Farm subsidies and entrenched wealth

Lynne Kiesling

Veronique de Rugy has a great argument for ending farm subsidies in the April issue of Reason (and yes, do read the whole thing, well worth your time). Farm subsidies are the canonical example of the dynamics of Mancur Olson’s Logic of Collective Action — concentrated benefits and dispersed costs lead to the persistence of inefficient government policies. So canonical, in fact, that I used them just last week in my micro principles class to teach my students about public choice theory and applying economic tools and reasoning to studying decisions we make collectively through political processes.

One feature of Vero’s argument that distinguishes it from others is that it follows this process to its logical, disturbing conclusion for income distribution. Farm subsidies have existed for 80 years, and while their initial intent was to assist struggling farmers during the Depression, their success at doing so has created an entrenched group of land-owning farmers who are now wealthy, but fight against attempts to reduce their subsidies.

While the number of farms is down 70 percent since the 1930s—only 2 percent of Americans are directly engaged in farming—farmers aren’t necessarily struggling anymore. In 2010, the average farm household earned $84,400, up 9.4 percent from 2009 and about 25 percent more than the average household income nationwide.

What’s more, a handful of farmers reap most of the benefits from the subsidies: Wheat, corn, soybeans, rice, and cotton have always taken the lion’s share of the feds’ largesse. The Environmental Working Group (EWG) reports that “since 1995, just 10 percent of subsidized farms—the largest and wealthiest operations—have raked in 74 percent of all subsidy payments. 62 percent of farms in the United States did not collect subsidy payments.”

And those 62 percent have to compete with the subsidized farms for resources, particularly land. Farm subsidies get capitalized into land values, raising land prices and erecting entry barriers for young farmers who want to be independent farmers and purchase land to do so. Farm subsidies are a means of benefiting wealthy farmers at the expense of younger, poorer ones (as well as at the expense of agricultural product consumers).

In addition to being inefficient, farm subsidies to the entrenched wealthy farmers who receive them widen income gaps in agriculture. They distort resource allocations and income distributions, and if the silver lining in our current budget fiasco is the elimination of farm subsidies, that’s one big silver lining.

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