Sunday, June 12, 2011

Justifying farm subsidies

There's been an interesting debate in the pages of the New York Times Book Review about the work of Freidrich Hayek.

Peter Dreier, a political science professor in Los Angeles, wrote in to justify some forms of government intervention. However, even he had a few problems when he came to farm subsidies.

He argues that 'during the Depression, federal agricultural subsidies saved family farms and rural jobs.' Anyone taking a social market position would accept that you have to take exceptional measures in a recession. The problem is that temporary crisis subsidies become permanent and create a set of clients who are prepared to use time and resources to lobby in their defence.

Drier admits, 'Today, a vast majority of farm subsidies go to large agribusiness conglomerates that don't need them, rather than to small family farmers.' It's an interesting question whether marginal businesses should receive some general subsidy as distinct from rewards for positive externalities such as environmental goods.

He goes on to say, 'food stamps, an indirect subsidy to farmers, clearly improve the general welfare.' However, that is the trick. By wrapping up subsidies to the poor in the farm budget, the agricultural lobby is able to win the support of Democratic urban congress members who otherwise would have no interest in maintaining farm subsidies.

It looks like there is an appetite in the House of Representatives to cut them against the background of an out-of-control federal budget deficit but it will be interesting to see what the eventual outcome is.

By the way, if you haven't seen it already, I would recommend the 'Keynes and Hayek rap': Rap . There is also a Round 2 in which JMK and 'Freddie' go toe-to-toe on the current recession.

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