese.

MALONE: Yes. The government has tended to stay away from buying cheese as a solution. That is, until last month.

(SOUNDBITE OF ARCHIVED BROADCAST)

AUDIE CORNISH, BYLINE: The White House is coming to the aid of farmers hurt by its own hard-line trade policies. The Trump administration says today it will make an estimated $12 billion in government assistance available.

MALONE: The Trump administration announced that in order to help farmers being hurt by Trump's tariffs, the government may be making some food purchases again.

DUFFIN: Just this week, we finally learned some of the details. There is currently about $85 million earmarked to buy dairy and distribute it to places like schools and food banks.

MALONE: Now, to be fair, that's probably not enough to start filling caves again. But there is a chance that the government may be in the business of government cheese again. To the cheese cave.

(SOUNDBITE OF FREDERIC AUGER'S "SUNBURN")

MALONE: Today's episode was produced by Alexi Horowitz-Ghazi, Nick Fountain and Rhaina Cohen.

DUFFIN: Our supervising producer is Alex Goldmark, and our editor is Bryant Urstadt.

MALONE: You can see pictures of the cheese cave. It is huge. There are literally train tracks leading into it. It can fit a train car. You just have to follow us on Instagram. We are @planetmoney.

DUFFIN: You can also follow us on Twitter and Facebook - also @planetmoney. I'm Karen Duffin.

MALONE: I'm Kenny Malone. Thanks for listening.

(SOUNDBITE OF FREDERIC AUGER'S "SUNBURN")

ASCHEBROCK: Now, I'm not sure if you know - if you've ever seen a 500-pound steel barrel of cheese.

MALONE: No.

ASCHEBROCK: There is a bung - what they call a bunghole up on the top. It's only about a 3-inch-in-diameter hole. We use to plug through that bunghole to get our sample. Well, we got some real crafty guys that started putting 40-pound blocks of special cheese right under the bunghole. I mean, there was all kinds of tricks that you - that we had to be looking for.

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