Congress has just passed two bills that illustrate everything that’s wrong with Congress. If you want examples of how politics trumps sound economic policy, producing outcomes that benefit the few with political clout at the expense of the many without, take a look at the recently passed energy bill and farm bill.
The energy bill throws money at ethanol companies by mandating that 7.5 billion gallons of ethanol and biodiesel be used every year. What’s wrong with that? Only the fact that Brazilian sugar-cane-based ethanol can be produced much more cheaply and efficiently than U.S. corn-based ethanol. Ecologically and economically, we’re better off buying ethanol from Brazil. But Brazilian ethanol is kept out of the U.S. market by a tariff. The sole purpose of this tariff is to protect inefficient U.S. ethanol companies who have friends in Congress.
Sometimes it seems that the only purpose Congress serves is to protect favored businesses. Consider our system of farm subsidies, which has just been renewed by the passage of the farm bill after a complete cave-in of efforts to reform it.
Government payments to farmers come in many varieties and have two principal effects: Some of them raise prices that ought to be lower, and others depress prices that ought to be higher. The so-called Conservation Reserve Program pays farmers to convert cropland to “vegetative cover” in the name of conservation. That’s right, farmers get dough from Uncle Sam for not growing any crops. At the same time, quotas and tariff barriers keep out cheaper crops from foreign countries. The effect is to restrict the supply of agricultural products and keep prices high. For example, it’s been estimated that sugar quotas double the price of sugar for consumers in the U.S.
But the worst subsidies are those that guarantee minimum prices for certain crops, encouraging U.S. farmers to grow things that otherwise would be money-losers for them because of their high production costs. We’re growing cotton in the Arizona desert, with expensive (and subsidized) irrigation systems, which is then sold on the world market for less than it costs to produce. Yep, you heard that right—American farmers, growing things which can be grown far more cheaply and efficiently elsewhere, can dump their high-cost crops on the world market (don’t Congressmen howl about other countries dumping things on the market below cost?) thanks to payments from the federal government that keep them in business.
The result, of course, is that world prices are depressed and farmers in, say, poor African countries who are not lucky enough to be subsidized by their governments, struggle to compete. They get screwed, big-time. Our farm subsidies are the greatest enemy of developing-world farmers, the single greatest legitimate grievance of the poor world against the rich (the Europeans are also major villains in the farm subsidy game).
But isn’t all this necessary to save the endangered family farm? Well, most farmers don’t get any subsidies at all. If you’re not growing one of the anointed crops, you’re on your own; you have to grow something people are willing to pay for and figure out how to market it. Meanwhile, in 2003 the top 10 percent of subsidy recipients collected 72 percent of all subsidies and the top 5 percent collected 55 percent of payments. (These figures are from a good discussion of the problem put out by Citizens Against Government Waste) The great majority of subsidy payments go to the biggest, best-off farming operations, i.e. the type of farmers who can afford to hire lobbyists.
The best way to reform the subsidy system would be to blow it up. Just get rid of all the subsidies and let farmers figure out what crops there is a demand for and set about providing them economically. But this is unlikely to happen as long as a Congressman’s real constituency is the people who pay for his campaign instead of the people who cast the votes.
Our farm subsidy system is a scandal and an outrage, as are the ethanol subsidies in the new energy bill. Both bills show Congress at its worst, stacking the deck for their friends and contributors while insulting our intelligence with their rhetoric. Senator Tom Harkin, supposedly a progressive, called the farm bill “a solid, forward-looking, fiscally responsible bill,” with a straight face. Most of his colleagues appeared to agree.
They ought to be ashamed of themselves.
Sam Reaves
www.samreaves.com
