December 17, 2007

Modern Day Robin Hood

By Benjamin Artz

The classic economic argument of equity vs. efficiency is constantly going on all around us.  Should the government use resources paid for by tax payers to bail out irresponsible sub-prime mortgage holders?  Should the government use hard-earned tax money to provide for lazier people in society?  Should the government aid farmers in the rural communities and allow the richer urbanites to suffer?  Congress is writing a $286 billion farm bill that does just that.  It gives federal tax dollars to farmers to make certain they survive.  The question is: do they still need the relief?

Farmer income depends both on the how much crop production they can muster but also on the price of their crop; and prices have been skyrocketing.  Between May and September, the price of wheat doubled and most other crops are either at or near record highs.  High crop prices are likely to persist as developing economies develop bigger diets.  For instance, according to The Economist the average Chinese consumer who ate 44 pounds of meat in 1985 will eat 110 pounds this year.  And of course in agriculture, all prices are generally tied together since it takes crops to feed cattle. 

Although diets are increasing across the world, that does not explain this year’s surge in food prices.  However, ethanol subsidies do.  While in 2000 the country converted about 15 million tons of corn into ethanol, this year it will convert about 85 million tons.  As a result of government subsidies for ethanol production, many farmers switched to growing corn rather than other crops and in turn contributed to higher prices for other crops.  Indeed, this year’s corn harvest is predicted to be 335 million tons, an increase of more than 25% over last year.  What is worse is that this ethanol is less efficient and dirtier to produce than sugar ethanol imported from South America.  In fact, according to the World Bank the amount of corn it would take to fill an SUV’s tank with ethanol would feed a person for one year.

Since crop prices are likely to remain high as a result of fatter world diets and flourishing, yet inefficient, ethanol subsidies due to high oil prices, are huge farm subsidies really necessary any more?  That brings us to Wisconsin.  Of course Wisconsin has many farmers, many of whom grew corn this year and reaped the benefits of higher prices.  As a result they will likely invest in bigger, better equipment and pay their workers higher wages.  These are good things for rural economies in Wisconsin.  But where higher prices help farmers, they hurt poor urbanites that already struggle to pay the bills.  And as America is subsidized to produce so much agriculture and therefore import very little and export a lot, poor countries that could otherwise profit from exporting agricultural goods have no incentive to do so. 

At the end of the day, farm subsidies take money from hard-working tax payers and give it directly to farmers which comprise a very small proportion of the population.  Just as well, high food prices hurt tax payers even more, especially the poorer ones.  Now is a good time for the government to scale back its farm bill without hurting the farmers.  It is time to give Robin Hood a day off.