Politicians simply can't help themselves when the opportunity to pander presents itself—especially when under the guise of "protecting America." The overwhelming passage of the 2008 farm bill by both the House and Senate is a prime example. While the bill contains some well-intentioned provisions (we suppose), it's riddled with ulterior motives:
Farm Bill Full of Pet Causes Backed by Individual Lawmakers
By Jim Abrams, Associated Press
The bill is meant to provide expansive funding for nutrition programs, land stewardship and biofuel programs—all stuff, in our view, done better by anyone but the government. The recent spike in food prices provides an amplified platform for the bill's proponents, who staunchly defend the programs, naturally. The bulk of spending (around $200 billion) is slated for emergency food assistance and food stamp programs. Conservation programs get around $27 billion, with $23 billion going to crop insurance. Foreign food aid gets a smidgen. Find the bill's highlights here:
FACTBOX-Highlights of $289 Billion U.S. Farm Bill
By Staff, Reuters
And roughly $43 billion will go towards crop subsidies. Of course, farm subsidies usually result in higher prices and lower productivity, though their intent is just the opposite. The last farm bill was signed into law in 2002. It supported the production of "a reliable, safe, and affordable supply of food and fiber." Since then prices for key crops are up almost 300%, according to the Heritage Foundation.
This is politics as usual and not indicative of real change, so while we prefer less government meddling, we don't expect much stock market impact, if any. Even leading proponents agreed that while the bill "has reform," it could have more, but if they attempted more they claim "we wouldn't have gotten a bill." Translation: True reform would involve jeopardizing our re-election bids.
Though the bill's proponents would have us believe they're protecting America by aiding the ailing American farmer, overall, farmers aren't as bad off as purported. In fact, we continue subsidizing a farming industry that seems to be doing just fine, thanks. According to the department of agriculture, the average farmer's annual income today is $90,000—well above the national median. And get this—married farming couples with joint incomes of up to $1.5 million still qualify for crop subsidies under the bill. Said otherwise, government subsidies are going to millionaires. There ARE two Americas! Farmers and non-farmers!
The subsidies in this bill, like most subsidies, create imbalances. How? For one thing, the bill introduces the first federal program that will shelter growers from poor yields and low market prices, therefore undermining the natural ebb and flow of free markets, which prove time and again to deliver better solutions and more prosperity than government meddling. Further, such legislation can damage the prospects of freer trade, which could be much more effective at mitigating food shortages and high food prices.
Politicians should champion global trade and allow supply/demand-driven free markets to create solutions meeting increasing demands from a growing global economy. What's better? Buying corn from subsidized American millionaires? Or from emerging markets which, without the subsidies, might have the better-quality, lower-cost option? (That's a rhetorical question.) But we're comforted first that though the $300 billion sounds like a lot, it's actually spread over five years and the roughly $60 billion per year is a tiny drop in global GDP; and second, politicians didn't ram through greater harm, ahem, reform. Election years are great for big rhetoric and little action.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.