Will the GOP Finally Cut Farm Subsidies?
With trillion dollar deficits and mounting federal debt, will Congress finally get serious about cutting farm subsidies? We’ve been disappointed before, but there are a few hopeful signs—like the front-page story in this morning’s Washington Post—that this Congress may be serious about cutting billions in payments to farmers. As the Post reports:
In their recent budget proposals, House Republicans and House Democrats targeted farm subsidies, a program long protected by members of both parties. The GOP plan includes a $30 billion cut to direct payments over 10 years, which would slash them by more than half. Those terms are being considered in the debt-reduction talks led by Vice President Biden, according to people familiar with the discussions.
The Post story profiles a freshman Republican from Kansas, Tim Huelskamp, a fifth-generation farmer himself, who has been traveling his sprawling district telling his farmer constituents that they can no longer be exempt from budget discipline. Many farmers in his district appear to agree.
It remains an open question whether the Republican freshman class will live up to Tea-Party principles of limited government when it comes to agricultural subsidies, as we have speculated ourselves (here, here, and here) at the trade center.
Farm subsidies have certainly been a weak spot of Republicans in the past. According to our online trade-vote feature, more than half of the GOP House caucus voted in May 2008 to override President Bush’s veto of the previous, subsidy laden farm bill. In July 2007, more than half the GOP caucus voted against any cuts in the sugar program, and more than two-thirds opposed any cuts in cotton subsidies. (Of course, Democrats were just as bad overall on farm subsidies.)
The next farm bill, due to be written by this Congress, will tell us a lot about whether the Republicans really believe what they’ve been saying about limiting government and reducing the debt.
Peterson (Finally) Changes His Tune
I’ve written before about Rep. Collin Peterson’s (D, MN) disdain for the World Trade Organization, and its rulings against U.S. farm programs. However, in launching his 2012 Farm Bill listening tour, the Brownfield blog reports that he sees that perhaps some changes might be necessary after all. And, lo and behold, he cites the WTO rulings as the reason:
One of the key issues [in the 2012 Farm Bill] will be what to do about the way that cotton farmers are subsidized. The committee’s chairman, Rep. Collin Peterson, D-Minn., said today that the cotton program will have to be overhauled in the wake of Brazil’s successful challenge to the subsidies at the World Trade Organization. The Obama administration agreed to change the program in a deal to avert retaliation against U.S. exports to Brazil. [link added]
Subsidies for cotton currently mirror those for corn, soybeans, wheat and other commodities, but there’s no reason why they have to be the same for each crop in the future, said Peterson. “In the past we’ve tried to have a one-size-fits-all approach, but maybe that’s not the case in the future. I’m willing to consider that,” he said. “If we don’t address it, we may be back in the soup again with potential retaliation issues.” [emphasis mine]
Finally, the penny drops.
Obama Commands the Impossible
Today’s New York Times reports that President Obama has “ordered the rapid development of technology to capture carbon dioxide emissions from the burning of coal,” as well as mandating the production of more corn-based ethanol and financing farmers to produce “cellulosic” ethanol from waste fiber.
You’ve got to like the president’s moxie. Faced with his inability to pass health care reform and cap-and-trade, he now chooses to command the impossible and the inefficient.
Most power plants are simply not designed for carbon capture. There isn’t any infrastructure to transport large amounts of carbon dioxide, and no one has agreed on where to put all of it. Corn-based ethanol produces more carbon dioxide in its life cycle than it eliminates, and cellulosic ethanol has been “just around the corner” since I’ve been just around the corner.
However, doing what doesn’t make any economic sense makes a lot of political sense in Washington, because inefficient technologies require subsidies–in this case to farmers, ethanol processors, utilities, engineering and construction conglomerates, and a whole host of others. Has the president forgotten that his unpopular predecessor started the ethanol boondogle (his response to global warming) and drove up the price of corn to the point of worldwide food riots? Hasn’t he read that cellulosic ethanol is outrageously expensive? Has he ever heard of the “not-in-my-backyard” phenomenon when it comes to storing something people don’t especially like?
Yeah, he probably has. But the political gains certainly are worth the economic costs. Think about it. In the case of carbon capture, it’s so wildly inefficient that it can easily double the amount of fuel necessary to produce carbon-based energy. What’s not to like if you’re a coal company, now required to load twice as many hopper cars? What’s not to like if you’re a utility, guaranteed a profit and an incentive to build a snazzy, expensive new plant? And what’s not to like if you’re a farmer, gaining yet another subsidy?
Conrad: Just Don’t Cut My Programs!
Prompted by my blog on Senator Kent Conrad’s Task Force to reduce the federal deficit, my assistant Amy Mandler dug up some interesting information on the good senator.
Conrad has nurtured his image as a “deficit hawk” for decades, but when it comes to subsidies for millionaire farmers he demands that the federal gravy keep flowing.
Earlier this year, for example, President Obama proposed cutting one type of farm subsidy (“direct payments”) for farmers earning over $500,000 a year. I suspect that about 95 percent of Americans would support that tiny nod toward fiscal sanity and deficit reduction. But not Senator Conrad, who helped shoot the proposal down. See here and here.
Hell Freezes Over (Or At Least Gets Cooler)
Well here’s an interesting, if three-weeks-old, story. Apparently the North Dakota Farm Bureau’s annual convention recently passed a policy calling for the elimination of all agricultural programs. Reading between the lines of the original press release indicates that the call was part of a broad political position by the NDFB to move away from government intervention in many areas of the economy apart from farm programs, including cap-and-trade and health care:
“As people in this country expect more from the government and less from themselves, our delegates are urging everyone, including farmers, to step away from the public trough and get back to the principles of individual responsibility and initiative,” said NDFB President Eric Aasmundstad….
The only way government can get money is to take it from its citizens. We don’t believe raising taxes to pay for health care or climate change will help our country get out of our economic slump or even improve health care or the environment. And the more they take, the less we have to find the innovative solutions to the problems we face.
He sounds like a Catoite.
To what extent the NDFB’s position flows through to the rest of the farm lobby remains to be seen, so hell hasn’t quite frozen over yet. But this is positive news. At the very least it spells sweet, sweet trouble for long-time free trade nemesis and farm bill supporter Sen. Byron Dorgan (D), who is up for reelection next year.
HT: Chris Edwards.
The Land Is There, the Cubans Are There, but the Incentives Are Not
The Washington Post has an interesting story today on the program of the Cuban government to transfer idle state-owned land to private farmers so they can resurrect the dilapidated agricultural sector on the communist island. As Ian Vásquez and I wrote in the chapter on U.S. policy toward Cuba in Cato Handbook for Policymakers, before this reform, the agricultural productivity of Cuba’s tiny non-state sector (comprising cooperatives and small private farmers) was already 25 percent higher than that of the state sector.
At stake is an issue of incentives. Collective land doesn’t give farmers an incentive to work hard and be productive, since the benefits of their labor go to the government who distributes them (in theory) evenly among everyone, regardless of who worked hard or not. While with private property, “The harder you work, the better you do,” as a Cuban farmer said in the Post story.
The country’s ruler, Raúl Castro, recently declared that “The land is there, and here are the Cubans! Let’s see if we can get to work or not, if we produce or not… The land is there waiting for our sweat.” However, it’s not a matter of just having land and lots of people. It’s also a matter of incentives to produce. Failing to see this, as in the case of Cuba’s failed communist model, is a recipe for failure.
Breaking: Economics 101 Still in Effect
Dairy farmers are working lobbying hard to ensure they get their hands on more of your money. Apparently, changes made last year to the Milk Income Loss Contract — mainly to take account of rising feed costs — were not enough to stem the losses.
The Senate recently voted to give the USDA an extra $350 million for dairy farmers’ support. The House left dairy support out of its appropriations bill, so the two chambers are working on the compromise now (prediction: the taxpayer will get screwed).
Here’s an ironic quote from a Brownfield news post yesterday (linked to above). It’s Missouri Dairy Association Chairman Larry Purdom on how to bring prices back up:
“Our feeling is that if [USDA] would buy some cheese and product that’s in storage…hanging over our heads, depressing prices,” Purdom tells Brownfield from his farm at Purdy, Missouri, “we feel like the prices would start moving on their own if we didn’t have this surplus.”
More on U.S. dairy policy here.
New Senate Agriculture Committee Head Received Farm Subsidies
In his blog post yesterday — appropriately entitled “Congressional Conflict of Interest“ — my colleague Chris Edwards questioned the selection of Sen. Blanche Lincoln (D-Ark.) to head the Senate Agriculture Committee:
Lincoln has been “a tireless advocate for the Arkansas rice industry’ and a ‘champion for agriculture.” You can see what 20 or so other agriculture lobby groups say about Lincoln here. These are very laudatory remarks, but what about the taxpayers? What do taxpayers think about her support for the $20 billion or so in annual giveaways to farmers?
I wonder what taxpayers think about the fact that Senator Lincoln and her family have received hundreds of thousands of dollars in farm subsidies?
From a 2007 USA Today article:
Members of Congress must report sources of income totaling more than $200, but most get payments through partnerships or other entities, so it can be difficult to learn which ones receive the subsidies. Recipients are searchable by name on www.ewg.org, but, for example, payments to Sen. Blanche Lincoln, D-Ark., are listed under her maiden name, Lambert, at a Virginia address near Washington. Records show Lincoln and her family members collected $715,000 from 1995-2005, the most recent year complete data are available. She said she personally received less than $10,000 a year, and the subsidies ended in 2005 when her land was sold.
Let’s say I force a stranger under threat of imprisonment or violence to part with part of his or her paycheck, and proceed to give that money to a friend. I would rightly be labeled a thief or worse. Suppose I not only gave the money to my friend, but kept a cut for me and my family. That would be even worse.
But when politicians do it we call them “public servants”?
Congressional Conflict of Interest
It looks like farm subsidy reform is unlikely for another few years. Senator Blanche Lincoln has been selected the new head of the Senate Agriculture Committee. Dow Jones notes: “Lincoln is a two-term moderate Democrat who described herself Wednesday as a ‘farmer’s daughter.’”
Lincoln has been “a tireless advocate for the Arkansas rice industry” and a “champion for agriculture.” You can see what 20 or so other agriculture lobby groups say about Lincoln here. These are very laudatory remarks, but what about the taxpayers? What do taxpayers think about her support for the $20 billion or so in annual giveaways to farmers?
I’m guessing that Lincoln will put the interests of subsidy-receiving farmers in her state ahead of the interests of the nation’s taxpayers, given that Arkansas ranks seventh out of the 50 states in terms of farm subsidies received yet has a small population.
This sort of pro-spending bias on committees is common across Congress of course. I’ve argued that one step toward getting the House and Senate to make to more rational and frugal trade-offs on spending would be mandatory random committee assignments every two years. It’s absurd that generally the only people overseeing farm programs are people who are in the bag for farmers. It’s an obvious conflict of interest.
It would be much better if we had one of the senators from, say, Rhode Island chairing the Agriculture Committee, because that state receives less farm subsidies than any other. A Rhode Island senator would be more likely to dispassionately balance the trade-offs of the $20 billion or so of pain imposed by taxes to support farm subsidies with the benefits of farm subsidies (if any).
About That Vision Thing…
Does the world need a “shared vision on food and agricultural trade policy”? So says World Trade Organization Director General Pascal Lamy:
Let me start by saying that food and agricultural trade policy does not operate in a vacuum. In other words, no matter how sophisticated our trade policies may be, if domestic policies do not themselves incentivize agriculture, and internalize negative social and environmental externalities, then we will always have a problem.
Here I question what exactly Lamy means by “incentivize”. Does he mean “make sure we get incentives right”, or does he mean “provide positive incentives to agriculture”? The former probably is harmless if it means simply allowing market forces to work, the latter a potential opening for the types of subsidies and price supports that have done so much damage to agricultural trade policy. Ditto with his wish to “internalize negative social and environmental externalities”: on the face of it, this is a fairly inoffensive goal, and a positively noble one if he is referring to, say, the effects on poor farmers abroad stemming from rich country farm subsidies. But I can see all sorts of nefarious social policies flowing from that prescription if it gets into the wrong hands.
Lamy goes on to make sensible points about the effects of tax policy on agriculture, and makes this statement about the importance of free trade for food security:
To my mind, global integration allows us to think of efficiency beyond national boundaries. It allows us to score efficiency gains on a global scale by shifting agricultural production to where it can best take place. As I often say, if a country such as Egypt were to aim for self-sufficiency in agriculture, it would soon need more than one River Nile. Which basically means that global integration must also allow food, feed, and fibre to travel from countries where they are efficiently produced to countries where there is demand.
All necessary, if not sufficient, conditions for global food security, to be sure. But Lamy then turns to exactly what a global vision for agriculture might involve:
I believe that we could all agree on what the basic objectives are that we seek from our agricultural systems. We all want sufficient food, feed, fibre and some even want fuel. We want nutritious food and feed. We want safe food and feed. We want a decent and rising living standard for our farmers. We want food to be available and affordable for the consumer. We want agricultural production systems that are in tune with local culture and customs, and that respect the environment throughout a product’s entire life-cycle.
Hmm. I’m not sure about all that. For one thing, some of those goals seem potentially in conflict. United States sugar policy, for example, has shown us the results when consumers’ desire for “affordable” food conflicts with sugar farmers’ desire for a “decent and rising living standard” (hint: it’s not the consumers who make out like bandits). Similarly, it is at least conceivable that food grown “in tune with local culture and customs” might be more expensive, or make food less abundant, or even less safe. And if those goals can be in conflict within a country’s borders, I shudder to think what such an overburdened agenda could do to the already-struggling global trading system. At the extreme, a call for a “global vision” of agricultural trade policy could see the return of international commodity agreements and other supranational management nightmares of the mid-late 20th century.
On balance, the WTO has been a force for good in freeing agricultural trade. For sure, commodity markets are still very distorted, and the whole mercantilist basis of the WTO must be questioned. But by trying to harness the desire of exporters for more customers to counteract the pressure on governments to protect domestic industries, the WTO has done much good in the world. Pascal Lamy is right to encourage countries to stay on course with the Doha round of trade negotiations. I just hope that encouraging a “global vision” for agriculture, and pointing to vague notions of “social externalities,” doesn’t run against his stated purpose of freeing farm trade.
More on Cato’s work on agricultural trade policy here.
The War in Afghanistan Is about to Turn Nastier
While Iraq’s security situation has been improving–though the possibility of revived sectarian violence remains all too real–the conflict in Afghanistan has been worsening. The challenge for allied (which means mostly American) forces is obvious, which is why the Obama Administration is sending more troops.
But the administration risks wrecking the entire enterprise by turning American forces into drug warriors.
American commanders are planning to cut off the Taliban’s main source of money, the country’s multimillion-dollar opium crop, by pouring thousands of troops into the three provinces that bankroll much of the group’s operations.
The plan to send 20,000 Marines and soldiers into Helmand, Kandahar and Zabul Provinces this summer promises weeks and perhaps months of heavy fighting, since American officers expect the Taliban to vigorously defend what makes up the economic engine for the insurgency. The additional troops, the centerpiece of President Obama’s effort to reverse the course of the seven-year war, will roughly double the number already in southern Afghanistan. The troops already fighting there are universally seen as overwhelmed. In many cases, the Americans will be pushing into areas where few or no troops have been before.
Through extortion and taxation, the Taliban are believed to reap as much as $300 million a year from Afghanistan’s opium trade, which now makes up 90 percent of the world’s total. That is enough, the Americans say, to sustain all of the Taliban’s military operations in southern Afghanistan for an entire year.
“Opium is their financial engine,” said Brig. Gen. John Nicholson, the deputy commander of NATO forces in southern Afghanistan. “That is why we think he will fight for these areas.”
The Americans say that their main goal this summer will be to provide security for the Afghan population, and thereby isolate the insurgents.
But because the opium is tilled in heavily populated areas, and because the Taliban are spread among the people, the Americans say they will have to break the group’s hold on poppy cultivation to be successful.
No one here thinks that is going to be easy.
Indeed.
The basic problem is that opium–and cannabis, of which Afghanistan is also the world’s largest producer–funds not only the Taliban, but also warlords who back the Karzai government and, most important, the Afghan people. The common estimate is that drugs provide one-third of Afghanistan’s economic output and benefit a comparable proportion of the population. Making war on opium inevitably means making war on the Afghan people.
The Global Economy Is Not Immune to Swine Flu
World governments should be careful not to play politics with the Mexican swine flu outbreak. The health consequences should of course be rigorously addressed—but without adding economic consequences, which is what several countries appear poised to do.
Public health scares have a history of seeping into trade policy without anything resembling sufficient consideration of the evidence. Governments in Russia and East Asia are already banning pork exports from Mexico, even though there is zero evidence that they pose a health hazard. It hearkens back to unfounded bans of U.S. beef in recent years by the European Union and South Korea.
If the U.S. government jumps on board, U.S. exports could be targeted for retaliatory trade actions. One quarter of U.S. pork production is exported, as well as billions of dollars of our soybeans used as feed by foreign hog farmers.
Exploiting this crisis could turn what is so far a manageable health problem into an unnecessary trade and diplomatic conflict. Obviously the global economy does not need the extra strain.
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