...and checked the numbers as soon as I got to work - it works out beautifully.
If you entirely eliminated farm subsidies you could double NASA's budget and stay deficit neutral.
I'm feeling a personal crusade coming on... it's a catchy budgetary switcheroo isn't it? Farm subsidies are by far the dumbest public policy we do from the perspective of social scientists. Cold, hard economists hate them because they distort the market. Warm fuzzy non-economist social scientists hate them because they put developing nations at a disadvantage. It's a big bone of contention in all international fora dealing with economics. And it's farming for crying out loud. We've been farming for thousands of years. Help farmers prevent run-off or fight agricultural diseases if you want to but don't just pay them to produce food. Even more left-leaning small-farm movements hate it because the bulk of the subsidies go to agribusiness.
Space exploration and research, alternatively, has all the hallmark market failures we think about. It's an externality - lots of benefits that don't accrue to the people carrying the costs. And as I've pointed out before, it's not just any externality - it's an intertemporal externality. The real benefactors haven't even been born yet. There are enormous start-up costs. Those start-up costs for getting into space are lowering dramatically, but they're still going to be large for actually colonizing space. Basic research has well known market failures associated with it. Moreover, this is all brand new. It's an "unknown unknown" - the sort of ignorance of the future that Keynes identified as a major driver of underinvestment.
If you have even the slightest inclination to adopt market failure logic, you'll recognize that they apply to space research and exploration. If you have even the slightest inclination to acknowledge market efficiency, you'll recognize how dumb farm subsidies are. Even if you lean towards skepticism on either side you have to agree that this switch is at least a marginal improvement. Only the most extreme elements on either side could suggest this would actually make things worse.
Anyway - that's my new way of making this all concrete: end agricultural subsidies and double the NASA budget.
UPDATE: Does anyone have any good information on farm subsidies? The whole system seems very complicated. I was initially refering to a "farm income stabilization" figure from Wikipedia. There are a lot of programs, though, and I'm not sure what makes the most sense to talk about. This site has some information - it puts the figure a little lower, just short of being able to double NASA. I'd appreciate any other thoughts or information. I'm also turning up stuff on insurance. I'm not sure how those programs work, but an insurance program doesn't seem to be as blatantly problematic as a straight subsidy either.
Tuesday, January 4, 2011
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I am with you on this one, all the way. Where do I sign up and send my contribution?
ReplyDeleteYou can make a check out to "Daniel Kuehn's beer fund"...
ReplyDeleteNo, seriously though - this does seem like something worth promoting. I am genuinely in a crusading mood although I'm not entirely sure what that would entail. I'll let you know if I come up with anything.
It makes no sense that a giant industrial nation with a food surplus for more than a hundred years has farming subsidies.
ReplyDeleteIt makes no sense that the same nation also has food stamps when it has an obesity problem and food forming a very low percentage of people's spending.
It makes no sense that the same nation has to throw away cheap loans on housing when it has been showing horrifying large urban sprawls since its postwar period, and even threw away so many cheap home loans, it entered a financial crisis for god's sake! And down that slope, one can only reach many other conclusions.
In the rich world, no subsidy makes an iota of sense. As historian Clyde Wilson once said, "If the government has to take away taxes to give it back to us to stimulate us, I wonder why they took the money in the first place."
I think food stamps make more sense if you think of it as an income subsidy that has the added bonus of directing people away from booze in the grocery store. If you think of it as an income subsidy rather than a way of keeping people fed, it's a lot more defensible.
ReplyDeleteI'm not sure I agree on your point about subsidies in rich countries. I would have assumed the opposite - it's precisely in rich countries where you start to get affluent enough to be able to tolerate the waste that is inevitable from government intervention. Now - those subsidies should be smart. They should not be directed towards things we know how to produce and hat we've been producing for thousands of years, like houses and food. Rich countries should not do dumb subsidies, but they have wider scope than poor countries to engage in smart, externality-correcting subsidies.
"There are a lot of programs, though, and I'm not sure what makes the most sense to talk about."
ReplyDeleteI wonder if that's the same reason for congress's continual renewal of the policies.
I'm mostly familiar with European subsidy programmes and (the Swiss and Norwegians are among the most egregious in this regard), but I might have some documentation on US figures in my notes somewhere. If not, I'll email an old prof of mine who's very much into this kind of thing.
ReplyDeletePart of the problem - as you've intimated - is that concise data is hard to come by since agricultural subsidies come in many different forms... Trade barriers and tariffs often being more distortionary than direct cultivation subsidies. Of course, a good place to start for the former is the WTO website.
While I'm certainly opposed to farm subsidies in their current form (i.e. scope and size), Daniel you may be interested that agricultural lobby groups often utilize strong (positive) externality arguments when arguing their case. This is particularly true in the European countries that I referenced above and involves things like the obvious (food security and autarky) to the more creative (preservation of rural land to the benefit of tourism and the halt of inexorable urbanisation).
PS - I'm not entirely convinced of the merits of doubling NASA's budget, myself. (Well, particularly not in the current economic climate...) If anything, I'd like to see more R&D on energy infrastructure and technology but of course I'm rather biased ;)
ReplyDeleteOn the precipice of the interwar period, looking down into the Nazi and Soviet abyss I could buy food security arguments. This is why I am not all the harsh on Keynes's "National Self-Sufficiency" essay from 1933.
ReplyDeleteI don't think the Swiss have all that much to worry about in this regard today.
As for the "more creative" point, I actually find this more convincing (at least the value of rural culture, etc.). The dirty little secret is, of course, that subsidies hurt more than they help here. At least in the U.S. (perhaps its different elsewhere) they primary go to agribusiness.
If subsidies only went to farms below a minimum acreage or something like that, you wouldn't hear me extolling its efficiency or optimality - but you wouldn't really hear me raise a stink about it either.
Oh ya, I don't buy into the self-sufficiency arguments at all. (Well, saying that, perhaps some in reserve is always a good idea.*) I more meant "obvious" in that it's what you would expect proponents to argue.
ReplyDelete* I see it as kinda analogous to a "convenience yield" in the oil and other commodity markets. You attach extra value to stored inventories of oil (that you already own) above futures or forward contracts just to guard against unforeseen shocks.
http://en.wikipedia.org/wiki/Convenience_yield
I didn't figure you were making that argument... I guess I was just defending thinking in terms of externalities against abuse by rent-seekers who fear the label.
ReplyDelete