Subsidies v. Windfall Profit Tax for Agriculture

The U.S. Congress recently passed a $307 billion agriculture subsidy bill. This subsidy passed both chambers of Congress by a large margin despite the fact that U.S. Agriculture is already making very healthy profits (Up about 60% in two years), at least partially due to another subsidy – American Ethanol policy.

It’s not clear to me why the government should be subsidizing farmers (although it’s clear why certain politicians favor subsidies*). The default and correct position of the government is generally not to subsidize an industry. It doesn’t really seem fair to take money from some and give it to certain businesses, generally it’s not productive, and it causes political economic problems. So, we generally need a compelling reason why we have a special case necessitating subsidies. However, it isn’t a strategic policy to protect our food supplies, as United States has abundant food and is a net exporter. The United States has about the best farm land in the world and will always have a vibrant agriculture sector (baring the worst global warming predictions coming true).

One reason some could offer to protect farmers is to protect them from the ups and downs of commodity prices. We see no reason to protect other industries from these pressures. In fact, populist politicians want to punish oil companies for the rising price of crude. I don’t recall hearing much talk about instituting a “windfall profit” tax on farmers. Even though, unlike U.S. oil companies, American farmers are definitely using the government to manipulate prices and cause an artificial shortage. The agriculture lobby’s manipulation of the market has far worse effects than high gas prices - it causes people to starve (but people in the 3rd world who have little say in U.S. policy).

So, we’re spending a lot of money to further enrich American farmers and kill people in the Third World (And not even for freedom). I say stop it. I reluctantly give Bush credit for his veto. John McCain gets credit for taking a strong stand against the bill in the Senate. Barack Obama, who says he will fight the special interests, supported this incredibly regressive policy just as he did the 2005 energy handout – He loses credit.

*Subsidies go to the organized special interests with the most political power. Agriculture is a well definite sector that is easy to organize into an effective lobby, and has some broad-based appeal (protect the vaunted family farm, right?). More importantly, states with large agriculture lobbies are vastly overrepresented in Senate and also have a disproportionate role in choosing the President (via the Electoral College and the Iowa Caucus).