Tag: subsidies

Breaking: The (Possible) End of the Agri-Nutritional Complex

The Roll Call blog has just broken news that the GOP House leadership has decided to drop food stamps from the farm bill, in an attempt to get the farm subsidies passed by the House, presumably with Republican votes alone. Nutrition is quite an “appendage” to jettison, by the way: it usually accounts for about 80 percent of all “farm bill” spending. Here’s a great infographic on food stamp usage from the Wall Street Journal online.

I think this development could be very good news: I have long called for splitting the food welfare (or “nutrition”, as it is euphemistically called) portion of the farm bill from the subsidies part. Legislators should be forced to vote on all of these programs on their individual merits, not as part of some logrolling extravaganza. The costs and benefits of programs to feed poor people deserve to be considered separately from farm subsidies, and ideally belong at the state or, even better, local community level anyway. Do we really need the federal government specifying that our kids eat greek yogurt? But I digress.

The problem is that farmers just don’t have the political or demographic clout that they used to (and in any case are starting to squabble amongst themselves) so it has long been believed that you need to load up farm subsidies with other, somewhat related programs more palatable in urban and suburban districts. That’s why energy, environmental, and food stamps are included in the “farm bill”. If you include enough goodies for diverse special interests, you’ll cobble together the votes.

That cynicism was turned on its head, though, when the farm bill failed last month because the Republicans thought food stamp spending was too high (even after some cuts and tightening of eligibility criteria). The Democrats, on the other hand, thought the cuts were too severe. Votes were lost on both sides of the aisle.

So, by dropping food stamps, GOP leaders think that enough Republicans will vote for this new bill to pass, even without Democrats’ support. They might be correct: clearly, powerful people in Congress think that all of these hippy issues are distracting attention from more deserving welfare programs, like farm subsidies. But I am not too sure: without sufficient Democratic votes on a subsidies-alone bill, they would need every R vote they could get, and some of the Republicans aren’t too keen on farm subsidies, either.

Another, promising development in this new farm bill is the repeal of the 1949 Agriculture Act. I said in a blog post a few weeks ago (and, indeed, on many other occasions before) that the key to reforming U.S. agricultural policy is to repeal the permanent legislative infrastructure—of which the 1949 Act is an important part—that lies behind the deplorable farm bill circus to which the American body politic is subjected every five years. By taking this law off of the books, farmers and their political supporters couldn’t threaten us with dairy cliffs and other elements of farmageddon if we don’t pass farm bills.

A huge, important caveat to all of this hopeful thinking: the GOP leadership may be splitting the bills only so they can pass them piecemeal with the hope of rejoining farm subsidies and food stamps in conference with Senate Democrats (the Senate passed their bill, logrolling intact, already), then have the conference report pass the House with Democrats’ support. Certainly Majority Leader Eric Cantor (R-VA) is by all accounts disappointed that the farm bill failed to pass and is looking for another vehicle, or several vehicles, to push this puppy through. That’s not something to get excited about: death by a thousand drips of poison is still death.

The other problem, which is theoretically fixable, is that the new GOP bill doesn’t repeal the 1938 Act, which includes several commodity titles that aren’t covered by the Agricultural Act of 1949, including price supports and marketing quotas, and the establishment of the Federal Crop Insurance Corporation. So the 1938 Act has to go, too, if we are to be fully threat-free.

I am sure that others will disagree with my analysis of how the votes will break down, and my analysis of parliamentary procedure regarding conference, etc. I’m really not too interested in that, anyway. My main concern is to get American agricultural policy on the road to reform/elimination, and in my eyes these two developments could be helpful toward that end.

The Federal Government’s “Rural” Industrial Complex

David Fahrenthold has another excellent article on waste in government in Sunday’s Washington Post. This time he finds a truly comic example of waste, duplication, and confusion:

[T]he U.S. government has at least 15 official definitions of the word “rural,” two of which apply only to Puerto Rico and parts of Hawaii.

All of these definitions matter; they’re used by various agencies to parcel out $37 billion-plus in federal money for “rural development.” And each one is different….

There are 11 definitions of “rural” in use within the U.S. Department of Agriculture alone.

It’s laughable. But the real question is, Why does the federal government even need to define “rural”? Well, of course the answer comes back to the real purpose of our modern tax-and-transfer state: The definitions define who gets the subsidies.

Every year, there are billions available to fund projects in rural communities. Money for housing. Community centers. Sewer plants. Broadband connections.

In a sidebar to the story, we get some details. The Census Bureau has one definition of “rural” so it can tell us how many Americans live in rural areas. Here are the purposes of the other 14 definitions:

Used for a variety of loan and grant programs, all meant to foster rural development…for loans and grants for “community facilities” in rural areas… for aid for water and waste-disposal systems… for aid for improvements in telecommunications systems…by farm-credit associations making housing loans… for certain lending programs for rural community development…to determine areas served by Office of Rural Health…by the National Rural Development Partnership…for grants to rural institutions of higher education…to determine what areas of Hawaii are eligible for rural-aid programs…to determine what areas of Puerto Rico are eligible for rural-aid programs…by various rural development loan and grant programs.

So let’s see. People in rural areas pay federal taxes. People in urban areas pay federal taxes. All that money goes to Washington – where a great deal of it stays – and then some of it is used to provide programs and services in rural and urban areas. Maybe both rural and urban Americans would be better off keeping their money at home and paying for whatever services they think are actually worth the cost. And then the federal government wouldn’t have to pay handsome salaries to well-educated people to form task forces to determine 15 different definitions of “rural.” And states, cities, and rural areas wouldn’t have to hire expensive lobbyists to get a piece of that federal pie.

Subsidizing the Security of Wealthy Allies

How much does the United States spend on the military relative to our allies? A lot. 

A new Cato video, produced by Cato multimedia gurus Caleb Brown and Austin Bragg, puts this comparison in perspective. The data jumps out of the Cato infographic from last week, and shows how we are subsidizing the security of our wealthy allies who can and should defend themselves. Instead, we provide for their security while they free-ride and spend their money on everything else (including bloated welfare states). Your tax dollars at work. 

Check out the video below.

On ObamaCare’s Discriminatory Subsidies, Brewer Bows When Arizona Should Keep Slugging

Arizona Gov. Jan Brewer (R) recently set aside her vociferous opposition to ObamaCare’s costly Medicaid expansion by announcing she will support implementing that expansion in Arizona. A significant factor in her reversal, she claimed, was that if Arizona did not expand its Medicaid program, then some legal immigrants would receive government subsidies while U.S. citizens would get nothing.

Brewer’s analysis of this “immigration glitch,” and her remedy for it, are faulty. Fortunately, she, Arizona’s legislature, and its attorney general have better options for stopping it.

An odd and unforeseen result of the Supreme Court’s decision upholding ObamaCare is that, in certain circumstances, the law will now subsidize legal immigrants but not citizens. What triggers this inequity is a state’s decision to implement an Exchange – not the decision to opt out of the Medicaid expansion. (Even if a state implements both provisions, legal immigrants would still receive more valuable subsidies than citizens.) The good news is that states can therefore prevent this inequity simply by not establishing an Exchange. If Brewer wants to avoid this “immigration glitch,” there is no need to expand Medicaid. She already blocked it when she refused to establish an Exchange.

The bad news is that the Obama administration is trying to take away the power Congress granted states to block those discriminatory subsidies, and the punitive taxes that accompany them. Contrary to both the statute and congressional intent, the IRS has announced it will impose that witch’s brew in all states, even in the 32 that have refused to establish an Exchange.

Oklahoma attorney general Scott Pruitt has filed suit to stop that stunning power grab. If Brewer is serious about stopping the “immigration glitch,” the way to do it is by filing a lawsuit similar to Oklahoma’s, while adding a complaint that the Obama administration’s illegal subsidies also violate the Equal Protection clause.

If the Auto Bailout Was a Success, I’d Hate to See What a Failure Looks Like

Sometimes it’s no fun to be an economist. Or, to be more specific, it’s rather frustrating to understand Bastiat’s insight about the “seen” and the “unseen” and to always be asking “at what cost?” and “to what effect?” when politicians make inane statements.

The GM bailout is a good example. Politicians want us to believe that it was a success because the company is still in business. Heck, the Vice President’s favorite campaign statement is that “Osama bin Laden is dead and General Motors is alive

But if you’re the type of person who recognizes the importance of tradeoffs and incentives, then it’s easy to see how a political success can be an economic failure. Which is the message of this new video from the Center for Freedom and Prosperity Foundation.

This is music to my ears. I’ve been saying for years that any company can be kept afloat indefinitely with taxpayers subsidies. So if that’s the definition of success, we can party until we hit the fiscal brick wall. But that wall won’t feel good, as we can see from the fiscal chaos in Greece and other European welfare states.

But this issue involves more than just inefficient subsidies. I’m also concerned about the corruption that inevitably exists when cronyism replaces capitalism.

It’s quite likely, after all, that GM is spending lots of money on the Chevy Volt because of pressure from Washington rather than demand from consumers. And when you have a car company executive endorsing higher gas taxes, it’s reasonable to think that he’s currying favor with the political masters in DC rather than looking out for the best interests of drivers.

The GM bailout may be a win-win situation for politicians and lobbyists, but it’s a lose-lose proposition for taxpayers and the economy.

P.S. If you want some auto bailout humor, here’s a spoof on the Chevy Volt, an advertisement for the new GM Obummer, a couple of good political cartoons, and a very funny video on the Pelosi GTxi SS/RT.

Trade Problems May Not Always Call for Trade Answers

The federal system of government in the United States has the invaluable consequence of enabling policy experimentation.  If a state legislature is considering adopting a particular policy, it can often look at the experiences of other states that have tried that policy before.  A recent study from the Milken Institute in California tries to take advantage of such potential comparisons to offer ways that California could increase its dwindling share of U.S. exports.  It is a valiant effort, but California’s decline is not the consequence of inadequate trade policy and no amount of export promotion is going to fix it.

The study begins by comparing California’s decline in export share to the dramatic rise in cross-border trade originating from Texas, the nation’s leader in goods exports. After using Texas’s success as an example of how California is lagging behind, the study decides not to use Texas as a model for reform and instead focuses on other states that have used export promotion (subsidy) agencies as case studies for how California can improve its bureaucracy to reverse the current trend.

If the success of Texas is what California should seek, then why not look at Texas as a model for reform? The study says that Texas is “unique” because it 1) has no export promotion agency, 2) has a low cost of doing business, and 3) has benefited from increased trade with the growing economy of Mexico by virtue of NAFTA-enabled integration. These differences seem to point to clear policy choices: don’t worry about export promotion (easy), improve your state’s business environment, and be close to Mexico (done!).

If it becomes more business-friendly, your state will have more business, export-oriented business included.  Since we’re looking at Texas as a model, may I suggest improving the business environment by lowering taxes and reducing regulation.

Now, I realize that the Overton Window for politically feasible reform proposals in California may not include lowering the cost of doing business. It makes a lot of sense for the authors of the study to point out the root causes of different outcomes in Texas and California but still seek a different solution more palatable to Californian sensibilities. I think their specific proposals for enhancing the capacity and quality of the export promotion process are insightful and well-supported.

There is a larger lesson in all of this for national economic policy. Increasing exports through the National Export Initiative has been a major goal of the Obama Administration’s economic recovery plan, and subsidizing loans through the Export-Import Bank has been a primary tool in that endeavor. But the people of the United States don’t need more bureaucracy to engage in more trade. They need policies that remove artificial barriers and decrease the cost of doing business—international and otherwise.

Mitt Romney’s Contrived Trade War

The Obama administration filed a formal complaint with the World Trade Organization on Monday alleging that the Chinese government is bestowing various prohibited subsidies upon Chinese automobile and auto parts producers to the tune of $1 billion and that Beijing is, accordingly, in violation of its commitments under the WTO Agreement on Subsidies and Countervailing Measures.

There are reasons to shake one’s head at this move, including the apparent hypocrisy it reveals of an administration that spins the $85 billion of subsidies it heaped upon two U.S. car companies and the United Autoworkers union as its chief economic accomplishment. Of course that figure doesn’t even include the $12-$14 billion in unorthodox tax breaks granted to GM under the bankruptcy terms; $17 billion in funds committed from the TARP to GM’s former financial arm GMAC (which received taxpayer support to facilitate GM auto sales); GM’s portion of the $25 billion Energy Department slush fund to underwrite research and development in green auto technology; and the $7,500 tax credit granted for every new purchase of a Chevy Volt, and more. (Full story here.)

To complain about $1 billion of Chinese subsidies is – shall we say – a bit rich.

Moreover, the filing of the WTO case reveals some of the unseemly perquisites of incumbency. A large concentration of the beneficiaries of the GM bailout resides in Ohio, a state that has had the administration’s strategic attention since its reelection campaign began in November 2008. But in case that largesse wasn’t enough to secure their support in November 2012, a large concentration of the beneficiaries of a successful U.S. WTO complaint also resides in Ohio, which is where – by Jove – the president was speaking when word of the WTO complaint became public.

It is all exasperating, no doubt.

But the bigger and more disconcerting story in all of this is the apparent ascendancy of economic nationalism within the GOP. Romney’s persistence in trying to brand himself the “most protectionist” or “biggest China basher” in the presidential race sort of forced Obama to bring the WTO case – or at least expedited the timetable. Have you seen the Romney ads? Have you read the shrill RNC taunts that cite the widely-discredited, union-funded Economic Policy Institute’s figures on job losses caused by trade with China? Strange bedfellows, indeed!

It was once the case – not too long ago – that Republican candidates argued in support of trade and the freedom of Americans to partake of the opportunities afforded by the global economy. But things, apparently, have changed. The nationalistic strains within the Republican Party have strengthened since 2009. I explained why this was happening in this 2010 Cato paper, which is excerpted below:

Frictions in the U.S.-China relationship are nothing new, but they have intensified in recent months. Tensions that were managed adeptly in the past are multiplying, and the tenor of official dialogue and public discourse has become more strident. Lately, the media have spilled lots of ink over the proposition that China has thrived at U.S. expense for too long, and that China’s growing assertiveness signals an urgent need for aggressive U.S. policy changes. Once-respected demarcations between geopolitical and economic aspects of the relationship have been blurred. In fact, economic frictions are now more likely to be cast in the context of our geopolitical differences, which often serves to overstate the challenges and obscure the solutions.

A sign of the times is a recent commentary by Washington Post columnist Robert J. Samuelson, in which he declares: “China’s worldview threatens America’s geopolitical and economic interests.” That statement would seem to support a course of action very different from the course implied by the same columnist 18 months earlier, when he wrote, “Globalization means interdependence; major nations ignore that at their peril.” That change of heart appears to be contagious.

Understandably, there is angst among the U.S. public, who hear frequently that China will soon surpass the United States in one economic superlative after another. Some worry that China’s rise will impair America’s capacity to fulfill or pursue its traditional geopolitical objectives. And those concerns are magnified by a media that cannot resist tempting the impulses of U.S. nationalism. Woven into stories about China’s frantic pace of development are reminders that the Chinese have not forgotten their two-century slumber—a period of humiliation and exploitation by foreign powers.

A recent National Journal cover story describing areas of bilateral policy contention—which the article laments as “frustrating” the fact that U.S. experts see “few alternatives to continued engagement” —features three menacing photographs of Chinese military formations, one picture of North Korean leader Kim Jong Il flanked by members of the Chinese military, and one photo of the Chinese foreign minister shaking hands with Iranian President Mahmoud Ahmadinejad.

Subtly, and sometimes not, the media and politicians are brandishing the image of an adversarial China. In Chinese reluctance to oblige U.S. policy wishes, we are told that China selfishly follows a “China-First” policy. In the increasing willingness of Chinese officials to criticize U.S. policies, we are told of a new “triumphalism” in China. In the reportedly shabby treatment of President Obama by his Chinese hosts on his recent trip to Beijing, we are told that the “Chinese have an innate sense of superiority.” But indignation among media and politicians over China’s aversion to saying “How high?” when the U.S. government says “Jump!” is not a persuasive argument for a more provocative posture.

China is a sovereign nation. Its government, like the U.S. government, pursues policies that it believes to be in its own interests (although those policies—with respect to both governments—are not always in the best interests of their people). Realists understand that objectives of the U.S. and Chinese governments will not always be the same, thus U.S. and Chinese policies will not always be congruous. Accentuating and cultivating the areas of agreement, while resolving or minimizing the differences, is the essence of diplomacy and statecraft. These tactics must continue to underpin a U.S. policy of engagement with China.

In this campaign, the RNC seems to be fighting to position itself to the protectionist side of Obama, daring the president to take action – a dare the president has accepted, inflating his political credit in places like Ohio. In response to Governor Romney’s assertion that the president had been soft on China and that he, Romney, would label China a currency manipulator on his first day in office, Obama created the Interagency Trade Enforcement Center, which resonated politically with the target audience. While the challenger blathers about the president’s alleged fecklessness in dealing with China, the president responds by bringing new WTO cases against Beijing. The most recent complaint, relative to the strident tack Mitt Romney is advocating, is the more responsible, more pro-market course of action. If Romney is to be believed, his trade actions would have far worse consequences for the economy.

Instead of focusing on the real sources of economic stagnation in the United States – including the uncertain business climate inspired by the bailouts, the proliferation of costly and superfluous new environmental, health, and financial regulations, a tax code that is in constant flux, frivolous torts, an education monopoly that fails to produce enough talent backstopped by an immigration system that chases it away – Mitt Romney has chosen to blame America’s woes on China. THAT is the message the Republican presidential candidate, with the full backing of the RNC, brings to the voters in Ohio, whose fortunes are increasingly tied to America’s engagement in the global economy. As of July, Ohio’s unemployment rate was 7.2 percent, more than one full percentage point lower than the U.S. rate of 8.3%. Ohio’s economy is growing on account of trade – particularly with China, the state’s third largest market and destination of $2.7 billion worth of Ohio’s output in 2011. Just look at this bar chart that depicts the importance of China to Ohio, and conversely, the costs of a real bilateral trade war.

Governor Romney should ditch his trade warrior schtick pronto, and start explaining to the electorate how pro-trade policies – including the freedom of corporations to invest abroad (to offshore a la Bain Capital)– help enlarge the economic pie. Puffing out the chest to appear the biggest protectionist in the race is bad economics and bad politics.