Free Markets, Free People

Liberals Don’t Understand How Agricultural Subsidies Work

To be fair, they don’t understand how most things work, especially when there’s math involved, but this particular quirk is quite annoying.

I remember the first time I came across this general ignorance (see the comments), in a West Wing episode:

Actual dialog from a recent West Wing rerun:

Josh: What do I say to people who ask why we subsidize farmers when we don’t subsidize plumbers?
Farmer’s daughter 1: Tell ’em they can pay seven dollars for a potato.

Yes, I know it’s a TV show, but do people actually think like this? I always assumed that the reason we couldn’t get rid of farm subsidies was rent seeking by the farmers, but if people actually believe this, that could be part of the problem.

Yes, people actually do believe this. Indeed, here is David Sirota spouting the same ignorance:

GOP meat eaters aren’t free market – they want everyone to subsidize their eating via taxes that fund meat subsidies.

Among best ways to reduce meat consumption is to end ag subsidies so that the cost of meat is a true free market price – think: $9 burgers

David also makes the correct point that some GOP congressmen vote to keep these subsidies in place (particularly those in states with farms that benefit the most from them), but that doesn’t alleviate the complete misunderstanding of what these subsidies do.

In short: agricultural subsidies don’t reduce consumer prices, but instead raise them.

In fact, the entire point of these subsidies is to set minimum price levels (often called “price supports”) or trade barriers that create an artificial monopoly. The entire milk industry, as an example, is propped up with such subsidies. Why else do you think it costs about as much for a gallon of milk as does for a gallon of gas?

Although there had been several different forms of subsidies in the U.S. prior to the 1930’s, most were simple tariffs. When the Great Depression began, the Roosevelt Administration sought to prop up the nation’s farmers by raising their incomes. How did they propose to do that? Mainly by setting minimum prices and production quotas (remember Wickard v. Filburn?):

When Franklin D. Roosevelt was inaugurated president in 1933, he called Congress into special session to introduce a record number of legislative proposals under what he dubbed the New Deal. One of the first to be introduced and enacted was the Agricultural Adjustment Act. The intent of the AAA was to restore the purchasing power of American farmers to pre-World War I levels. The money to pay the farmers for cutting back production by about 30 percent was raised by a tax on companies that bought farm products and processed them into food and clothing.

The AAA evened the balance of supply and demand for farm commodities so that prices would support a decent purchasing power for farmers. This concept was known as “parity.”

AAA controlled the supply of seven “basic crops” — corn, wheat, cotton, rice, peanuts, tobacco, and milk — by offering payments to farmers in return for farmers not planting those crops.

The AAA also became involved in assisting farmers ruined by the advent of the Dust Bowl in 1934.

In 1936 the Supreme Court, ruling in United States v. Butler, declared the AAA unconstitutional. Writing for the majority, Justice Owen Roberts stated that by regulating agriculture, the federal government was invading areas of jurisdiction reserved by the constitution to the states, and thus violated the Tenth Amendment. Judge Harlan Stone responded for the minority that, “Courts are not the only agency of government that must be assumed to have capacity to govern.”

Further legislation by Congress restored some of the act`s provisions, encouraging conservation, maintaining balanced prices, and establishing food reserves for periods of shortages.

Congress also adopted the Soil Conservation and Domestic Allotment Act, which encouraged conservation by paying benefits for planting soil-building crops instead of staple crops. The rewritten statutes were declared constitutional by the Supreme Court in Mulford v. Smith (1939) and Wickard v. Filburn (1942).

During World War II, the AAA turned its attention to increasing food production to meet war needs. The AAA did not end the Great Depression and drought, but the legislation remained the basis for all farm programs in the following 70 years.

The entire point of these subsidies is to increase the incomes of farmers. It has never had anything to do with making the price of a potato or a hamburger cheaper for consumers. By design, these programs intend to raise the price for agricultural products, as well as to transfer dollars from taxpayers to farmers.

How liberals like David Sirota and Aaron Sorkin came to think the exact opposite is puzzling. As Ronald Reagan said: “It isn’t so much that liberals are ignorant. It’s just that they know so many things that aren’t so.”

Tweet about this on TwitterShare on FacebookShare on Google+Share on TumblrShare on StumbleUponShare on RedditPin on PinterestEmail this to someone

17 Responses to Liberals Don’t Understand How Agricultural Subsidies Work

  • Collectivists are economic ignoramuses.  Simple as that.  They lie, and then they consume their own lies.
    Subsidies are abhorrent market distortions.  They should ALLLLLL be withdrawn.  They have PROFOUND perverse ripple-effects, including the demise of the American candy segment, and the vaunting of corn syrup as a sweetener.

  • Bryan Caplan’s Myth of The Rational Voter says worries about the food supply make ending subsidies really, really hard.
    Note also paying farmers not to grow also increases prices.

  • I’m paying $9 for that burger most likely anyway since it’s my tax money going to subsidies regardless of if I actually purchase said burger

  • IIRC, ranchers don’t get anything in the line of subsidies that farmers do. Ranches come under Dept of the Interior, not DofAgriculture.
    At a time when farmers are PAID to take land out of production, ranchers are being forced to take land out of grazing and thus over grazing their smaller parcels.
    I recall a conversation from many years back when a farmer was complaining about having to pay $250K for a combine that he used twice a year, and the rancher countering that he had to pay upwards of a $million for a helicopter to patrol (yes, cattle rustling is still alive in the 21st Century) his ranch, and he had to do that year round at the $750/hr it took to operate the ‘chopper.
     

    • The obvious answer is that the Ranchers ought to just graze their cattle on the farmer’s land. That kills two birds with one stone.

  • All you had to write was “David Sirota” and left it at that.  The ignorance would have been self-evident once his name is mentioned.

  • Another thought. 7 dollar potato. I don’t know what they cost per unit, but assume one dollar. That means six dollars came from the subsidy. How many billions of potatoes are sold?
    Do you think they really get 6 dollars of subsidy each? That seems implausible.

    • 7 dollar potato….
      Damn conservatives – a potato!  it’s just a potato!  stop asking questions!    I mean, hell, why would there be a price difference between a baking potato that weighs a pound and a half by itself, and a ‘new’ potato that weighs an ounce?
       
      Sheesh, These facts aren’t important!  The only facts I need to know, the only facts that MATTER, are… is it gluten free, did it harm any small animals, was it organically grown, did the grower support evil Republicans and can I get it with an arugula side salad!

    • I think the “7 dollar potato” is in some ‘capitalism gone wild’ scenario combined with a potato shortage.
       
      On the other hand, if someone could corner the production or distribution of potatoes and charge $7, they would.  The question is how likely would that situation develop and do subsidies do anything about that scenario in the first place.

  • think: $9 burgers
     
    Have they looked at a restaurant menu these days? $9 is a bargain.

  • It’s the world we’ve come to, I pass convenience stores with signs that say,”Cigarettes, lowest prices allowed by law!”, all the time.

  • We are even paying subsidies to Brazillian cotton farmers because politicians wanted to continue the subsidies here at home.

  • We are in rare agreement here.  (Well, except for the liberal bashing of course… many conservatives don’t understand agricultural subsidies)
    You’re right, subsidies are not necessarily in place to keep consumer prices on food low.  However, they are necessary to keep food producers in business.
     
    During World War II, the AAA turned its attention to increasing food production to meet war needs. The AAA did not end the Great Depression and drought, but the legislation remained the basis for all farm programs in the following 70 years.
     
    This is key.  Food production is a national security issue, not a market issue.  Obviously, subsidies have their place in electoral politics, but in the end that variable is inconsequential.  If food producers go out of business en mass, then we as a nation are left to the mercy of foreign food producers that are subject to countless aggravations – including natural disasters, unstable regimes, war, pestilence, and substandard regulation in food safety.
    Of course, that doesn’t mean that the subsidies system in place should not be reworked and retooled.
     
    Cheers.