I remeber seeing a war movie were some US sub sailors thought they found a Japanese bomb made out of U.S. scrap metal. This was probably based on urban legends of the time.
I agree, but I also believe that the current crop of congresscritters “do buisness” the way they have been the last couple decades, which appears to be focused on getting as much of the Federal-moneypie as they reasonably can, and taking that back home to their districts.
I suspect a lot of Senate/House representitives from farm districts will not keep their jobs if current subsidy levels get cut too drastically, and other representitives are going to have to counter the PR images of some farm family that has to sell of a multi generational farm because of cuts. It won’t be pretty, and I imagine that some representitives won’t want to tackle that can of worms if they can avoid it.
(Looking at some 19th century political cartoons, this situation probably isn’t new.)
I always thought it was so the government could control the market, along with some of the reasons listed above.
I.E., Paying farmers to not produce to keep the food marketability at a certain level. I mean the government pays for a lot of food.
It’s not a “shot” at healthcare so much as it is presenting the concept of industry subsidies to you in a way that you will understand their point of view. We all don’t “need” healthcare. At least not until we actually need it. Healthcare is a bunch of goods and services just like any other. But a lot of people believe that leaving it purely up to market forces would not adequately meet the needs of society.
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I agree with both extremes here. If we were in danger of not growing enough food to feed ourselves, I’d agree with farm subsidies. Not dying of hunger if the rest of the world decides to boycott us is worth a little market distortion.
But we probably grow enough food to feed the world over. We’re not currently in danger of starvation, even if we had a fairly bad year at the same time as a hypothetical food embargo.
I think some people here don’t understand how the market responds to subsidies.
First, let’s demolish the argument that subsidies are required because even with subsidies the profit margin in farming is low.
Here’s a thought experiment for you: Let’s say that someone invented a new device that cut the cost of corn farming by 50%. What would be the result? Would farm profits go up 50%? Would they go up at all? The answer is no, assuming a competitive market. Because the 50% affects all corn farmers equally.
The profit level of an industry depends on several things - the existence of competition, availability of information, barriers to entry in the market, and a few other things. The relative cost of a good is NOT one of them, so long as the costs are the same for all players in the market.
So what happens under a subsidy? Does it make the industry stronger and healthier? Not at all. What it does is act as a one-time windfall until the market corrects. Then prices fall to factor in the subsidy. Now profit levels are the same, but they require the subsidy to maintain them. You just turned a bunch of farmers into dependents. And now if you take the subsidy away, the opposite occurs - an initial loss of profit and damage to the farming industry, a few farms going under because the subsidy caused over-production, and eventually prices rise back up to where they were, profits return, and things go back to normal.
To prevent this, some places try to control prices as well as give subsidies. In Canada, we have Wheat Boards and internal transportation tariffs that set prices and product local producers from others. But that makes your overall agriculture even more brittle and inefficient.
But not all subsidies are equal. ‘Farming’ isn’t subsidized - specific crops are. So one of the effects of a subsidy is to divert farming resources towards the subsidized product. So farmers stop farming beets or wheat, and start farming corn. And because the price of corn falls, it starts to displace other foods as well. Corn farming as an industry grows, at the expense of other agriculture.
In addition, the subsidies introduce inefficiencies. No one in their right mind would grow rice in California. Rice is a heavily water-intensive crop, and California has expensive water. But hey, throw in 2.4 billion dollars in USDA subsidies, and suddenly you have rice crops in California. This is not economically efficient. It creates a crop that cannot exist without government support. It raises the cost of agriculture in the country. It displaces other, more efficient uses of the land. It causes over-consumption of scarce water resources.
How about the argument that you need subsidies so there is enough supply in case of emergency? This argument can hold true in some cases - the peacetime military is in part a government defense subsidy to ensure supply in case of war. The strategic petroleum reserve is a form of subsidy of petroleum.
But this argument does not really hold for agriculture. It doesn’t make the farms stronger and more resilient - it makes them weaker and more dependent. And any over-production that occurs winds up as spoilage anyway. The nation doesn’t really have an infrastructure for collecting and storing excess food, or an emergency distribution plan for moving it around the country. In a true crisis, it would be impossible to get food distributed in time to keep people from starving without such a plan being in place. And in any event, the amount of overproduction we’re talking about isn’t enough to feed everyone anyway.
The only possible ‘subsidy’ I can imaging doing some kind of good would be an emergency subsidy to keep farms alive during a major drought or some other temporary natural disaster. But even then the market does a better job if we’ll let it - if food supplies become short due to such a disaster, the price of food will go up, which will keep the farmers alive. Of course, someone would start yelling about ‘price gouging’, and some fool politician would decide to put a price cap on food, which would then ensure shortages. See: That moron Hugo Chavez, who is dealing cards from that idiotic playbook as we speak.
We have a ridiculous amount of transportation in North America. If it relied only on government plans, it would indeed be difficult, but if you let the market take care of it (i.e. don’t fight price gouging too much) our huge amount of infrastructure and ample amount of food would ensure we would be able to buy what we need. But we need that transportation and food there in the first place: money can’t instantanously buy food that isn’t there, anywhere! Food can’t be grown quick enough to respond to market conditions to avoid famine.
From what I’ve read, after exports the US produces enough food to feed every American twice.
Here’s a thought experiment for you. You are a farmer growing corn, and a massive drought wipes out your crop and everyone’s around you.
What happens to the price of corn? Goes up right?
So by your logic, the farmer is alive because the price of corn went up 10 fold.
Oh wait, the farmer HAS NO CORN. You can’t make money off something you don’t have. That is why the free market fails.
As I said before, if a farmer has a good year the price of corn goes down and he makes very little money. If he has a bad year the price of corn goes up and he goes out of business. That’s how the free market works.
You mentioned the Canadian Wheat board, but Canada also puts a cap on the amount of milk a farmer is allowed to produce. Why? Because when you make milk, the only way to make more money is to make more milk. But if everyone makes more milk, the price goes down. If the price goes down, you need to make more milk. If you make more milk, so will everyone else, so the price will go down. If the price goes down, you need to make more milk, so will everyone else, and the price will go down.
You were also wrong about the ability to store food, very wrong. This isn’t the 1800’s. At the very least the US as a phenomenal system in place for turning extra corn into other things. It used to be turned into pigs and whiskey. Now it’s broken down and turned into all sorts of magical ingredients that make their way into everything you eat.
Do you know how rare it is to lose an entire crop? Have you ever farmed? Even large hailstorms usually only take out a percentage of a crop. A drought doesn’t eliminate the crop completely - it just lowers yields unless it’s extremely severe. And nowadays, you can partially irrigate if you’re really short of rain.
So if a bad year lowers yields by 30%, the other 70% of the food will go up in price.
In addition, food is a global market. Imported food would increase to take up the slack. Perhaps you’d have a problem in a world war involving nukes or something, but then you’re not likely to be able to transport all that warehoused corn around the country anyway.
No, it’s not. You’re buying into the scare tactics of the farm lobby. I lived on a farm. A poor farm. We had plenty of bad years. We didn’t go out of business. There are plenty of countries that have no real agriculture subsidies, and farms don’t go out of business en masse every time there’s a bad year.
Do farms go bankrupt? Of course. So do corporations. That’s not an argument for subsidy. I lost my business because the internet made my product obsolete. Should I have been given a subsidy? Should Palm have been subsidized because it couldn’t compete with the iPhone?
Farmers have managed to make their particular business model emotional. The farm lobby casts its plea for subsidies as protection of the poor endangered farmer, and as protection for a way of life that is cherished and (they say) endangered.
In reality, most subsidies go to large agri-businesses that make plenty of profit, have large cash reserves, and can survive for a long time if the weather turns bad. And the cost of the subsidies is borne by the consumer. The ethanol subsidy has diverted farmland away from food crops and is driving up the price of food. The sugar tariff and corn subsidies together result in high fructose corn syrup being ingested in quantities that would not occur if the market was free. This makes us fat and ruins the taste of my Coke. Bastards.
That’s ridiculous. Let’s apply that to something else: "If you make more cars, the price of cars goes down. So the only way you can profit is to make more cars. That drives the price of cars down even more. And that (somehow) forces all the other car manufacturers to make more cars! Eventually, everyone goes out of business. We need to protect cars! Let’s cap how many can be made, cap their prices, and subsidize the car industry. That will make it healthier, and we’ll, uh, get better cars. Somehow.
In other words, your little story is pure fiction, and displays a complete ignorance of how the market actually works. For starters - if the price of a product goes down, it does not stimulate production. And the price can’t go down once you reach the limits of economies of scale, because the price of milk is already only slightly above its cost of manufacture, once you factor in the cost of the middlemen, transportation, etc.
Milk protection and subsidies are almost entirely due to political pressure and the horse-trading congress does when it meets to regulate agriculture. It’s a form of pork, so to speak.
Yeah, magical ingredients like corn ethanol and high fructose corn syrup and animal feed. Good eatin’, that.
I don’t think you have any idea of the logistics that would be involved if you created a centrally-controlled warehousing system for excess food and tried to distribute it across the country if there were a famine. Ask Hugo Chavez - his food is rotting in storage facilities while the people starve.
Sam, thank you for being consistent here. A lot of right-leaning people aggressively defend agricultural subsidies for some reason and I was wondering if and how someone like you would go about it. Glad to see you didn’t. I’m mostly in agreement with you here- if not in theory, at least in practice.
Depends on the industry I guess, and your definition of a subsidy. Is a tax credit or tax deduction a subsidy? If so then those are everywhere in our economy.
Did you have a comment or was my post confusing to you?
Sam, like many of the so-called “right-leaning” people on this board, is more of the libertarian stripe. Government subsidies are anathema to libertarians.
However, I’m not even sure a lot of “right-leaning” people defend agricultural subsides, unless they are politicians from farm states or farmers themselves.
And even more strangely, that’s true of “left-leaning” people, too. At least as far as I know. I’d assume politicians of all stripes from farm states need to be pro corporate welfare in order to get elected.
I agree with everything you’ve said except this. When I was growing up in the late 80’s, my mom was on welfare and we’d stand in a long line to get food at a government depot. You were given a list of items you can have, you picked them up, and you were sent off. We went there monthly. Keep in mind this was in the 80’s. I think the government is fully able to store and distrubute food without significant waste due to spoilage - at least as efficient as a Kroger, Giant Eagle, or a Wegman’s.
As for the OP, it’s not clear to me why we have federal subsidies for agriculture. I do support subsidies insofar as it targets small farms. Here’s a mindbender for a non-economist like me: If agricultural exports comprise 10% of your GDP, as it does for the U.S, how does government spending on agriculture affect it currently and what would be the impact of ceasing farm subsidies?
- Honesty
We’re talking about a completely different scale of problem here. Providing food to a few thousand people in an area is not even remotely the same as providing food to 300 million people in an emergency, from central warehouses.
This really isn’t an easy problem. There have been plenty of cases of people starving due to inability of government to distribute available food. This is happening in Venezuela right now. Thousands of tons of food have been rotting in government warehouses while the people starve.
Or, look at the trouble the federal government had getting resources to the people of Louisiana after Katrina. And again, that was a problem on a miniscule scale compared to having to feed an entire nation experiencing famine.
Yes, the government does this by buying up excess food that would normally go unsold. This creates an incentive for the agriculture industry to produce more food than they would normally produce. Or, IOW, the government has created a “subsidy”.
Venezuela has created a reverse subsidy by forcing the lowering of food prices. This creates disincentives for farmers to produce and now they have massive shortages.
Yeah, sometimes it’s hard to believe the human race has had millennia to see the effects of price ceilings for food and not realize that they create shortages. It’s one of the more open and shut cases in economics.