Monday, July 12, 2010

Wheat Subsidies: A Scam for the Ages

A great example from today's The Gartman Letter about how government agricultural subsidies generate significant and costly economic distortions and inefficiencies: 

"One of the axioms of economics is the simple notion that if you subsidize the production of anything you are going to get more of it… and usually more of it than you need. Our favorite example of that was back in the 1970s and 1980s when the US government subsidized durum wheat production in the Dakotas primarily. We got more durum wheat than we could use, so we had to subsidize the export of that wheat to Italy primarily.

Italian pasta makers gladly took the subsidized overproduction at newly subsidized prices that were below the world price of that wheat, and produced wonderful pastas that they exported to the US. The US pasta producers protested and got the government to put a tariff on the imported pasta! In other words, American tax payers “paid” to have too much wheat grown; “paid” again to have that excess wheat exported and “paid” again to buy the pasta they cherished from the Italian pasta producers… and all along the way there were more and more government employees needed to supervise each level of subsidies and tariffs. It was a wonder to behold! It was a scam for the ages."

Dennis then uses this example to ask "how anyone could be surprised to find that new home sales have fallen off the edge of a precipice in recent months following the “incentives” for buying new homes put into effect late last year and expiring several months ago this year?"

Update: Wheat farmers continue to receive very generous subsidies, more than $30 billion has been paid out between 1995 and 2009 to more than a million farmers, see data here and here.  More than $2 billion has been paid out in each of the last two years (2008 and 2009). 

14 Comments:

At 7/12/2010 8:19 AM, Anonymous Hieronymus said...

In the never-ending lib/con debate, this I know: All the stuff that "feels" good ends up doing more damage than the stuff that "feels" bad.

Free(er) markets may indeed increase income disparity (and, um... so what?), but all that "leveling of the playing field" does, in ANY arena, is distort outcomes and increase overall waste (and, hence, reduce overall opportunity, achievement, prosperity, and freedom).

I am nearing the conclusion that Lib pols know all this and that their actions are driven by other than pure motives (e.g., power).

 
At 7/12/2010 9:39 AM, Anonymous Anonymous said...

I am nearing the conclusion that Lib pols know all this and that their actions are driven by other than pure motives (e.g., power).

Nearing the conclusion?? What would it take to push you over the edge, the establishment of a Cheka?

 
At 7/12/2010 9:50 AM, Anonymous Anonymous said...

At once, hilarious and pathetic. The workings of government never cease to amaze, as Ronald Reagan pointed out in this brief segment of his famous address - "A Time for Choosing":

One such considered above criticism, sacred as motherhood, is TVA. This program started as a flood control project; the Tennessee Valley was periodically ravaged by destructive floods. The Army Engineers set out to solve this problem. They said that it was possible that once in 500 years there could be a total capacity flood that would inundate some 600,000 acres. Well, the engineers fixed that. They made a permanent lake which inundated a million acres. This solved the problem of floods, but the annual interest on the TVA debt is five times as great as the annual flood damage they sought to correct. Of course, you will point out that TVA gets electric power from the impounded waters, and this is true, but today 85 percent of TVA's electricity is generated in coal burning steam plants. Now perhaps you'll charge that I'm overlooking the navigable waterway that was created, providing cheap barge traffic, but the bulk of the freight barged on that waterway is coal being shipped to the TVA steam plants, and the cost of maintaining that channel each year would pay for shipping all of the coal by rail, and there would be money left over.

He was later fired by General Electric in 1962 for challenging the Depression-era project.

 
At 7/12/2010 9:51 AM, Anonymous gettingrational said...

There is a simple solution: let's call it OWEC (Organization of Wheat Exporting Countries). If the U.S. joined Canada, Australia and former Soviet countries then prices could be set in ballrooms of Swiss hotels. The only subsidies would be for wheat potentates and their grand entourages. Gluten-free legislation by the U.S. Congress would enforce relief to U.S. consumers. This scenario is just brainstorming not a personal endorsement.

 
At 7/12/2010 11:30 AM, Anonymous Sigli said...

"Free(er) markets may indeed increase income disparity"

Free (er) markets decrease income disparity when recessions are allowed to run their courses. Debtors ("the poor") default (on "the rich"), and are liberated as accumulated wealth paper vanishes. Higher excess capacity spurs price wars. This hurts corporate profits and benefits the consumer, who can now purchase more product for the same dollars.

It's progressive policies and bailouts that increase income disparity as they protect the status quo.

 
At 7/12/2010 12:13 PM, Blogger Ron H. said...

Where's Benji??



Sigli Said:

"Free (er) markets decrease income disparity when recessions are allowed to run their courses. Debtors ("the poor") default (on "the rich"), and are liberated as accumulated wealth paper vanishes."

That's great! I think you've nailed it.

 
At 7/12/2010 12:17 PM, Anonymous Matt said...

Enter a zip code in the search box at this site to see who's getting how much in farm subsidies:
http://farm.ewg.org/

 
At 7/12/2010 12:38 PM, Blogger juandos said...

Matt, that link is excellent and thank you for putting it out there...

 
At 7/12/2010 6:37 PM, Blogger Benjamin said...

I hate all rural subsidies, and Reagan's example of the TVA is one of a thousand such gong-show relics out there, infesting every rural zip code in the country.

Good luck on cutting any of it back. The Red Bloc--Republican Senators from farm and rural states--will crush any efforts at free enteprise in the hinterlands.

Add rural spending to the hundreds of billions spent on our coprolitic and parasitic military sector.

Waste, waste, waste--and you are paying for it.

 
At 7/12/2010 8:21 PM, Blogger Kathy Hall said...

http://heartscanblog.blogspot.com/2009/10/name-that-food.html

And I bet you didn't know this about wheat. Check out what Dr. Davis says about it at the above link.

We have an epidemic of obesity, diabetes and heart disease and wheat is a big part of it

 
At 7/12/2010 11:49 PM, Blogger juandos said...

"...and Reagan's example of the TVA is one of a thousand such gong-show relics out there, infesting every rural zip code in the country"...

OMG! This is inanely silly!

Hey pseudo benny, did anyone ever show you what the google or yahoo search engines do?

Reagan leaves General Electric

Reagan was fired by General Electric in 1962 in response to his referring to the TVA as one of the problems of "big government".[2] Reagan would subsequently reiterate his points at the 1964 Republican National Convention, in his speech "A Time for Choosing"[3]:

"One such considered above criticism, sacred as motherhood, is TVA. This program started as a flood control project; the Tennessee Valley was periodically ravaged by destructive floods. The Army Engineers set out to solve this problem. They said that it was possible that once in 500 years there could be a total capacity flood that would inundate some 600,000 acres (2,400 km2). Well, the engineers fixed that. They made a permanent lake which inundated a million acres (4,000 km²). This solved the problem of floods, but the annual interest on the TVA debt is five times as great as the annual flood damage they sought to correct. Of course, you will point out that TVA gets electric power from the impounded waters, and this is true, but today 85 percent of TVA's electricity is generated in coal burning steam plants. Now perhaps you'll charge that I'm overlooking the navigable waterway that was created, providing cheap barge traffic, but the bulk of the freight barged on that waterway is coal being shipped to the TVA steam plants, and the cost of maintaining that channel each year would pay for shipping all of the coal by rail, and there would be money left over"...

 
At 7/12/2010 11:49 PM, Blogger juandos said...

"...and Reagan's example of the TVA is one of a thousand such gong-show relics out there, infesting every rural zip code in the country"...

OMG! This is inanely silly!

Hey pseudo benny, did anyone ever show you what the google or yahoo search engines do?

Reagan leaves General Electric

Reagan was fired by General Electric in 1962 in response to his referring to the TVA as one of the problems of "big government".[2] Reagan would subsequently reiterate his points at the 1964 Republican National Convention, in his speech "A Time for Choosing"[3]:

 
At 7/12/2010 11:49 PM, Blogger juandos said...

This comment has been removed by the author.

 
At 7/13/2010 8:30 AM, Blogger Paul said...

"Good luck on cutting any of it back. The Red Bloc--Republican Senators from farm and rural states--will crush any efforts at free enteprise in the hinterlands. "

Speaking of the hinterlands, Obama is pushing a massive rural broadband initiative as part of his idiotic economic "stimulus." Did he join this Red Bloc you speak of?

 

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