- The 2014 farm bill provides a timely case study of the relevance of Becker’s theory.
- Indirect damage arises from lost opportunities to reduce tax burdens or to fund programs that serve both farmers’ & the public’s interest.
- No economic problem is solved by subsidizing farmers.
- Farm programs exist not because the public’s interest is being served but because the private interests of Congress are being served
The current so-called “do-nothing Congress” has an impressive resume of legislation left on the table: corporate tax reform, the budget, and the border crisis. Yet it was able to pass a trillion dollar 2014 farm bill. Why did the farm bill pass when so many other pieces of legislation didn’t?
It would be nice if Congress’s passage of the 2014 farm bill—and its creation of two new subsidy programs—indicated the arrival at a cost-effective solution to a problem that required federal involvement. Unfortunately, it seems that good politics trumped good governance—and there’s an explanation as to why.
About 30 years ago Nobel Prize recipient Gary Becker developed a theory explaining the two attributes political programs that gain enough political support to pass will have. First, they will do less damage to the economy than alternatives because economic damage gives political ammunition to opponents. Second, they can be disguised as good governance rather than good politics to deflect criticisms of their true purpose.
The 2014 farm bill, that substituted two new farm subsidy programs for two old ones, provides a timely case study of the relevance of Becker’s theory. The new programs the bill created—Price Loss Coverage and Agricultural Risk Coverage—were largely designed by House and Senate leadership with direct input from representatives of the beneficiaries of the programs.
Frank Lucas, chairman of the House Ag Committee (R-Okla.) stated the rationale for farm programs widely adopted by subsidy supporters:
“While they (farmers) do the hard work of producing our food, we have to do our part to support them. Without a safety net, a few bad seasons can put a farm out of business. When we lose that source of production, we don’t usually get it back. So maybe instead of speaking about this as a farm safety net, we need to start calling it a food safety net. Perhaps that will get the message out that commodity support keeps farmers in business, which keeps food on our plates.”
His rationale is easy to state and understand, and it allows supporters to argue that farm programs deserved taxpayer support because the public interest is served.
Yet in resolving the dilemma over whether the new subsidy programs would be tied to current crops and acreage or to a fixed number of acres based on what crops were previously planted, Lucas’s rationale was not implemented. His rationale for farm safety net programs would predict use of current acres because that would best compensate farmers for current financial losses. Becker’s rationale for farm programs, however, would predict that the new programs would use historical acreage because farmers would not have an incentive to plant for the program; thus economic damage—and the resulting political opposition—would be limited. The final decision to use historical plantings, insisted upon by leading Senate members of the 2014 farm bill conference committee, is consistent with Becker’s prediction of the importance of economic damage in determining the extent of political opposition.
Becker’s prediction that actual economic damage from new farm programs would be limited is borne out. But indirect damage arises from lost opportunities to reduce tax burdens or to fund programs that serve both farmers’ and the public’s interest. Examples include agricultural research, agricultural pollution prevention, invasive species control, transportation investments, food quality and food safety inspections, and nutrition programs.
This moves us to the second part of Becker’s theory: good politics disguised as good governance. A lack of food supply doesn’t seem to be a problem. Record crop income in recent years and subsequent record high land prices make it absurd to argue that crop subsidies are needed to maintain agricultural production capabilities in the United States. The argument that food security depends on crop subsidies is belied by the 50 percent of US corn production diverted to ethanol and exports and the 50 percent of US wheat production that is exported.
The fact that no economic problem is solved by subsidizing farmers demonstrates that farm programs exist not because the public’s interest is being served but rather because the private interests of Congress are being served. It is no wonder that record farm income had no real impact on the question of whether farm subsidies would continue.
Becker would predict that cutting farm subsidies to better serve the broad public interest will not happen without a dramatic increase in the political power of groups advocating for the public good. This is not likely to happen, given the diffuse nature of public good benefits and the highly targeted nature of the current subsidy programs to a relatively small number of farm households.
The 2014 farm bill limited visible economic damage, as Becker predicts. This kept the political climate amenable to its passage. But the many indirect economic damages show that the bill is better politics than better governance. Just as Becker’s theory states, Congress abdicated its responsibility to serve the public interest because politics demanded that private influential interests be served first.
Babcock is a professor of economics at Iowa State University and a contributor for the American Enterprise Institute’s agricultural policy research program.