Congress Lets Ethanol Subsidies and Tariffs Expire

Ethanol subsidy expires; local effect unknown

Hooray for some fiscal responsibility!  Congress allowed a $6 billion corn subsidy to expire and a tariff on Brazilian ethanol to die with it.

This is good for several reasons.

*Firstly, with our massive deficit and national debt, cutting wasteful spending should be a priority and this is a biggie in terms of uselessness.  $6 billion is a drop in the bucket as far as cutting spending is concerned, but one has to start somewhere.  After all, many drops and the bucket is filled.  :)

*Secondly, corn ethanol takes crops that could be used for food and turns them into gasoline.  This drives up the cost of corn and makes the poor pay higher food prices, both at home (where it's less of an issue) and abroad (where it is more).  Ethanol production in Brazil, however, uses stuff leftover from processing sugar (cane fibers and various syrups) to make fuel, so real food isn't wasted.  In any event, even if more sugar could be distilled from the stuff used to make ethanol fuel, sugar is much less of a necessity than corn is.  One does not need sugar to survive, but one definitely needs staple grains.  This is one area where I actually agree with Fidel Castro.  And lest anyone think I'm some left-winger, so does The Economist.  Both the bearded tyrant in Havana and The Economist think Brazil's ideas are better.

*Thirdly, this might be a sign the corn lobby and the sugar lobby aren't as strong as they used to be.   According to one of my former professors at the University of Georgia, the sugar lobby has pushed for high tariffs on sugar that made it cheaper to use high-fructose corn syrup in soda.  Here's a link corroborating this.  And some material from the government too, lest you think the first site is too ideological.  Ending a tariff on imported ethanol made from sugar will benefit Brazilian sugar producers--who've integrated sugar and ethanol production--and I'm sure the American sugar lobby doesn't like that At All.

However, without the subsidy, I suspect ethanol made from sugar will be more competitive now and it will be in the American sugar producers' interest to borrow the Brazilian technique and put it to work here.  If they can grab a big chunk of the American fuel market, they won't need tariffs and quotas to protect themselves from foreign competition.  Getting rid of those will in turn benefit sugar producers in other countries, to whom increasing exports is a matter of survival.

*Fourthly, with the tariff gone, the Brazilians will be able to sell us more of their ethanol and use the profits to increase their own production, which in turn might eventually lead to lower gas prices here.  If we're going to be importing energy resources, they should be from responsible countries like Brazil and not unstable or unfriendly places in the Middle East.

So good on Congress for letting some unnecessary spending expire and making our trade with Brazil just a little bit freer.  And good for the corn-ethanol people for not putting up too much of a fight.

Obama Does Good: Free Trade

I supported Ron Paul in the Republican primaries and voted for John McCain (however reluctantly) in 2008, so I'm no Obama supporter.

However, I am capable of acknowledging good decisions on the part of politicians I don't agree with.

http://www.nytimes.com/2010/07/08/us/politics/08exports.html?_r=2&partner=rss&emc=rss

Once upon a time, it was the Democratic Party that was the party of free trade, while it was the Republicans who were protectionist.  This is a good sign on Obama's part.  Hopefully if it passes, it will increase the volume of trade between the U.S. and the other three nations and improve the overall economy.

(The Hawley-Smoot Tariff made the Great Depression worse; hopefully turning to free trade and not protectionism will prevent a "double-dip" recession.)

One would hope South Korean restrictions on imported beef and automobiles from the United States would be dealt with as part of any free trade agreement.  After all, the point of free trade is that it's unrestricted.

Of course, it's time for my perennial bugbear, farm subsidies.  I don't think South Korean farmers are in any particular danger of being dumped on by subsidized U.S. agricultural imports, but farmers in less wealthy nations like Panama and Colombia might be.  Hopefully any agreement will include action on farm subsidies.

Dumping on Mexico

I got a couple of comments on the farm subsidies article, which was posted on my friend Fred's blog "Seeking Liberty," and when I went to read them, I found that Wordpress automatically generates links that readers of blog articles might be interesting.

So I found this one here:

http://economix.blogs.nytimes.com/2009/12/15/dumping-on-mexico/

It elaborates on the point I made about "dumping" subsidized crops on Mexico, which undermine Mexican farmers that cannot compete with them because they can't get the same kind of subsidies our farmers can.

No comments in the article about illegal immigration--one logical consequence of Mexican (and I believe other Central American) farmers not being able to make a living anymore and understandably not wanting to starve to death--but some people in the comments section pointed this out.

A Constructive Suggestion...

A conclusion I've reached in recent years is that anyone can complain about something.  Coming up with a solution to a problem, however, is far more respectable and constructive.

I've complained about farm subsidies in the Political Chat section of AH.com and the one good argument I've heard in favor of it is that it keeps agricultural land in agriculture.  If farm subsidies were abolished or drastically cut, many farms would be sold to developers and urbanized.  This destroys or at least greatly diminishes their potential agricultural productivity.

(Dave Howery, who made the argument, said topsoil is trucked away and dumped somewhere.  From personal experience, I've seen areas cleared down to the clay and then left fallow turn into fields with tall grass and young trees in less than two years, but that's not the same as consistently-productive farmland.  It could easily be years if not decades before the soil quality is restored.)

Dave was concerned about the US becoming dependent on imported food, something that could theoretically happen if a significant quantity of our farmland is turned into suburbs.  And then there's the whole issue of America's food exports on top of that.

So I pondered a solution to the problem.  Here's what I've come up with:

Abolish agricultural subsidies and when the farms fail (let's not kid ourselves--many will), have the National Park Service or whoever is in charge of this kind of thing buy the land and let it return to nature.  It will regain its productivity as the years go by and thousands of plants and animals live and die above it and, if need be, it can be cleared and farmed again.

In areas where many farmers sell out and leave the land, you could restore large chunks of territory to its natural state.  Animals long absent from the territory could be reintroduced.  Heck, I've heard someone suggest restoring elephants to North America (they lived here during the Pleistocene period, not all that long ago in terms of geologic time), while if you really wanted to go hog-wild and had the necessary science, you could bring back the mammoths.

(I do hope nobody is going to seize on my comment about mammoths and use that to write off my entire argument as bonkers.)

Now, lest I be accused of supporting some un-conservative government spending program, unless one is shelling out colossal sums, a one-time payment of buying the land of farmers who no longer find it cost-efficient to farm is financially more responsible than paying out subsidies year after year, forever and ever, amen.

Furthermore, it would pay to be prudent if you get a large tract of territory being returned to a natural state and you want to bring back large animals.  I sometimes frequent FreeRepublic, the online loony-conservative forum, and one of them cited a case of a man who got into legal trouble after shooting a bear that was heading towards his sheepfold in a threatening manner.

If one is going to reintroduce large and potentially dangerous creatures, this should be done only in areas where there aren't any people left at all.  Furthermore, the rights of people to defend themselves, their families, their livestock, and their property against predators should be strengthened accordingly, lest there be incidents.

More Farm Subsidies Foolishness

Here's something I read online today.  The US is now in the business of subsidizing Brazilian cotton farmers as well as our own.

http://news.yahoo.com/s/time/20100412/us_time/08599197896300

Let's see--instead of cutting $147.3 million per year from our own budget and thus helping, however incrementally, to close our yawning deficit, we instead spend an additional $147.3 million per year to effectively buy off Brazil.

That's spending nearly $300 million per year instead of cutting nearly $150 million per year.  That's not something we need to be doing right now.

The article also has the good point that cotton production is rather environmentally taxing.  I'm not some hippie who would rather people suffer than plants, but if our subsidy policy is encouraging irresponsible use of natural resources, that's another reason to get rid of it.

My Farm Subsidies Editorial

Imagine you’re a cotton farmer in West Africa. One day, the man who comes to buy your cotton to be exported does not show up. You go to the marketplace and find there is nobody willing to buy your cotton. In fact, there is cheaper cotton available from abroad.

You now cannot sell your crop, or at least you cannot sell it for very much. You need to buy food and fertilizer, and your children need medicine and money to pay for schooling. You’re in trouble now.

Are these the workings of the free market? No. The reason the foreign cotton was able to price the West African cotton out of the market is because it came from the United States and was heavily subsidized.

Cotton subsidies are one of the most notorious examples of government agricultural supports and it gives American cotton producers an unfair advantage over more efficient producers abroad. For example, in Burkina Faso, it costs one-third as much to produce cotton as it does in the United States. According to the British aid agency Oxfam, the only clear advantage American cotton growers have over competitors in Africa is their ability to get government subsidies.

If American cotton subsidies were eliminated, the income of West African cotton farmers would increase 2.3 to 5.7 percent. This additional income could pay for health care for four to ten individuals for an entire year, schooling for one to ten children, or enough food to feed one or two children for an entire year. American cotton subsidies are more than double the amount of humanitarian aid we send to these countries every year.

Cotton subsidies aren’t the only villain. According to the San Francisco Chronicle, heavily-subsidized American corn has flooded Mexico under the North American Free Trade Agreement, never mind the fact that “dumping” is illegal. According to The Public Citizen, this corn is 30 percent below cost and Mexican farmers cannot compete with this. This has destroyed much of Mexico’s agriculture and caused widespread hunger among the 15 million Mexicans who depend on the corn industry.

According to the World Bank, if First World nations eliminated all agricultural subsidies and tariffs, 144 million people would be pulled out of extreme poverty by 2015. In the case of Africa, if the continent increased its exports by 1 percent, it would generate an additional $70 billion each year, more than five times the amount the continent receives in foreign aid.

Not only are American agricultural subsidies destructive to foreign economies, but they are destructive to our own. American agricultural producers already received enormous sums of money when then-President George W. Bush added an addition $190 billion over 10 years in farm subsidies to the federal budget. In a time of deficits, recession, and war, this kind of spending to essentially secure the votes of Iowans cannot be tolerated.

Furthermore, the practice of subsidizing agriculture puts the U.S. government in the position of both causing and treating major American health problems. Corn subsidies make products containing unhealthy high-fructose corn syrup cheaper and thus more easily purchased and consumed in enormous quantities.

High-fructose corn syrup contributes to many health problems like obesity and diabetes and those cost money. According to the New York Times, three-fourths of health-care spending goes to prevent “preventable chronic diseases,” many of which are caused by a poor diet. For example, U.S. spends $147 billion to treat obesity and $116 billion to treat diabetes, as well as hundreds of billions more to treat cardiovascular diseases and other cancers that result from the typical unhealthy American diet. 30 percent of the increase in health-care spending in the United States in the last 20 years can be attributed to obesity alone. If corn subsidies were cut, the amount spent on health care in this country would decline greatly.

Furthermore, by destroying the Mexican corn industry, farm subsidies have also contributed to illegal immigration. The former farmers in Mexico, not content to starve at home, have come to the United States regardless of whether it is legal for them to do so. According to the Federation for American Immigration Reform, illegal immigration costs state, local, and federal governments $45 billion to $55 billion per year.

Although the farm subsidies were originally intended to preserve small family farms, the primary beneficiaries of federal largesse are not these farmers, but large agribusinesses. Nearly three-fourths of all subsidies went to the top 10 percent of agribusinesses in 2001. For example, Arkansas Tyler Farms received $8.1 million in subsidies, 90,000 times the average payment of $899. Several Fortune 500 companies like Chevron and John Hancock Mutual Life Insurance receive large sums. These subsidies enable agribusinesses to buy out family farms or undercut them using economies of scale. This produces what one government official has called “the plantation effect.”

In short, Americans are being taxed to make the rich richer and the poor poorer, at home and abroad, and to make themselves fatter besides.

President Barack Obama, in one of the few fiscally conservative things he has done, has advocated cutting these subsidies. In his Fiscal Year 2010 budget, subsidy payments to farmers making over $500,000 per year are being phased out, as are subsidies for cotton storage. The elimination of storage payments alone will save $570 million, while eliminating payments to high-income farmers will save $126 million. Eliminating direct payments to farms with sales over $500,000 will save $9.765 billion, while abolishing federal payment of crop insurance premiums and underwriting gains and fees will save $5.184 billion.

The above figures do not include the reduction in health-care costs that the resulting price increases in soft drinks will entail, the reduction in foreign aid that the enrichment of countries whose agriculture we are destroying will make possible, and the reduction in the costs of illegal immigration.

Earlier versions of this column appeared on the blog “Seeking Liberty,” in The Red and Black, and The Griffin Daily News.

“Seeking Liberty”

The Real Cost of Agricultural Subsidies

The Red and Black

Farm Subsidies Create Poverty

The Griffin Daily News

Agricultural Subsidies a Drain on the Budget