Thursday, December 13, 2007

More on Farm Subsidies

I know I've been writing here a lot about farm subsidies (and I'm about to do so again), but I think if we could make some progress on this issue we could go move a long way toward reforming our political process. Farm subsidies, in my opinion, are the most egregious example of corruption in our political process. Politicians of both parties are guilty of pandering to the US farmer for votes at the expense of every non farming American.

I ran across this study by the Cato Institute that is very informative and easy for non economists to understand. The beginning of the article lists 6 reasons that ending farm subsidies would be beneficial:

Ripe for Reform: Six Good Reasons to Reduce U.S. Farm Subsidies and Trade Barriers

by Daniel Griswold, Stephen Slivinski, and Christopher Preble

Daniel Griswold is director of the Center for Trade Policy Studies, Stephen Slivinski is director of budget studies, and Christopher Preble is director of foreign policy studies at the Cato Institute.

Executive Summary

U.S. agricultural policies have remained fundamentally unchanged since the 1930s. Today the U.S. government continues to subsidize certain farm commodities through direct price supports and tariff rate quotas that limit imports. Americans pay a high price for this ongoing government intervention in agricultural markets.

Reducing farm subsidies and trade barriers would benefit Americans in six important ways. One, reform would deliver lower food prices to tens of millions of American households, especially lowincome families that spend a large share of their income on food. Last year U.S. farm programs transferred $16.2 billion from U.S. food consumers to producers.

Two, reform would lower costs for U.S. industries, such as confectioners and other food processors, that use agricultural commodities in their final products and would promote trade negotiations to open markets abroad for U.S. exporters.

Three, reducing farm subsidies would save U.S. taxpayers tens of billions of dollars during the next decade. Many of those subsidy payments currently go to large farms and agribusinesses, not to smaller "family farms."

Four, agricultural reform would enhance the environment by reducing the amount of top soil lost and damaging fertilizers and pesticides used by American farmers. It would liberate farmland to be used for reforestation, recreation, and other more environmentally friendly purposes.

Five, agricultural reform would benefit farmers themselves by promoting production of crops that are in demand by consumers. Farm reform would stimulate innovation and productivity gains on the farm and promote more economic diversity and dynamism in rural communities.

Six, lower farm trade barriers would raise incomes of farmers in poor countries, reduce global poverty, create a more hospitable climate abroad for U.S. foreign policy, and enhance U.S. security.

Congress and the president should seize the opportunity presented by the Doha Round negotiations of the World Trade Organization and the next reauthorization of the farm bill to fundamentally reform U.S. agricultural policy.

If we could end farm subsidies, it would move us a good deal closer to the goal of truly free trade. The benefits to the country and all Americans is obvious.

Cato also has a plan to get rid of the subsidies in a way that should limit the political damage:

Agricultural policy in the United States is interventionist, expensive, inequitable, and damaging to American interests abroad.Over the last 20 years, the opportunity cost to American consumers and taxpayers of supporting agricultural producers has totalled over $1.7 trillion.The harm to agricultural producers abroad, including many developing countries, does not help U.S. foreign policy. American intransigence over reducing farm subsidies is a significant impediment to a successful conclusion to the Doha round of world trade talks. It is time for the government to get out of the business of managing agricultural markets and supporting the incomes of farmers, many of whom are relatively well-to-do.

Removing barriers to agricultural imports will provide cheaper food for consumers and inject competition and dynamism into agricultural markets. Democrats took Congress partly by criticizing fiscal irresponsibility. Dismantling farm income support programs is a perfect opportunity to make good on the promise to make changes for the better.

Because the first-best solution of completely ending farm programs as of September 30, 2007--with no compensation or transition payments--is politically infeasible, we advocate that the government buy out the damaging and expensive support for farmers by paying them a fixed amount of money, which they would be free to spend as they wish. Although it would require large up-front outlays, a politically expedient buyout of agricultural subsidies and trade barriers, with concrete steps to ensure the changes are permanent, would be a worthwhile investment. The 2007 Farm Bill provides an opportunity for less government interference with rural America.

Some might say this is just throwing good money after bad, but if we could do this once and be done with farm subsidies forever, it would be worth it.

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