Lynne Kiesling
I know that pointing out the economic illiteracy of politicians is akin to shooting fish in a barrel, but I have an irrationally optimistic hope that shining a light on such illiteracy will help reduce it. Today’s economic illiterate is U.S. Secretary of Agriculture Tom Vilsack, who in an interview with Ezra Klein revealed that he does not understand the economic consequences of farm subsidies:
EK: You keep saying that rural Americans are good and decent people, that they work hard and participate in their communities. But no one is questioning that. The issue is that people who live in cities are also good people. People who live in exurbs work hard and mow their lawns. So what does the character of rural America have to do with subsidies for rural America?
TV: It is an argument. There is a value system that’s important to support. If there’s not economic opportunity, we can’t utilize the resources of rural America. I think it’s a complicated discussion and it does start with the fact that these are good, hardworking people who feel underappreciated. When you spend 6 or 7 percent of your paycheck for groceries and people in other countries spend 20 percent, that’s partly because of these farmers.
EK: My understanding of why I pay 6 or 7 percent of my paycheck for food and people in other countries pay more is that I’m richer than people in other countries, my paycheck is bigger. Further, my understanding is that a lot of these subsidies don’t make my food cheaper so much as they increase the amount of it that comes from America. If we didn’t have a tariff on Brazilian sugar cane, for instance, my food would be less expensive. If we didn’t subsidize our corn, we’d import it from somewhere else.
TV: Corn and ethanol subsidies are one small piece of this. I admit and acknowledge that over a period of time, those subsidies need to be phased out. But it doesn’t make sense for us to have a continued reliance on a supply of oil where whenever there is unrest in another part of the world, gasoline prices jump up. We need a renewable fuel industry that’s more than corn-based, of course, and there are a whole series of great opportunities here. But as soon as we reduced subsidizes for biodiesel, we lost 12,000 jobs there. So if you create a cliff, you’re going to create significant disruption and end, for a while, our ability to move beyond oil. And keep in mind that the Department of Agriculture has moved, for years, to reduce our spending. We cut $4 billion in crop insurance and put that to deficit reduction. So we are making proposals to get these things in line. But a lot of our money goes to conservation, and goes to some of those 600,000 farmers who are barely making it.
I think that last sentence tells us what we need to know about U.S. farm policy and its lead practitioner: it’s backward-looking and reactionary, not really about being forward-looking and increasing productivity. It’s about creating a top-down impression of increased productivity through pushing the government-elite-approved renewable energy options for income diversification, regardless of whether or not ethanol, wind power or solar power actually create real economic value.
I’d ask Secretary Vilsack what the opportunity cost is of this spending to preserve (as an extinct insect in amber) rural communities, but I’m confident that he would fail to understand the question.
We cannot afford this kind of economic illiteracy in our political elites.
HT: Reason.
One of the more interesting indicators of overall farm economic health is to view farmland prices. Most farmers are motivated by profits, like any other business. Profits are likely to come from farming just a little more land, which requires the investment of cash (on-hand or borrowed) for a limited, non-renewable capital: land. Thus, there is competition for this limited resource, which means prices should rise when demand and cash supply are high, and prices should drop when demand and cash supply are low.
If we track the price of farmland, even taking inflation into account, I presume we will note a steadily rising price, at least since 1982 or so. If cash is available, why do farmers need subsidies?
It seems to me that the Secretary understands perfectly the economics of farm subsidies.
Sincerely,
James Buchanan
OK, Let’ try to cut through some of the fluff from Vlisack and the uninformed author. I am a 45 year farmer from farm family generations back. I farm specialty crops that are not subsidized, have no crop insurance programs or “price supports”.
1. Only commodity crops ever got subsidized, never your vegetables or fruit or horticultural crops.
2. Jeff McCray comment above cites 1982, when the Ag Recession (inception of Willie Nelson’s Farm Aid) was invoked by the Financial banking institution and the Federal Reserve. Like the middle class housing bubble, sup-prime loans were extended nationwide to farmers to expand land base and upgrade to larger and more expensive equipment, storage facilities, etc. Interest was pegged to 18-20% to embarrass Jimmy Carter along with the October Surprise to elect da Gipper. Farmers could not service their leveraged positions, defaulted and lost the farms to the big banking and insurance companies who added farm land to their balance sheets and leased back to the former owners for the best and most logical management possible, This is what created the present system of landlord ownership of MidWest farmland by non-resident corporations and old men (in the case of the farmers who survived the ’80’s credit crunch) where young people have no possible entry into farming. The country faces an alarming aging of active farmers.
3. Farm subsidies accrues to owners of the land, not the lessees; and as always the ultimate recipients of the farm subsidies goes to the bottom lines of the grain cartel, the elite of whom is privately held Cargill; who are able to better compete worldwide with their ability to buy the cheaper subsidized crops of the USA.
4. That is the story, the real story; USDA farm subsidies are not for family values and nice hard working people. They are welfare for the corporatists, and international banking cartel.
5. The quicker farm subsidies, ethanol and all other forms of corporate welfare are ended, the more hope for the re-establishment of the US Constitution and aversion of fascism in our beloved America.
6. The savings from USDA farm subsidies should go directly to public research in non-oil based and
, non-nuclear, non-centralized alternatives for energy generation so we can get off the Arab oil teat.
In fairness to the Secretary, he lives in an environment that selects against economic literacy. It is kind of like dissing a jockey for his poor basketball skills.
Agree with Lon. I think the Secretary would sound less a fool if he would just say “I do what Cargill tells me” instead of bumbing on about values, security and other BS.
That said, a few economists at USDA’s Economic Research Service were VERY upset at my attempt to discuss ethanol subsidies. I’ve also had a HUGE argument with Ben Ho (Stanford PhD, ex-CEA, now at Cornell BS [sic]), who was VERY supportive of corn ethanol subsidies. These PhDs are part of the problem — and they don’t even work for Cargill!
Yes, David, the big picture is abut political science, not economics and both parties support ethanol because it creates campaign contributions for Congressmen and presidential candidates. The alternative farmers and energy auditors have it right. It requires more calories of energy input to make corn ethanol than its caloric output. btw, Brazil’s ethanol from sugar cane may prove to yield a net gain.
Another tip that few know or appreciate; where do unused campaign contributions go upon retirement or defeat? In the hip pocket. That is why democracy is long gone; contributions are a straight payoff.