# Federal subsidies to industries: explain why they make sense **URL:** \ **Category:** Great Debates\ **Created:** [June 28, 2010, 8:12pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834 "2010-06-28T20:12:05Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Sitnam](https://avatars.discourse-cdn.com/v4/letter/s/6a8cbe/32.png) [@Sitnam](https://boards.straightdope.com/u/Sitnam)\ **Post date:** [June 29, 2010, 2:08pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/21 "2010-06-29T14:08:47Z")
> [@Eonwe](#): > > Is it just that no one wants to be the bad guy when it comes to American Jobs and American Industry, or is there something vital about such handouts that I haven’t grasped yet? It can be an incredibly powerful social engineering tool. For instance, the technology for clean energy exists but cannot compete with fossil fuels in price, subsidies and taxes can equalize market forces the create an industry that couldn’t exist otherwise. Why is this good? Consider Japans auto and electronic sector: Post WWII Japan had no automotive or electronic industry to speak of, worse, they had no raw materials of their own. The expertise wasn’t there but even if it was it cost so much to import pig iron from the US, build the car, then send it to the US that even mediocre American cars could win in market share. The government decided on a business plan and subsidized large corporations who lost money every year for decades. The result was over time the expertise developed to out match American products in quality and base cost and established them as a dominant world trading partner. I’m not saying this is what we should do, just that ‘handouts’ can work. Just certainly not the way we’ve been doing it. ---
**Author:** ![emacknight](https://avatars.discourse-cdn.com/v4/letter/e/3ec8ea/32.png) [@emacknight](https://boards.straightdope.com/u/emacknight)\ **Post date:** [June 29, 2010, 2:19pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/22 "2010-06-29T14:19:33Z")
> [@Sitnam](#): > > It can be an incredibly powerful social engineering tool. For instance, the technology for clean energy exists but cannot compete with fossil fuels in price, subsidies and taxes can equalize market forces the create an industry that couldn’t exist otherwise. > > Why is this good? Consider Japans auto and electronic sector: > > Post WWII Japan had no automotive or electronic industry to speak of, worse, they had no raw materials of their own. The expertise wasn’t there but even if it was it cost so much to import pig iron from the US, build the car, then send it to the US that even mediocre American cars could win in market share. The government decided on a business plan and subsidized large corporations who lost money every year for decades. The result was over time the expertise developed to out match American products in quality and base cost and established them as a dominant world trading partner. > > I’m not saying this is what we should do, just that ‘handouts’ can work. Just certainly not the way we’ve been doing it. This. There are also industries like recycling where some money can be made, but not unless government gets involved to make the whole thing work. If I had to pay a separate fee to have recycling collected at my house I probably wouldn’t. Instead, it’s paid for through my property taxes. ---
**Author:** ![shiftless](https://avatars.discourse-cdn.com/v4/letter/s/e9c0ed/32.png) [@shiftless](https://boards.straightdope.com/u/shiftless)\ **Post date:** [June 29, 2010, 2:23pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/23 "2010-06-29T14:23:26Z")
I could grip all day about individual farm programs and odd farm practices but the basic idea, that the government wants to have a strong, robust food supply, is sound I think. Ideally we would produce exactly as much of each food item that each person is going to want in a year but that just isn’t practical. Gov suppport means that there is always a surpus of everything, everywhere. Probably overkill but nobody can say that Americans aren’t some of the best feed people on the planet. If you want to complain about pork, big, fat piles of it, then you want to take a look at the defense budget. Its a wonder anyone can even see the rest of the budget around those huge rolls of pork fat. ---
**Author:** ![aruvqan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aruvqan/32/2891_2.png) [@aruvqan](https://boards.straightdope.com/u/aruvqan)\ **Post date:** [June 29, 2010, 4:33pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/24 "2010-06-29T16:33:02Z")
> [@emacknight](#): > > Farming is a tricky beast: you plant a bunch of stuff and hope for a good year. But if you have a good year and produce a lot of stuff, so did everyone else. So market forces drive down the price. The only way to make more money is to plant more, but so will everyone else, again market forces drive the price down. > > Where there is a bad year, and the prices happen to go up, you don’t have anything to sell. So you go broke and can’t produce anything the next year. And that is why they invented crop insurance. Repeat after me _crop insurance_. It covers stuff like drought, grasshoppers, flood, fire, hail. Hell, it might even cover crop circles if you have it written in by the underwriters. My grandfather didn’t lose the family farm, he didnt run out and get that fancy tractor and new eqippment that some fancy salesman was trying to sell farmers, so he didnt run out and get a bank loan, putting the farm up as collateral. He kept using his old tractor, a pair of horses named Ginger and Sammy. He did club up with other farmers in the area and pay some guy who _had_ bought a big reaper/combine to come out and do the hay fields and the corn and wheat when the services were offered. If people are fiscally responsible, and do things like save money instead of going out and getting expensive new toys, and saving money, and getting insurance then stuff like the Black Wind, and the farm house and barn burning, and your wife and daughter being injured badly in the fire wont make you lose the farm. choosing to be a farmer is a hard decision, it is difficult to make a good living at it. But it can be done. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [June 29, 2010, 4:40pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/25 "2010-06-29T16:40:35Z")
> [@penultima\_thule](#): > > You’ve gotta love the selective quotations > From the same cite: > 54.4% of US farms are smaller than 100 acres > 59.8% of US farms have sales less than $10k > > That would seriously stretch any definition of a viable, working farm. They are hobby farms, country lifestyle, rural retreats and “our five acre in the country weekender” plots. > And these don’t get production subsidies because they are producing nothing. Never let it be said that I ignore [facts that don’t fit my argument](http://www.ers.usda.gov/AmberWaves/November07/DataFeature/). > [@](#): > > Small farms, however, account for only a very small share of total farmland. Farms with fewer than 50 acres operated less than 2 percent of all farmland in 2002, while farms with more than 1,000 acres operated two-thirds of all farmland. So let’s use big farms as the economic model here. (Parenthetically, 1,000 acres is a good dividing line, because that’s about the most a single row-crop farmer can take care of using modern equipment and practices, without having to bring in more than minimal, temporary, help.) The fact remains that [production agriculture is largely not very profitable.](http://www.agecon.ucdavis.edu/extension/presentations/files/blank/farm_household_profit_performance.pdf) (PDF. See slides 4 and 5, in particular.) Indeed, [most of the value of a farm comes from the land it’s on, not the production.](http://www.agecon.ucdavis.edu/extension/presentations/files/blank/agricultural_profits_and_farm_household_wealth_-_a_farmlevel_and_crosssectional_analysis.pdf) (PDF) And most of that value comes from land near urban areas, where the competition for land (keep it in farming, sell it for a subdivision, sell it for a shopping mall, etc.) drives up the average price for all farmland. However, in much of the Midwest and Great Plains (the middle of Kansas, for example) there isn’t much competition for land use, which makes it harder to even make a profit from selling out. My conclusion is that without some kind of subsidy, even large, “corporate” farms would be constantly on the brink of bankruptcy. > [@Xan](#): > > No farm of any size should be getting subsidies. Two questions, **Xan**. Are you opposed to any subsidy for any business under any circumstance? If not, why should farms be singled out for no subsidies? And if the only way for even large, corporate farms to survive is by charging more for their products, where do you think the breakeven point will be in higher food prices? And how much more are you prepared to pay for food to ensure that its production remains profitable? ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [June 29, 2010, 8:25pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/26 "2010-06-29T20:25:11Z")
Well the reason the farm subsidy is so popular here in DC is because farm states tend to be overrepresented in congress relative to population and the farm state legislators attach the food stamp program to the bill that provides the farm subsidies. One argument I have heard is that food independence is vital to national security, the best real answer is that there are some state economies that depend on farming that is simply not competitive with the farming in Guatemala. ---
**Author:** ![penultima\_thule](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/penultima_thule/32/3833_2.png) [@penultima\_thule](https://boards.straightdope.com/u/penultima_thule)\ **Post date:** [June 29, 2010, 9:46pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/27 "2010-06-29T21:46:43Z")
> [@kunilou](#): > > The fact remains that [production agriculture is largely not very profitable.](http://www.agecon.ucdavis.edu/extension/presentations/files/blank/farm_household_profit_performance.pdf) Primarily because it produces surpluses of what the market doesn’t want. > [@](#): > > Indeed, [most of the value of a farm comes from the land it’s on, not the production.](http://www.agecon.ucdavis.edu/extension/presentations/files/blank/agricultural_profits_and_farm_household_wealth_-_a_farmlevel_and_crosssectional_analysis.pdf) (PDF) And most of that value comes from land near urban areas] And the largesse from the public purse goes to sustain a retirement property deal for those leaving the industry. That’s, like real powerful arguments for your tax dollars at work via the US Farm Bill. > [@](#): > > And if the only way for even large, corporate farms to survive is by charging more for their products, where do you think the breakeven point will be in higher food prices? Your premise is wrong. Increasing prices on their current products is not the only way to viability. With an open market, you’ll find world parity prices are either below or well below where they are now. In a protected market, well you can titrate that to be precisely as much as the market will bear. ---
**Author:** ![Xan](https://avatars.discourse-cdn.com/v4/letter/x/ac8455/32.png) [@Xan](https://boards.straightdope.com/u/Xan)\ **Post date:** [June 29, 2010, 9:49pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/28 "2010-06-29T21:49:05Z")
> [@kunilou](#): > > Never let it be said that I ignore [facts that don’t fit my argument](http://www.ers.usda.gov/AmberWaves/November07/DataFeature/). > > So let’s use big farms as the economic model here. (Parenthetically, 1,000 acres is a good dividing line, because that’s about the most a single row-crop farmer can take care of using modern equipment and practices, without having to bring in more than minimal, temporary, help.) > > The fact remains that [production agriculture is largely not very profitable.](http://www.agecon.ucdavis.edu/extension/presentations/files/blank/farm_household_profit_performance.pdf) (PDF. See slides 4 and 5, in particular.) > > Indeed, [most of the value of a farm comes from the land it’s on, not the production.](http://www.agecon.ucdavis.edu/extension/presentations/files/blank/agricultural_profits_and_farm_household_wealth_-_a_farmlevel_and_crosssectional_analysis.pdf) (PDF) And most of that value comes from land near urban areas, where the competition for land (keep it in farming, sell it for a subdivision, sell it for a shopping mall, etc.) drives up the average price for all farmland. However, in much of the Midwest and Great Plains (the middle of Kansas, for example) there isn’t much competition for land use, which makes it harder to even make a profit from selling out. > > My conclusion is that without some kind of subsidy, even large, “corporate” farms would be constantly on the brink of bankruptcy. > Two questions, **Xan**. > > Are you opposed to any subsidy for any business under any circumstance? If not, why should farms be singled out for no subsidies? > > And if the only way for even large, corporate farms to survive is by charging more for their products, where do you think the breakeven point will be in higher food prices? And how much more are you prepared to pay for food to ensure that its production remains profitable? I’m against all business subsidies. ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [June 29, 2010, 9:50pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/29 "2010-06-29T21:50:58Z")
Corn subsidies are terrible for small farmers. Since the Butz subsidy regime, they are payable proportional to yield. This naturally drives down the price and forces farmers into a technological arms race to maintain or even increase their yields. This arms race increases small farmer indebtedness. The benefit naturally flows to large agribusiness, since the subsidy regime keeps the price of raw materials in the toilet. Some consumer products may be cheaper, but we have to fund the subsidies, too. It is not a net benefit to the consumer. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [June 30, 2010, 2:17am UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/30 "2010-06-30T02:17:53Z")
> [@penultima\_thule](#): > > And the largesse from the public purse goes to sustain a retirement property deal for those leaving the industry. > > That’s, like real powerful arguments for your tax dollars at work via the US Farm Bill. The average age of farmers is steadily increasing. Right now it’s about age 57. If farming is such a sweet retirement deal, how come more farmers aren’t taking advantage of it. > [@](#): > > Your premise is wrong. Increasing prices on their current products is not the only way to viability. With an open market, you’ll find world parity prices are either below or well below where they are now. In a protected market, well you can titrate that to be precisely as much as the market will bear. I’m not sure I follow you here, but I’m willing to be educated. How about a link to something that explains it in more detail. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [June 30, 2010, 5:11am UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/31 "2010-06-30T05:11:33Z")
> [@penultima\_thule](#): > > If the excess was somehow brought to a central point, put into a ginormous pile and ceremonally burned each year then the public would see how much waste their taxes are buying. This is already occurring every year, every month, every week, every day. It’s called [ethanol made from corn](http://scholar.google.com/scholar?q=ethanol+subsidy). [Even the base price for basic food items](http://www.technologyreview.com/energy/18173/?a=f) (beyond corn) are on the increase because so much corn is being removed from food production. The public hasn’t made the connection, in terms of tax dollar subsidies nor food price increases. > [@](#): > > Would also be an enviromental disaster exceeding by some magnitude the Gulf oil spill. Apples v oranges. Unless you define your terms, this sound more like Reagan’s comment that we should cut down all the trees because of the air pollution they generate is more damaging that auto pollution. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [June 30, 2010, 5:14pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/32 "2010-06-30T17:14:13Z")
Federal subsidies to industries like farming or steel or whatever make sense for the same reason Universal Health Care make sense. ---
**Author:** ![mlees](https://avatars.discourse-cdn.com/v4/letter/m/ba8739/32.png) [@mlees](https://boards.straightdope.com/u/mlees)\ **Post date:** [June 30, 2010, 5:52pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/33 "2010-06-30T17:52:25Z")
> [@Xan](#): > > I’m against all business subsidies. In between WW1 and WW2, England allowed it’s shipbuilding industry to stagnate. When the war started, England found itself unable to meet the sudden demand for ships of all types (cargo, combat). Not only were the number of shipyards low, but the number of skilled shipwrights low. Fortunately, it’s good relations with the U.S. allowed it to obtain it’s needs from American shipyards (eventually). But it was still a stressfull period of touch and go. It’s possible that the lesson to be learned from that is that a nation’s strategic industry (including agriculture) should not be allowed to stagnate below a certain level. Deciding what that level should be, of course, is going to answer whether or not the current level of [U.S. farm] subsidizing is necessary. ---
**Author:** ![Xan](https://avatars.discourse-cdn.com/v4/letter/x/ac8455/32.png) [@Xan](https://boards.straightdope.com/u/Xan)\ **Post date:** [June 30, 2010, 5:55pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/34 "2010-06-30T17:55:35Z")
> [@mlees](#): > > In between WW1 and WW2, England allowed it’s shipbuilding industry to stagnate. > > When the war started, England found itself unable to meet the sudden demand for ships of all types (cargo, combat). Not only were the number of shipyards low, but the number of skilled shipwrights low. Fortunately, it’s good relations with the U.S. allowed it to obtain it’s needs from American shipyards (eventually). But it was still a stressfull period of touch and go. > > It’s possible that the lesson to be learned from that is that a nation’s strategic industry (including agriculture) should not be allowed to stagnate below a certain level. Deciding what that level should be, of course, is going to answer whether or not the current level of [U.S. farm] subsidizing is necessary. No, there was no demand for ships so the production of ships decreased. ---
**Author:** ![mlees](https://avatars.discourse-cdn.com/v4/letter/m/ba8739/32.png) [@mlees](https://boards.straightdope.com/u/mlees)\ **Post date:** [June 30, 2010, 6:04pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/35 "2010-06-30T18:04:07Z")
> [@Xan](#): > > No, there was no demand for ships so the production of ships decreased. I know that. 😕 It hurt the industry, and when the time (demand) came for more ships, they were unable to meet those demands on their own. Granted, it’s not a perfect analogy to the U.S. agriculture situation, but I was only expressing an opinion that it is in a nation’s interest not to let some “things” (industrial capability, education, food production) fall below a level where they won’t be flexible enough to meet some national emergency. ---
**Author:** ![Xan](https://avatars.discourse-cdn.com/v4/letter/x/ac8455/32.png) [@Xan](https://boards.straightdope.com/u/Xan)\ **Post date:** [June 30, 2010, 6:09pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/36 "2010-06-30T18:09:05Z")
They weren’t producing the ships because they weren’t necessary. ---
**Author:** ![mlees](https://avatars.discourse-cdn.com/v4/letter/m/ba8739/32.png) [@mlees](https://boards.straightdope.com/u/mlees)\ **Post date:** [June 30, 2010, 6:20pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/37 "2010-06-30T18:20:53Z")
> [@Xan](#): > > They weren’t producing the ships because they weren’t necessary. I don’t understand why you are repeating this. They weren’t necessary in 1932, but they were critically in need in 1940. If the UK government had subsidized the shipbuilding industry in the 30’s, it may not have slipped into a state of low capacity. Build ships, sell them to Japan, China, Brazil, mothball them, whatever. But keep a certain amount of shipbuilders and yards busy enough to stay employed. Unfortunately, that would have been a rather unpopular policy position to take, especially during lean fiscal times. The citizenry was definately still war weary, and would have clamored for that money to be used on social services, not useless ships sitting in some backbay somewhere. The mood in the early thirties was probably not willing to believe that another great war was in the relative near future. Churchill bleated on about the dangers of another war, but I get the impression folks thought he was over exaggerating the possibility, as well as needlessly antagonising the international community. Short view versus long view. Always a struggle between the two, it seems. ---
**Author:** ![Lobohan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lobohan/32/79_2.png) [@Lobohan](https://boards.straightdope.com/u/Lobohan)\ **Post date:** [June 30, 2010, 6:22pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/38 "2010-06-30T18:22:57Z")
> [@Xan](#): > > They weren’t producing the ships because they weren’t necessary. Did you even read the post above yours? Is it that you don’t understand it? ---
**Author:** ![Cisco](https://avatars.discourse-cdn.com/v4/letter/c/ccd318/32.png) [@Cisco](https://boards.straightdope.com/u/Cisco)\ **Post date:** [June 30, 2010, 6:25pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/39 "2010-06-30T18:25:57Z")
> [@msmith537](#): > > Federal subsidies to industries like farming or steel or whatever make sense for the same reason Universal Health Care make sense. I’m assuming this is a shot at UHC. If not, ignore the following: The difference is pretty simple and obvious. We all need healthcare. We don’t all need $1 double cheeseburgers and high fructose corn syrup in every goddamned item on the shelf at the grocery store. We’re paying for this stuff twice: up front with the subsidies, and on the back with the healthcare costs they produce, since they’ve created a tsunami of junk food\*. \*You can argue until you’re red in the face about whether or not they theoretically, or ideally, or philosophically necessarily have to create a tsunami of junk food, but the reality of the situation is that **they have.** > [@mlees](#): > > Granted, it’s not a perfect analogy to the U.S. agriculture situation, but I was only expressing an opinion that it is in a nation’s interest not to let some “things” (industrial capability, education, food production) fall below a level where they won’t be flexible enough to meet some national emergency. This has some validity, but how about we reach a point where we say “ok, we have far too much corn and soy, and possibly wheat. We’re not paying for that anymore, but we’ll continue to subsidize - to a reasonable and pragmatic extent - if you diversify your crops.” ---
**Author:** ![Cisco](https://avatars.discourse-cdn.com/v4/letter/c/ccd318/32.png) [@Cisco](https://boards.straightdope.com/u/Cisco)\ **Post date:** [June 30, 2010, 6:27pm UTC](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834/40 "2010-06-30T18:27:55Z")
> [@mlees](#): > > If the UK government had subsidized the shipbuilding industry in the 30’s, it may not have slipped into a state of low capacity. Build ships, sell them to Japan. Well that wouldn’t have helped! [Previous page](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834.md?page=1) [Next page](https://boards.straightdope.com/t/federal-subsidies-to-industries-explain-why-they-make-sense/544834.md?page=3)