Too Big to Fail: The Agriculture Rackets

Remember 2008 and the meltdown in the financial sector? We heard the phrase “too big to fail” enter the political lexicon. It even led to a popular political movement- the Tea Party. The argument was that once the Federal government started to bail out banks with taxpayer money, it would open the spigot of federal intervention in other sectors of the economy that may not be doing so great. Sure enough, the domestic auto industry sought and received a federal bail out. To justify that bank bail out, President Bush said he had to abandon free market principles to save the free market. Would it surprise anyone to learn that this has been going on since the 1930s in the form of “farm bills?”

Today’s farm bills are the progeny of New Deal legislation passed in response to the indisputable fact that farming had become a victim of its own success. Through technology and trade (we fed Europe after World War I), US farms were so productive that there was a glut of food that caused farm commodity prices to drop. The government intervened by paying farmers not to grow crops in order to raise the cost of those products and, thus, increase farm income. At least after World War II, the agricultural excess was purchased by the government and redistributed in the form of the school lunch program. Certainly, it was not a perfect system, but better than the 1930s solution which still exists today in the form of subsidies and price supports.

Other writers here at Redstate have done an excellent job at exposing the weaknesses of the current legislation. They have also chronicled the politics of this bill. In reality, this “farm” bill is a huge political pork project- much like any transportation bill- that, upon closer inspection, has very little to do with protecting farms, conservation, or trade than it has to do with SNAP- the new name for food stamps. As everyone should know, greater than 80% of the spending in this bill is attributable to food stamps. Many here have rightfully pointed the finger at Obama and the Democrats here, but some of the blame needs to placed on Bush since it was he who relaxed some of the eligibility requirements for food stamps. In a previous series of articles in an unrelated area, I argued that the school lunch program should be run more like a Medicaid program- a federal/state one- and moved to the Department of Education. Likewise, it would make intuitive sense to move the Food Stamp program out of the Agriculture Department and into HHS.

CBO estimates of the bill’s cost are around $980 billion over 10 years. Of course, the CBO estimates become less reliable the further one goes out in time and that unreliability is generally not in favor of cost cutting. The sponsors argue that over ten years, the bill will save $23.6 billion, a whole less than 2.5% of the total. Is that what we now use as a measuring stick for debt reduction- a less than 2.5% improvement?

The current bill expires on September 30th. Unlike expiration of the Bush tax cuts and other alleged apocalyptic expirations, allowing the current bill to expire while a new, improved, modern one is implemented will not cause the collapse of the agricultural industry in the United States. In fact, as the Heritage Foundation notes in a June 7th, 2012 article about this farm bill: “The tangle of corporate welfare, price controls, and import restrictions are downright perverse in an era of record-high farm income and a record-low ratio of farm debt.”

No doubt, farming can be a risky business subject to the whims of nature and consumer demand. It is interesting to note as proof that these farm bills may not be necessary that 61% of farms- those that produce the majority of farm products- receive no subsidies and do quite well. Subsidies enrich the producers of grains, oilseeds, cotton, milk and sugar. They ignore most other commodities. If your farm income exceeds $250,000 a year, there is an 80% chance you will receive a government subsidy. If less than $250,000- say, your “family farm-” you have only a 24% chance. Parading family farmers before Congress to exploit their plight is certainly headline grabbing, but also disingenuous.

In 2011 alone, net farm income was $98.1 billion- the highest year on record. In 2012, projected income is $91.7 billion, its second highest year on record despite the country being covered two-thirds in a drought. Because farming is capital-intensive, debt is a fact of life on farms, but there is clearly a large degree of solvency. In terms of debt ratio, 2012 is looking to be the best year in forty, largely due to increasing land prices. In fact, the larger farms- those best positioned to repay debt- are the one carrying the bulk of the farm debt burden. Ironically, this is the whole idea behind farm subsidies in the first place.

The US maintains a system of agricultural stations that can be easily be run at the state level. Many states have agricultural services that overlap with the federal ones. This is unnecessary today. We pay 2-4 times more for sugar than consumers in other countries. The current tariff rate on “excess” imports is 62% for sugar. According to the International Trade Commission, sugar quotas alone cost the US economy $49 million per year. For every job saved in the sugar industry, three are lost in the confectionary industry according to the Department of Commerce. How can using the word “jobs” in the bill’s title be used with a straight face?

In 2009 and 2010, the USDA subsidized more than 22,000 renewable ENERGY projects. Don’t we have a Department of Energy for this? And this does nothing more than artificially increase the demand for corn. Because there is now a government incentive to plant and grow corn, other crops are sacrificed which explains why the soybean yield is down and prices are up.

It is one thing to attack the current and past farm bills, but what are the alternatives? There are free market solutions such as futures contracting and hedging. Believe it or not, it done with all commodities and the airline industry uses it to great advantage to manage fuel costs. Programs that encourage crop diversification to limit risk is another worthy program. Private insurance for crop failure- not a government monopoly in the crop insurance market- should be mandatory. Weaning our way off of the current system will be a slow and tedious project. In the interim, farm subsidies need to be limited to those with income under $250,000 with all loopholes plugged. Multiple subsidies should be stopped. The costly permanent disaster aid program needs to be phased out. Members of Congress and their families should be prohibited from receiving subsidies. If farmers fail to purchase crop insurance, they should be barred from receiving disaster assistance. These are only starting points on the road to fundamental reform. And, the food stamp program should not be part of any farm bill.

These farm bills are the nation’s largest corporate welfare program. It cries for reform. We are addressing 2012 reality with programs that date to the New Deal. The only thing needed now is some Congressional backbone. It is not encouraging on this front. There are 16 GOP freshman out of 25 on the House Agricultural Committee. Let’s not even talk about the entrenched other nine. Thirteen of the 16 freshmen voted FOR the farm bill and a breakdown can be found at http://www.cato-at-liberty.org/gop-freshmen-vote-to-move-farm-bill-out-of-committee/. Special kudos to the three who adhered to fiscally conservative principles and voted “NO:” Bob Gibbs (OH), Tim Huelskamp (KS) and Marlin Stutzman (IN). It is a shame that a Congress voted in on the promise of fiscal responsibility has abandoned those principles in two short years.

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