A Case Against Farm Subsidies

This is the article I wrote for Mike Friddle's Blog: http://homestead-friddle.blogspot.com/


OVERVIEW

In a country, that despite massive debt, government programs seem to be ever growing. The government seems set in the policy of continuing status quo and trying to use centralized planning to run our nation’s economy. If history has shown us anything it’s that in a highly competitive market that industrialists love to turn to the government to protect themselves from competition and give themselves an advantage and agriculture is no exception.

Each year the USDA pays out between $10 billion and $30 billion is cash subsidies to farmers and farmland owners. These account for over 800,000 people, however, the largest producers receive the most in benefits.

Federal subsidies in agriculture have a long history although subsidies were relatively small up until the 1920's. The majority of subsidies came in the form of doing research and statistics for the industry. Yet, as part of FDR ingenious idea known as 'The New Deal,' farm subsidies grew to include commodity price supports and production controls, marketing orders to limit competition, import barriers, and crop insurance. Agriculture was in no way the only industry to be heavily regulated in the 30’s, but unlike agriculture many other industries have been deregulated and have seen great success.

Today farmers represent a small portion of the population but they still have a very strong lobby. One reason is that farm-state legislators have co-opted the support of urban legislators, who seek increased subsidies in agriculture bills for programs such as food stamps. Legislators in favor of environmental subsidies have also been co-opted as supporters of farm bills. Unfortunately the support for the common tax payer isn’t near as strong.

This industry welfare program is especially costly to tax payers. Since it consists largely of government actions to hold up the price of crops, it is paid for partly by taxes and partly by higher food prices. Higher food prices have the effect of a regressive tax, since poorer people spend a larger proportion of their income on food.

The game that the government plays with farm subsidies is a vicious cycle. Subsidies induce farmers to overproduce, which pushes down prices and creates political demands for further subsidies. Subsidies inflate land prices in rural America. And the flow of subsidies from Washington hinders farmers from innovating, cutting costs, diversifying their land use, and taking the actions needed to prosper in a competitive global economy.

EXAMPLES OF SUBSIDIES

Recently, direct payments have been among the largest form of subsidies. Direct payments are cash payments for producers of: wheat, corn, sorghum, barley, oats, cotton, rice, soybeans, minor oilseeds, and peanuts. Direct payments were intended to be transitional, a way to wean farmers from old-fashioned price guarantee programs. Unfortunately, direct payments have not been reduced over time as originally planned. Direct payments are based on a historical measure of a farm’s acres used for production and are NOT related to current production or prices. The Washington Post estimated that between 2000 and 2006 the USDA handed out $1.3 billion in direct payments to people who don’t farm. The newspaper pointed to thousands of acres of land previously used for rice growing in Texas.

Marketing Loans were created as a part of the New Deal. They were meant to be, like most farm subsidies, to be a temporary solution however they still exist 70 years later. Marketing Loans create a price floor for crops (same ones covered in direct payments). Price floors in agriculture and all industry creates incentive for producers to overproduce. Under the program, farmers take loans with their crops as collateral. This allows farmers to keep the loan and forfeit their low value crop. Tax payers are then stuck with the loan cost and the cost to store the crop. Farmers don’t receive subsidies from the marketing loan program only when crop prices are low, they have become experts at working the system to maximize their subsidies every year. Farmers can lock in high government benefits when seasonal prices are low, and then sell their crops when market prices are higher.

Countercyclical Payments are a classic example of agriculture receiving special protection that most industries don’t, and shouldn’t, receive. Countercyclical payments are basically a price guarantee which allows for over production because farmers are receiving a payment that is higher then what the market allows so they will produce more then what the market allows.

My personal favorite subsidy is Conservation Subsidies. The largest conservation subsidy program is the Conservation Reserve Program, which was created in 1985 to idle millions of acres of farmland. Under CRP, farmers are paid not to grow crops, but to cultivate ground cover such as grass or trees on retired acres. A large share of land idled under the CRP is owned by retired farmers, thus one does not even have to be a working farmer to get these subsidies. In Idaho, Shoshone Bannock Tribe was the 2nd largest recipient of farm subsidies in 2009. Shoshone Bannock Tribe received $510,364 in total payments $503,629 was in Conservation Subsidies. In 2009 Shoshone Bannock Tribe received over half a million dollars to do absolutely nothing!

REASON TO REPEAL

Farm subsidies are a clear example of redistribution of wealth. In this case it’s distributing wealth from less income to more income. The average farmer income is higher than the average American’s income. Ten percent of all farmers collected 74 percent of all subsidies. Top 10% based on size of producer received $29,675 average per year between 1995 and 2009 while the bottom 80% receive $579 average per year between 1995 and 2009. The largest recipients of these subsidies are the largest producers. The myth that these program are meant to help the small farm just doesn’t hold water.

Farm subsidies hurt the overall economy. In most industries, prices are set by the balance of supply and demand. Profits signal invest opportunities while downturn results in innovation and cost cutting. However these market mechanisms are not found in a government controlled industry like agriculture. As a result, federal agricultural policies produce substantial “deadweight losses” and reduced U.S. incomes. What does result is overproduction, overuse of marginal farmland, and land price inflation.

Like all government subsidies programs, farm subsidies are prone to waste and scandal. Farm programs are subject to bureaucratic inefficiencies, recipient fraud, and congressional pork-barrel politics. The Government Accountability Office found that as much as half a billion dollars in farm subsidies are paid improperly or fraudulently each year. Farmers create complex legal structures to get around legal subsidy limits. Another reason why large producers receive a disproportionately high amount of subsidies is because they have the recourses to get through the legal hoops that the small producer doesn’t have.

Farm subsidies damage U.S. trade relations. U.S. and European farm subsidies and agricultural import barriers are a serious hurdle to making progress in global trade agreements. Free trade helps global economic stability and security. "If goods don’t cross borders, soldiers will." The World Trade Organization estimates that even a one-third drop in all tariffs around the world would boost global output by $686 billion, including $164 billion for the United States.

Farming would see great success without subsidies. It is true that agriculture would change with the repealing of farm subsidies. Different crops would be planted, land usage would change, and some farms would go bankrupt. However a stronger and more innovative industry would likely emerge having greater resilience to shocks and downturns. It’s important to remember that commodities that are covered by subsidies only account for about 36% of all production. Most farm production isn’t even currently eligible for subsidies and they still strive within a free market. Agriculture has change a lot since the days farm subsidies were established. USDA figures show that only 38 percent of farm households consider farming their primary occupation. So the majority of farm households earn the bulk of their income from non-farm sources which creates financial stability. An interesting example of farmers prospering without subsidies is in New Zealand. That nation ended its farm subsidies in 1984, which was a bold stroke because the country is four times more dependent on farming than is the United States. The changes were initially met with fierce resistance, but New Zealand farm productivity, profitability, and output have soared since the reforms. New Zealand’s farmers have cut costs, diversified their land use, sought nonfarm income, and developed niche markets such as kiwifruit.

In my opinion it has become obvious that it is time to largely cut government programs to help fix our problems in this country and I think agriculture subsidies and trade barriers are a clear place to start

Your Papers, Please

The majority of this blog was taken from comment I left on my brother's facebook wall:

There are a few points I'd like to make. I don't think we can blame "illegals" for wanting to improve their socio-economic status. I think any of us would do the same things in a similar situation for ourselves or our families. Many are making the argument "I don't care if they're here just come legally" well the problem with that is it requires a lot of time and resources to become a legal citizen that many of these people don't have. I don't think you can say that majority of these people are coming here with the intention of dealing drugs. (if you truly want to control drugs make them legal but thats another discussion). Saying that they bring more crime is a racial assumption that has been shown to be incorrect. Whites of the same socio-economic status are just as likely if not more likely to commit a crime. Its a problem that arises from poverty not race.
There is also discussion on there impact on the economy and also the job market. According to Raul Hinojosa, PhD, Associate Professor of Chicana and Chicano Studies at the University of California at Los Angeles: First and foremost, [illegal immigration] it's a source of value added. The total goods and services that they consume through their paycheck, plus all that they produce for their employers, is close to about $800 billion. They're also producing at relatively lower costs because the undocumented population typically gets about 20% less in wages than if they were legalized. That leads to lower prices for us and higher profits to employers. The fact of the matter is "illegals" don't steal jobs from Americans they compete for them. Illegal immigrants often benefit businesses by filling low-wage jobs that are difficult to fill with Americans. In this sense immigration reform can be view has protectionism. Last argument I hear on immigration is "they get welfare, health benefits, etc without paying taxes" The answer to this is simple: End all entitlement programs for citizens or non citizens.
Now for arizona SB 1070: The problem here is that it WILL definitely lead to racial profiling.
The law requires Arizona police to demand the immigration papers of any individual when "reasonable suspicion" exists that he or she might be illegal. If the police fails to do so, the law empowers bystanders to sue. But since "reasonable suspicion" won't involve presenting actual evidence before a judge to obtain a court order, the police will inevitably have to make snap judgments based on external features. This means that, unless Arizona deploys officers who are blind and deaf, they won't stop blue-eyed blonds who "speak American." Indeed, anyone who claims the law won't lead to racial profiling is in denial or just plain lying. Also I have a problem with requiring residents to prove their lawful status to authorities on demand. Now the Arizona Republican establishment's effort to foist a German-style "your papers, please" immigration policy on its residents and that doesn't seem very "american" to me. No matter where you stand on immigration SB1070 is not the answer. Check out this video:
The audio sucks here is a link to a better version http://www.youtube.com/watch?v=6ejrM1wR6Ow

DEA, F#CK YOUR WAR!!!

Ask me a few years ago what I thought about drug prohibition and the War on Drugs and I would have told you, as the statist Republican I was, that I was all for it. But I was dumb and naive. I bought into the myth that people need laws and force in their lives or they die! The video I posted is a better illustration of why repealing drug prohibition is something that is necessary in a free society then what I could do. But a few thoughts: I work as a Probation Assistant and on a very micro-scale I see how drugs effect these kids. These are good kids, the majority of them aren't hurting anyone. The only reason they are a burden to society is because we make them to be. I mean most of them just want to get high with their friends but we treat them are criminals instead of helping them. Its time to get rid of the nanny state in America. We need to quit waste time on victim-less crimes like non-violent drug use. If we genuinely want to end the drug problem, which I'm not convinced we do, we need to end the War on Drugs and allocate our resources to actually help these people not treat them as criminals.

There is no place for racism and gender discrimination in a free market

I think the thing that I love most about "libertarianism" or "anarcho-capitalism" or "Austrian economics" is the emphasis on the individual. Not only the idea of individual rights but fact that it isn't your race or your country or the group of people you associate yourself with that makes you great;its you! The idea that market judges you solely on your merits. In a free market there no need to force companies to hire a set number of a certain group of people. The market naturally presents incentives for companies to hire the best person, despite his or her race. The Wall Street Journal reported that a group of big corporations such as American Airlines, DuPont, and General Mills has just agreed to spend $30 million to hire minority- and women-owned law firms as outside counsel. Are these large companies doing this because of some kind of government incentive? No actually, its due to the fact that "hiring minority- and women-owned firms, whose billable rates don’t always match up with the white male-owned top Big Law shops, might yield cost savings. This makes moral sense, and it makes business sense. Many of these firms are noted for their creativity, resourcefulness and cost-effectiveness.” They hired these firms with the belief that they can do the work more efficiently then other firms. Liberal and other people that push for things such as affirmative action sell themselves as being these great open-minded defenders of minorities while acting as if things were left to the free market that only white males would be hired. In reality liberals are the ones putting emphasis on race not the free market. In fact liberals at times treat minorities as if they were children that need their helping hand through this scary racist world. I truly believe that any individual has the opportunity in this country to become successful. Businesses in a free market have nothing to gain from excluding groups of people however the market does create punishment to those that are without the need of laws. The market punishes through the lose of revenue that could have been earned by hiring the best person for the job or maybe a even greater punishment would be the lose of business due to bad PR. If I, like most people, knew that a company was blatantly racist I would make sure not to do business with that company. The more I learn about free market the more I am amazed at its ability to solve any problem. There will always be those people that judge groups unfairly but in this day and age the affect that they have on the world in extremely minimal and true believers in a free market have no concern for your race, gender, religion or sexual orientation.

About the Blog

I guess I am becoming a blogger. I decided to do this to give myself a forum (other then facebook) to express my views, mostly my political views and also just views on the world around me. As you may be able to tell from the title of the blog its going to be "libertarian" in nature. The title is a dumb variation from the Sex Pistols song title "Anarchy in the UK", give me a break it was all I could come up with. I will also post random shit about sports, music and other things going on in my life but I do not want it to become a personal diary. So we will see what happens and hopefully someone will actually read it.