Tag Archives: Farm Bill

9 Farm Bill Figures

In my last post, I made the case that the farm bill (which has now emerged from conference committee and just passed the House) makes an excellent teaching tool.

Many students, of course, are visual learners. So I thought I might suggest a few farm bill figures.

Let’s begin with farm subsidy outlays. These are the most conspicuous privileges afforded farmers. As Veronique de Rugy’s figure below shows, these were around $13 billion per year in the late ‘90s, then surged up to $28 billion in 2000, then settled into annual levels that were about twice their pre-surge levels after that (readers of Robert Higgs will recognize this as a “ratchet” pattern in government growth).

farm-subsidies-chart-original (Click on any image in this post to enlarge it)

The last bar in Vero’s chart shows projected subsidies of about $29 billion in 2014. Another of Vero’s charts, however, suggests that this figure may be optimistic. The chart below shows projected and actual farm bill spending for the last couple farm bills (note: these figures include the entire bill not just subsidies, which is why the numbers are so much larger than those in the previous chart). 

farm-bills-cbo-score-chart-1000

Though subsidies are the most conspicuous privilege afforded to farmers they are by no means the only or even the most important. In addition to cash outlays, farmers also benefit from an assortment of trade barriers (some of which have gotten us into trouble with the WTO), various marketing programs, and artificial price supports. My chart from last week shows how active farm assistance programs have grown over the years (along with farmer incomes):

The chart below by Vero shows how one of these price support programs drives up the price of sugar:

sugar-subsidies-original

As I write in my Mercatus on Policy piece: 

This might seem trivial, but sugar isn’t the only item that is more expensive because of agricultural price supports. The House version of the farm bill imposes artificial price floors on wheat, corn, grain sorghum, barley, oats, long and medium grain rice, soybeans, oilseeds, peanuts, dry peas, lentils, chickpeas, sugar, and dairy products.

Farm privileges are often justified on the common assumption that farming is unprofitable. But this isn’t so. The figure below, taken from Vincent Smith’s paper on the 2013 bill, shows that both median and mean farm household income has exceeded median and mean US household income for more than a decade. Today, the average farm household makes 53 percent more than the average US household:

Farm income

Farm supports are also often justified on the basis that farming is uniquely risky. As Smith explains, though, the business failure rate of the typical American business is 14 times greater than the failure rate of the typical farm. Moreover, as the figure below from his report demonstrates, the agriculture sector’s debt-to-asset ratio is lower than that of other sectors and has been falling for two decades:

Though the average farm has done quite well, it is not the average farm that receives privileges. As demonstrated by Smith’s chart below, since 1995, 83 percent of subsidy payments have flowed to the largest 15 percent of farms:

As I put it in my piece, “Given that these subsidies and price supports distort free market signals and transfer wealth from the relatively poor to the relatively wealthy, one would think they would face bipartisan opposition.” Why, then, do they persist?

This chart by Vero, showing annual lobbying expenditures by the sugar industry is one explanation:

Finally, this chart from my piece shows that political donations tend to be concentrated on those who actually write the bill:

The farm bill: a lesson in government failure

As a consumer and as a taxpayer, the farm bill is a monstrosity. But as someone who teaches public finance and public choice economics, it is a great teaching tool.

Want to explain the concept of dead-weight loss? The farm bill’s insurance subsidies are a perfect illustration of the concept. They transfer resources from taxpayers to farm producers; but taxpayers lose more than producers gain.

Want to illustrate the folly of price controls? Sugar supports which force Americans to pay twice what global consumers pay are a fine illustration.

Want to explain Gordon Tullock’s transitional gains trap? Walk your students through the connection between subsidies and land prices: much of the value of the subsidy is “capitalized” into the price of farmland, meaning that new farmers have to pay exorbitant prices to buy an asset that entitles them to subsidies. This means new farmers are no better off as a result of the subsidies. As David Friedman puts it, “the government can’t even give anything away.” The only ones to gain are those who owned the land when the laws were created. But those who paid for the land with the expectation that it would entitle them to subsidies would howl if politicians tried to do right by consumers and taxpayers and get rid of the privileges.

Want to illustrate Mancur Olson’s theory of interest group formation? Look no further than sugar loans. Taxpayers loan about $1.1 billion to producers every year. Spread among 313 million of us, that is a cost of about $3.50 per taxpayer. And who benefits? Last year just three (!) firms received the bulk of these subsidies, each benefiting to the tune of $200 million. As Olson taught us long ago, the numerous and diffused losers face a significant obstacle in organizing in opposition to this while the small and concentrated winners have every incentive to get organized in support.

Want to show how a “legislative logroll” works? Explain to your students that members representing dairy and peanut interests are statistically significantly likely to vote in the interests of peanut farmers and vice versa.

Want to explain Bruce Yandle’s bootlegger and Baptist theory of regulation? Note that catfish farmers want inspection of “foreign” catfish in the name of safety (the Baptist rationale) when the real reason for supporting additional inspections is self-interested protectionism (the bootlegger motivation).

This week’s lesson is on the power of agenda setters to block even modest reforms. Buried in the dross of privileges to wealthy farmers, both the Senate and the House versions of the bill contained a small glimmer of reform. Both included language capping the amount of subsidies that farmers and their spouses receive at “only” $250,000 per year. Right now, House and Senate conferees are working to reconcile the two versions of the Farm Bill passed this summer. And according to the latest reports, they plan to strip these modest reforms that were agreed to by both chambers.

Unfortunately, kids, this is how modern democracy works.

The farm bill vote gives credence to Democrats’ favorite ‘straw-man’ argument

“Republicans favor tax cuts because they want to give money to rich people.”

I’ve heard this argument, in various forms, for years. And I’ve always considered it one of the worst straw-men arguments in politics (right up there with “Democrats oppose foreign wars because they are anti-American”).

For one thing, there are plenty of good reasons for cutting taxes that do not rest on a desire to give money to rich people. Moreover, it’s a rather Orwellian twist of the English language to say that refraining from taking as much from high-earners is equivalent to handing them money taken from others. More fundamentally, though, I’ve always found it hard to believe that any serious person—Democrat or Republican—actually wants to transfer resources from middle and low-income taxpayers to upper-income taxpayers. This wouldn’t be justified on either efficiency grounds or on any standard theory of social justice.

Then came the July 11 House vote on the Farm Bill.

As I noted in my last post, U.S. Farm Policies—namely subsidies, price floors, and barriers to trade—are roundly opposed by economists of almost all stripes. The reason is that subsidies, price floors, and barriers to trade do exactly what the straw-man argument claims Republicans want to do: they transfer resources from middle-income consumers and taxpayers to upper-income farmers and landowners.

For years the issue has been clouded by the strange combination of food stamps and farm subsidies in a single “farm bill.” As Veronique explained a few weeks ago, this facilitated a logroll:

In their famous book published in 1962, “The Calculus of Consent: Logical Foundations of Constitutional Democracy,” Noble Prize Winner James Buchanan and his co-author Gordon Tullock identified this behavior as logrolling — an agreement between two or more lawmakers to support each other’s bill.

Normally, they wouldn’t support the other’s bill if it weren’t for the support of their own bill. The main consequence of this quid pro quo is more government spending across the board and in this particular case; more farms subsidies and more food stamps spending.

Then, on July 11, a funny thing happened. The Republican leadership split up the two portions of the farm bill and—shockingly, to me at least—put the farm subsidy portion of the bill up for a vote without any amendments.

Then, without the support of a single Democrat, 216 House Republicans voted to use government subsidies, price floors, and barriers to trade to transfer resources from middle income consumers and taxpayers to upper-income farmers and landowners.

I’m not sure what their motivations were, but the vote certainly makes it seem as though the Republicans in Congress who voted for it want to give money to rich people.