Tag: food subsidies

Egypt’s Subsidy Nightmare

If you think that Western welfare states are in a pickle, imagine what they would look like if, instead of transferring money, governments tried to help people by giving all of them free or cheap stuff. One does not need to be an economist to see the inefficiency of in-kind transfers, but many countries use redistribution of stuff – typically in the form of commodity subsidies – as the main tool of redistribution and social assistance.

In Egypt, the government subsidizes the prices of fuels and certain food products at artificially low levels. Obviously, the wealthy – who can afford to consume more of the subsidized commodities – are the largest beneficiaries of the subsidy system. In urban areas of Egypt, for example, the top quintile of the income distribution receives eight times as much in energy subsidies as the bottom quintile.

As I argue in a new Cato Policy Analysis published today, commodity subsidies are behind Egypt’s fiscal meltdown – the country is currently running a deficit of 15 percent of GDP, while being kept afloat only by the inflow of funds from the Gulf countries. To avert a looming fiscal catastrophe, Egyptian policymakers need to act now. The paper, which I also summarize here, provides a list of recommendations about how the reform should be approached:

Coburn Report on Subsidies for Millionaires

Sen. Tom Coburn’s (R-OK) new report on the various federal subsidies being collected by millionaires deserves applause for not resorting to class warfare rhetoric in making the point that it’s silly for wealthy folks to receive taxpayer handouts:

We should never demonize those who are successful. Nor should we pamper them with unnecessary welfare to create an appearance everyone is benefiting from federal programs.

Coburn says that “this reverse Robin Hood style of wealth redistribution is an intentional effort to get all Americans bought into a system where everyone appears to benefit.” That’s true. Whether it is food subsidies or unemployment benefits, the cheerleaders for federal redistribution schemes would have the public believe that it’s all about “helping those in need” when in fact it’s really about fostering dependency on taxpayers. A dirty little secret that the media typically fails to recognize is that many of the people pushing for these programs stand to financially benefit themselves. And as we have documented over at DownsizingGovernment.org, government programs do a poor job of helping the people that they purportedly serve.

USDA’s Budget Boom

Spending at the U.S. Department of Agriculture will be an estimated inflation-adjusted 43 percent higher this year compared to just a decade ago. The following chart shows the dramatic rise in USDA spending from fiscal 1970 to the president’s projection for fiscal 2011:

Most folks probably think of farm subsidies when they think of the USDA. However, farm programs only account for 19 percent of total USDA outlays. The vast majority of USDA spending, 69 percent, goes to food subsidies: food stamps, school breakfast and lunch programs, and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). In fact, spending on food stamps alone this year will account for roughly half of total USDA spending.

Why aren’t these programs housed at the Department of Health and Human Services, the government’s chief welfare bureaucracy? The answer is politics, of course. Every five years or so Congress passes a new “farm bill,” which updates or sets the agenda for USDA programs and policies. Stuffing welfare programs in with traditional farm subsidies engenders broad legislative support for the total legislative package. Including food subsidies helps secure votes from urban and suburban legislators who would otherwise have little or no incentive to vote for farm subsidies.

See here for more on downsizing the Department of Agriculture, including both farm and food subsidies.

Breastfeeding and the Government

The media is reporting on a new study that finds long-term benefits to kids of breastfeeding.

Yet if health experts agree on the advantages of breastfeeding, why does the federal government subsidize mothers to use formula through the $7 billion Women, Infants, and Children program?

The WIC program is run by the Department of Agriculture, which summarized the subsidies as follows (page 1):

…infants participating in WIC consume about 54 percent of all formula sold in the United States. In most states, WIC participants use food vouchers or food checks to purchase their infant formula, free of charge, at participating retail grocery stores.

It’s true that in addition to handing out free formula, WIC administrators counsel women on the advantages of breastfeeding. But the counseling apparently isn’t working if WIC infants consume more than half of all formula. I am told that breastfeeding isn’t easy, so if you give moms a free alternative, many of them take it.

This is one of many examples we see of the government’s right hand working against its left. The Army Corps of Engineers destroys wetlands, while other federal agencies protect them. Milk and sugar programs push up food prices, while other programs subsidize food costs. Politicians complain about energy companies gouging consumers, yet federal ethanol policies push up energy costs.

The winners in each case are the political class – high-paid government administrators, members of Congress, and the groups hooked on federal subsidies. The losers are the rest of us – average taxpayers and consumers.

For more on federal food subsidies, see here.

Food Stamp Use Soars and Stigma Fades

That’s the title of a piece in Saturday’s New York Times. That welfare usage is up in a recession isn’t surprising, but if the stigma is truly fading it’s not a positive development. As a Cato essay on food subsidies states, “The [food stamp] program contributes to long-term dependence on government and produces various social pathologies as side effects.” Disturbingly, the USDA official who oversees the program is pleased:

Although the program is growing at a record rate, the federal official who oversees it would like it to grow even faster. ‘I think the response of the program has been tremendous,’ said Kevin Concannon, an under secretary of agriculture, ‘but we’re mindful that there are another 15, 16 million who could benefit.’

There are certainly people in need of assistance, but the government is the wrong delivery system. Michael Tanner sums up why in his book, The Poverty of Welfare:

In the absence of government welfare, the civil society can be expected to rise to the occasion, as it always has, to address the needs of the poor in a way that is both more compassionate and more effective. No government program can provide the degree of flexibility and diversity of private ones. But perhaps more importantly, voluntary, private charity treats both givers and recipients as individuals, fully respecting their worth and dignity. Unlike the coercive nature of government, private charity understands that true charity starts with the individual and that individual’s choice to give out of individual conscience and virtue.

The Times piece goes on to provide anecdotal cases of food stamp recipients who traditionally harbored negative views of the program. In an example of why federalism needs reviving, we learn that one fellow “gave in” when “an outreach worker appeared at his son’s Head Start program.”

The outreach worker is a telltale sign. Like many states, Ohio has campaigned hard to raise the share of eligible people collecting benefits, which are financed entirely by the federal government and brought the state about $2.2 billion last year. By contrast, in the federal cash welfare program, states until recently bore the entire cost of caseload growth, and nationally the rolls have stayed virtually flat.

If the outreach worker is a state government employee as the article appears to indicate, it means his or her salary is funded by taxpayers. This person’s job is to go to a Head Start program, which is also funded by taxpayers, to encourage people to sign up for additional government benefits to be funded by – drum roll – taxpayers.

We would have a more efficient government welfare system if the state governments that wanted to have welfare programs had to fund them using state tax revenues, without the subsidies and incentives for profligacy from Washington. Even better would be to allow individuals to control funding for charitable causes through private contributions without a bloated government welfare system at all.