Monday, July 24, 2006

Talk about gluttony

The Washington Post came Friday with an excellent editorial on the reckless orgy of farm subsidies:

"It's long been clear that the lion's share of the $20 billion-plus in annual farm payments has gone to rich farmers who don't need the cash; that the payments promote environmental damage; and that they harm farmers in poor countries. But even with the most cynical view of politics, in which you assume that these substantive problems with farm programs don't count, there's still something of a mystery. Sure, the farmers who pocket the cash will vote for whoever provides it. But farmers are a tiny minority of the electorate. Why doesn't the majority, which pays for all this waste, rise up in revolt against the sheer gluttony of it?"

Partly a lack of awareness. The public tolerates egregious pork projects and energy subsidies too, mainly thanks to the opposition's political ineptitude. But I think that farm subsidies have an aura that offers them an additional degree of protection. Language plays the chief role: the word "farm" evokes halcyon images of families settling the Midwestern prairie, migrants revelling in the dream of landownership. My entire family hails from North Dakota—this isn't distant for me.

Today, alas, most farms are massive corporate enterprises, bilking billions from unsuspecting taxpayers. It's difficult to see how subsidies actually preserve family farms: to my knowledge, they're not designed to provide comparative advantage to the little guy. The benefits they offer American agriculture are, in fact, much smaller than the price tag indicates.

This is Economics 101. A subsidy will increase production beyond what is economical, inflating supply and pushing down prices. Once the market reaches equilibrium, farmers do earn more—taxpayers are, after all, writing huge checks—but their benefit isn't nearly as sizable as the checks' size would imply. Where does the rest of the money go? Into the recesses of the market. Artificial misallocation of resources creates what Econ 101 professors like to call a "deadweight loss."

Not convinced that a deadweight loss is bad? Take a sip of soda. Our government has two blatantly protectionist policies—sugar quotas and corn subsidies—that have made "high-fructose corn syrup" practically omnipresent. Without government interference, real sugar actually costs less than corn syrup. So your soda is:

1. Less tasty
2. More expensive (those subsidy checks come from your pockets)
3. Making you even fatter than it otherwise would.

I call this bad policy.

1 comment:

Anonymous said...

excellent extension of deadweight loss to high-fructose corn syrup. that would be a good image for taxpayers to associate with needless subsidies!