Get the Most Bang for the Buck
Mar 06, 2009
“Blessed is he who expects nothing, for he shall never be disappointed,” quipped the English poet Alexander Pope in the 18th century.
If President Obama has his way with the budget proposal he unveiled last week, some farmers may be disappointed--but not for the right reasons.
In his State of the Union address, Obama promised them nothing, literally. He pledged to “end direct payments to large agribusinesses that don’t need them.” The administration would phase out subsidies to farmers whose sales revenue is more than $500,000 per year, for an assumed savings of nearly $10 billion over the next decade.
Powerful interests are already lining up against the proposal. “We just passed a fiscally responsible farm bill that made cuts to farm programs,” complained Representative Collin Peterson, who heads the House Agriculture Committee. “So now is not the time to reopen it.”
I used to believe that farm subsidies made sense--or at least I was able to rationalize that they did. Then I changed my mind. In the 1990s, I visited New Zealand and saw how a modern system of agriculture could transition away from heavy subsidies to none at all. It wasn’t an easy change. The end result, however, was worthwhile for everybody involved--especially farmers. Every New Zealand farmer I know prefers to be free from government meddling, even when it means they must forgo handouts.
Since then, I’ve called upon American lawmakers to pursue similar reforms.
So I’m delighted to see Obama take up this issue. Unfortunately, he hasn’t chosen the best target.
The problem is that he’s looking at farm subsidies as a budgetary matter. This is understandable, given that the budget is foremost on his mind. In Washington right now, everything is about revenues and expenses--mostly expenses, sadly. The projected deficit for 2009 is $1.75 trillion.
To keep this enormous figure in check, Obama must try to control at least some Big Government’s spending urges. Subsidy payments to large farm operators are an obvious approach.
The problem is the president is looking at the issue through the wrong lens. Farm subsidies are certainly a budgetary matter, but Americans--and farmers in particular--would be better off if the White House looked at them as a trade issue.
The financial crisis has devastated international trade, which means that Americans are having a much tougher time selling their goods and services to foreign customers. Some analysts believe farm exports will drop by $ 20 billion this year. We would be well served by policies that rejuvenate the global economy--and there are better methods of doing this while also tackling farm subsidies.
Among all the ways the federal government supports farmers, direct payments based on acreage and production history do the least to distort trade. That means when it comes to the rules of the World Trade Organization, they are the most compliant.
By contrast, payments based on current crop production and prices do the most to distort production and thence international markets. If we’re going to cut aid to farmers, these types of subsidies should face the chopping block first. They’ll not only begin to lower spending, but they’ll also make it easier to fuel global trade at a time when it’s barely sputtering.
A change along these lines could have the effect of jump starting the Doha round of WTO talks--a series of negotiations that have halted because of agricultural subsidies in the United States and Europe combined with reluctance among developing countries to lower their trade barriers.
If our country were to rethink its approach to supporting agriculture, we might inspire trade diplomats elsewhere to revise their own proposals. Successful global trade talks would inch closer to reality. Experts project that the annual gains to the world economy could reach as much as $120 billion by 2015.
At a time of $1.75 trillion deficits, that may not seem like much. But we’ve got to begin climbing out of this budget hole somehow. If we’re going to start with farm subsides, let’s at least get the biggest bang for our buck.
Otherwise, Obama will turn Alexander Pope’s maxim on its head: Farmers will get nothing, and face disappointment all the same.