The case against U.S. farm subsidies
Serious discussions of fiscal reform are usually dominated by the big ticket items: health care spending, Social Security, and taxes. This is sensible — these are the areas responsible for the vast majority of our budget shortfall. But the efficiency losses from these programs are small relative to their size. When we debate them, we are rightfully concerned over the drag they create on our nation’s productivity through disincentives to work. But the broader question, the one that makes reform difficult, is one of wealth redistribution: How much will we borrow from future generations to finance present consumption, and how much will we take from the rich to give to the poor?
In a sense, the biggest gains from fiscal reform might come not from major programmatic reforms, but from the hundred small cuts to the discretionary budget that eliminate pork and end special interest handouts. Ending these programs doesn’t just help the government move its books into the black, but it grows the national pie by freeing resources from wasteful endeavors so that they can be used more constructively else where.
One such program is agricultural subsidies. This year, farm subsidies, whether they are in the form of direct subsidies, crop insurance, or some support, will total roughly $14 billion, and were even higher in the previous two years.
Farm subsidies have little, if any, raison d’etre. As economic policies, they are terrible — the subsidies do not exist to correct some market imperfection, but rather distort the market away from its efficient equilibrium. As wealth transfer programs, they’re equally bad — since 1995, more than half of the subsidies went to fewer than 4 percent of the nation’s subsidy-receiving farms. And as a national security program, they are a joke: not only is it difficult to conceive of any war-time scenario in which the U.S. would find itself in need of an indigenous food production capability beyond that which the free market would provide, but our sales of agricultural products abroad have not granted us any special leverage over our customers. To the contrary, if anyone benefits from the subsidies, it’s foreign consumers who get to dine on the American taxpayer’s dime. A quote from the Congressional Budget Office: “Unlike tariffs, which tend to harm all countries, subsidies tend to benefit the countries purchasing the subsidized products and to harm the countries granting the subsidies.”
If anything, the farm subsidies work at cross purposes with other policy goals. We subsidize high fructose corn syrup, but then campaign against sodas and sweets. We promote lighter milks as part of a low fat diet, but then spend tens of millions to get people to consume the excess milk fat (in one such program, the government partnered with Domino’s Pizza to hawk a 40-percent-cheesier pizza). We pour millions into combating childhood obesity, but then stock our school lunch programs with the fatty excess from subsidized agricultural yields.
Even if farm subsidies had the hypothetical ability to improve the general welfare, it is clear from their structure that they are nothing more than special interest pork. The vast majority of U.S. farm subsidies are concentrated on just a handful of crops, and some of the most heavily subsidized crops, such as cotton and tobacco, are not food crops at all. A food security program would subsidize a broad swathe of nutritional sources. A wealth transfer program would subsidize the crops of the poorest farmers. A market-fixing program would subsidize crops with positive externalities. Instead, we seem to subsidize two types of crops: those farmed under industrial agriculture, and those grown in the early primary state of Iowa.
It’s not hard to see why agricultural subsidies are persistently difficult to dismantle. The cost of subsidies are spread thin across the taxpaying public — the benefits are concentrated on a wealthy few. A person making an average income will see just $70 of his yearly tax bill go to agricultural subsidies — hardly enough to raise a complaint — but for the industrial farm magnates who are on the receiving end, farm subsidies mean millions in revenue. Over the past 15 years, a single company, Riceland Foods Incorporated, has been given $550 million, courtesy of the American taxpayer.
At $14 billion per year, farm subsidies amount to a mere 1.2 percent of the 2010 deficit, and are just a drop in the red ink of debt that is the U.S. federal budget. But if politicians cannot muster the courage to pick even this low hanging fruit, then there is little hope of more serious reform.