Wednesday, July 25, 2012

The Full Monty

Consumers and producers need to bear all (costs, that is)

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Yesterday an old friend responded to one of my Twitter tweets where I cited an editorial in the Washington Post.  The Post objected to the 2012 farm bill passing through Congress that renewed subsidies for farmers: "For decades, federal policy has been training farmers to depend on government ... and taxpayers have been picking up the tab." I agree: subsidies distort markets, altering what and how much consumers choose to consume as well as what and how much producers choose to produce.

My old friend made a separate point: "I really don't think the public is ready to spend what it really costs to eat. I am not agreeing with the bill. Just saying that this article is not the whole truth." I certainly agree that no editorial bares all and consumers are sometimes shocked when prices spike. (Recent riots in Indonesia were a reaction to cutting fuel subsidies.)

But that's my point: government subsidies and programs that try to affect producers result in government expenditures, distorted markets, distorted expectations, and opaque consumer prices. I think it's imperative that transparency rules all government actions; my tax proposals emphasize transparency.

Agricultural subsidies can lower the cost of farming. For example, the U.S. Government subsidizes crop insurance and acts to stabilize crop prices. The cost? $21 billion annually. And the cost to consumers if crop prices were to spike 50 percent? Less than 1 percent, according to U.S. Department of Agriculture (USDA).

At the same time, farm programs can increase the retail price of food. Corn prices rose worldwide when U.S. Government-sponsored production of ethanol diverted corn from food products.  (By the way, cane-based ethanol can be imported from Brazil for a third of the price of corn-based ethanol.) Sugar prices in the United States are artificially high because USDA dictates total sugar production (OPEC style) and allots a greater portion of the quota to beet sugar (more costly to produce) than cane sugar (less costly to produce). In Japan, rice prices are nine times the cost of rice shipped from the United States because Japan limits imports to protect small traditional farms.

Look – I'm not picking on farmers; they just happen to be the subject of the Post's editorial. But it's a blatant example of the costs of market distortion for consumers and taxpayers. All producers of goods and services look to gain economic and competitive advantage by lowering their input costs, selling more, or having fewer competitors. That doesn't mean, however, that Congress should enable and support those goals with production quotas and our tax dollars.