Farm subsidies are one of the grossest misallocations of resources perpetrated by the US government. For all of the things the Obama budget gets totally wrong, this one he got right (sort of). Obama’s recently submitted budget will eliminate farm subsidies to those farmers making over $500,000 per year (hence the sort of, not a total victory for free trade). This is a huge step and one that no president dare take until now. Already this action has stepped on the toes of Congress, as representatives have already come out to reassure their lobbyists constituents that the farm subsidies in place for this year will remain.
Most estimates place the value of subsidies at 22 percent of all US farm production. That’s a staggering figure. Over one-fifth of all value created by US farms is pure government subsidy. Many believe that this money is going to poor and struggling yeoman farmers. Not so. First, farmers as a class are not poor. The government itself puts the average farm income nearly 30 percent higher than the average American household. Moreover, the average farmer has a net income nearly 8 times the average American (nearly $1 million).
According to the Organization for Economic Co-operation and Development, farm subsidies end up being a food tax on the average American household of $146 per year. That’s a hefty tax whose buden falls heaviest on the working poor. The worst offender is probably sugar. Sugar subsidies, at times, have caused Americans to pay double the world market price. Currently the average world spot price is around $.14/pound. US subsidies guarantee American sugar producers a minimum of $.23/pound.
Will there be a hang over for the farmers coming off subsidies? You bet. When any good is subsidized that heavily, it incentivizes the overproduction of said good. When these subsidies end, the will no longer be any floor holding the price up and will demonstrate just how poorly those resources were allocated. Farmers need to immediate see the change coming and reallocate resources toward profitable ventures. This may mean a variety of innovative changes or simply diversifying land use and cutting costs.
At the end of the day, though, this is a huge victory for liberty. I understand that a good chunk of subsidies will still exist, but in this one small arena, we’ve achieved a victory for liberty in this country.
Teacherman Free trade, Government Spending, Interventionism budget, cotton, farm subsidies, misallocation, obama, resources, sugar
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