Feed on

If I had any interest in running for office and had to convince a group of voters that I had some smart policies that everyone could support, here is one I might begin with. Remember my rules for policy proposals – they cannot be partisan in the sense that the solution is a natural favorite of either party, and they cannot be outright measures to either shrink or expand the size of government. In some sense, consider these marginal improvements in policy that actually would have a chance of passing even in this climate.

By now it is very evident that US farm subsidies are an awful idea, with subsidies for the growth of feedstocks for ethanol and other biofuels the champion of global food disruptions, environmental degradation and wasting of massive amounts of resources. People and politicians in both parties know this. Environmentalists know this. Even the farmers themselves know this. Yet we all seem to think that we have to be stuck in this unappealing equilibrium.

To give you a sense of the magnitude of the direct subsidies – over the past 15 years, total farm subsidies have amounted to over $250 billion and these ignore the value of import quotas and tariffs such as the tariff on imported sugar based ethanol from cheaper and more efficient Southern country competitors.  We also know that these subsidies are not often lavished on the poor, small farmers that we have in our heads when we think of “supporting farmers.” Indeed, 10% of farmers collect 74% of all subsidies (so much for government addressing inequalities!). I don’t need to get into the economic and environmental problems with these subsidies, take them as given for now, or perhaps I will put up a series of slides from class in the future.

Today, we send about $20 billion per year in direct subsidies to farmers. Many people like myself simply advocate ending the subsidies cold-turkey. And I do, at least when I am not in polite company. In polite company, that is not a “reasonable” change. But this is: end every farm subsidy and replace it with a dollar-for-dollar subsidy for wind turbine production and installation. Now many of you will say I am crazy, especially since you understand full well the problems with “green jobs” programs and government central management. But I ask simply that you think like an economist for a moment and ask yourself: “as compared to what?” Sure subsidizing wind is an awful idea when we compare it to a well-functioning market economy with respect for the rule of law and property rights and with minimal externality problems. But that is not the world we live in. If we replace crop subsidies with turbine subsidies, I would view this as a no regrets policy – much like I would view a policy of taxing carbon and other “undesirable” goods as favorable so long as they replaced capital gains, personal income and corporate income taxation.

On the environmental side the benefits of doing this are obvious – even if windpower is not a reasonable solution to our energy problems (it may be, but that post is for another day). With farmers planting wind mills instead of corn, we would possibly reduce the acreage under tillage, which reduces soil erosion and nutrient runoff into the watersheds. And by farming windmills instead of corn, we are very likely to reduce the amount of water used on farms as well as reduce the amount of CO2 generated from the subsidized activities. With windmills on the farms, it is still possible for farmers to dedicate their land to the growing of important foodstuffs, driven by actual supply and demand factors and not political factors. This would also eliminate pressure to grow foodstuffs on land unsuitable for it. And with the extra income farmers would have from these subsidies, it might be the case that we would see an increase in land returning to its “natural” state and a better provision of habitat for all kinds of plant and animal species.

On the economic side, the distortions from the subsidies to wind should not be any different from the distortions from subsidizing particular farm activities.  Food prices would likely fall (for meat too, since corn is a valuable input into meat production) around the world, but prices of farmland would not fall, since the rents to owning farmland would not be dissipated by this policy change. Furthermore, even if these subsidies are overspending for the implementation of wind, say by spending $500 to clean up a unit of CO2 as compared to the $25 of damage that CO2 causes today, that is still an improvement over what ethanol was doing. So, we are likely to get an environmental improvement as compared to the existing farm policies with the theoretical possibility that turbine production and generation could ultimately be a cost-effective way of supplying lots of energy in an environmentally friendlier way than we do today (again, I am not reporting all of the possible problems with wind, per se, that is not the point of this post).

In many respects, replacing corn subsidies with windmill subsidies (somehow directed to farmers) is a “no regrets” policy. At its worst, even if it is a total failure, it is exactly as destructive as current farm policy. But this program has the potential, a very good one I would argue, to benefit both the economy and the environment, so long as the program of farm subsidies is ended concurrently. That means we don’t implement the second part of this policy (more subsidies for wind) with a promise to reduce farm subsidies over the next decade or two. It means they end cold turkey – perhaps with a one-year or two-year phase in of the program.

Politically and practically the “benefit” of this proposal is that it should keep the ingrained constituencies happy. On the demand side, the farmers are probably just as happy to “plant” steel wind turbines as they are corn – indeed, it requires far less work on their part. On the supply side, the bureaucracies should support it too – so long as the subsidy program goes to farmers the USDA and the DOE (both departments that should be boarded up in reality) would continue to exist and indeed would likely see their influence expanded. We still need to collect taxes for the subsidies, so the IRS does not lose any influence or jobs either. And of course these programs would not seem to alter the distribution of favors and influence in Washington – which as sickening as it is, seems to me to be the only way to get true support for any programs.

Such a policy seems to strike the trifecta of “good” policy: it improves economic outcomes, it improves environmental outcomes and it does not alter the political outlook in any meaningful way. Without resorting to the devils in the details of such a program, can we think of why this policy would also be doomed to failure or why I would never win the Congressional seat in my district by offering up such a bargain?

Here was the last edition in the series.

UPDATE: Yes, writing a post like this emanates from a certain amount of depression and self-loathing that have been increasing on this side of the farm. It almost makes me ill to “have to” write it.

4 Responses to “Policy Proposal, A Continuing Series”

  1. Rod says:

    I favor the establishment of a special tax credit for planting a windmill and the allowance of accelerated depreciation with the double-declining balance method of cost recovery. This alone should create or save at least 100,000 CPA jobs annually.

    You forgot to say what you’d do with the surplus dairy products and the farmer-held grain reserve. Blow them up with nuclear weapons? That way you’d get unilateral disarmament AND happy farmers at the same time.

  2. Harry says:

    The first part, about abolishing the USDA, is a great idea.

    The part about subsidizing wind farms, and injecting Co2 into the argument, is far-fetched.

  3. Harry says:

    How about abolishing the EPA, DOE, and the Department of Labor, for three trillion or more in outlays and friction?

    Keep the Department of State, and keep the Department of Defensce, but rename it The Departmet of War.

    I have no idea what to do with all of those empty office buildings in Washington. A whole top floor for my daughter, fee simple, and the bottom floors rented as pied-a-terres for anyone who has contributed to the Unbroken Window, Speedmaster getting first ribs?

  4. jb says:

    So as I see it there is a net marginal gain here, eliminating an extremely poor subsidy but replacing it with one that is arguably less damaging. And it could work politically, so why not embrace it?

    I see the logic, but it also is a surrender. Essentially it seems fatalistic to me. We seem to be shrugging our shoulders and saying “hey, ubsidies are never going to go away, so we may as well get some really smart central planners to find those that are least destructive but appease the incumbent rent seekers.”

    I think on balance it is better to fight the good fight, continue to teach and maintain excellent blogs like this to point out the inherently destructive natureof subsidies. A good post, nonetheless, it made me think…

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