No Policy, Just Rents: An Insider’s Perspective on US Agricultural Subsidies

0:00We're going to talk about farm subsidies today and of course we're going to start with the proposition and end with the proposition that farm subsidies are bad. You probably, if you know any economics at all, don't really need us to explain why. What we want to do is draw in on an insider's perspective. Now we brought a true insider, a real rent seeker, my dad, Les, who's a farmer. We're going to give you some real world specific examples of how bad they actually are. What we're going to basically point to is that these programs fail by their own terms. It's kind of like a horror movie. You know how it's going to end, but you kind of want to watch anyway because you're going to be entertained. So first off, just a quick overview of what we're talking about here.

0:49over the last fifteen or so years we've got almost a quarter trillion dollars in money handed out to US farmers under various programs so we're talking about quite a bit of money and quite a few people, as much as almost two million people receiving the money every year but really what's going on here is as with most rent seeking programs it's the elite rent seekers that top ten percent that's receiving the vast majority of the benefits or the handouts Now, there's several official rationales provided by the supporters of these things. We need food security. You'll hear the politicians especially say this a lot. What the hell does it mean? Well, we don't want to rely on foreigners to supply us with food. We'll see that this rationale is totally irrelevant on the grounds that the U.S. does have a huge advantage.

1:41We have tremendously productive farm grounds, so we'd probably be exporting food in a totally Laissez-faire Economy. But even so, even if we weren't, what would that mean? That would mean that foreign countries have a comparative advantage in providing us food. So why would we want to lose out on the gains from trade there? This is going to fall apart. Now the environmentalist cause is pretty huge. A lot of these government programs and farming are designed to appease the environmentalists. We're going to solve all your environmental ills from pollution, from unsustainable practices. We're going to see that this rationale, this argument falls apart entirely too, where we'll see a really interesting example of this. And the people really ultimately know this, the people who are promoting these things know it, so most of the time what they say is, well, we need a safety net for U.S. farmers.

2:34Some would call it welfare, some might call it handout. Some people around here might call it what it really is, legalized plunder, we're okay with that term. Economists of critique farm subsidies on many, many grounds. They're not needed. There's no public good here. You pay the farmer to provide the food. It's not a public good. They're not needed. There's no public good here. You pay the farmer to provide the food. It's not a public good. They're wasteful for the taxpayer. They distort the market in agriculture. They redistribute, again, the elite rent seekers.

3:20They're already pretty rich. It's not like they need it from some kind of socialist perspective. And it harms the poor people, the unseen foreign farmers who suffer from the actual reduction in farm prices, crop prices. Why the heck do they persist then and they continue even though economists are almost universally against them? Well, it's a classic public choice thing of concentrated benefits, dispersed costs, and again, it's a really elite group of maybe several hundred thousand people that are getting huge, reaping huge gains. We have several entities, the environmental working group, they're kind of a bunch of leftists, but they're good because they expose who's getting this money. and they've got these lists of who's getting, who's really cashing in on the farm subsidies.

4:07The top people are getting millions of dollars every year. So they're really interested in making sure this thing continues. Now the costs fall on the general taxpayer to the tune of maybe hundreds of dollars every year so it's hard for us to organize and try to fight it while it's easy and it's really in their self-interest for the people who are currently getting the benefits to keep We agree we entirely endorse all the arguments I just listed. Farm subsidies are economically terrible, wasteful, what have you. We want to kind of add another wrinkle to the argument against them. Farm policies are incoherent. They fail by their own terms, right? James James Boevard, who's this great libertarian journalist, sums it up really well. For almost every foreign program, there's another equal but opposite foreign program. So, when we try to discover what's the policy, what's the single driving force behind all these things, it's doing what politicians do best, handing out other people's money. So I'm going to,

5:16with that, turn it over to my dad, who's going to give some real-world, scary, interesting examples of this absurdity. Can you run that? I'll keep running this. Okay, Tyler told me to take my time in a hurry, so we could get the, that's what you do if you're a gunslinger. You know, you want to draw, you want to take your time, get your aim right, but you've got to do it in a hurry. And I wanted to give you a geography lesson on the high plains. We don't have time for that. All I can really say is that farming especially, not ranching so much, but farming on the High Plains, which would be the western portion of the Great Plains, is at best a very risky endeavor.

6:03If you can just kind of remember that, if you have questions later, I'll spend some time out there or whatever and tell you how risky it is. Looking at the chart, I just realized that I've finally achieved a milestone in my life. I've made it into that 10% category and a national category into that upper echelon. So I want you to have confidence that I am a qualified rent seeker. I know how to do it. I am, I have become, learned how to do this. I'm an expert game player at this. I want you to trust me on that. Just trust me, if you've got some questions about my credentials on that, I'll answer them out there later. I'll explain that. So, the High Plains is a short grass prairie, very risky area to farm. Go to the picture, Tyler.

6:55This is a bumper crop that is on my farm. It's about a one and four year possibility. Okay, that's enough on that. Let's go to the... Oh, that is grain sorghum. We call it milo. It's primarily used in livestock feed. You can make cereal and do some few things with it. It is edible, consumable by humans as well as animals. Okay, our glossary. I've got a few terms up here. Of course, everybody knows what the USDA is. FSA is the Farm Service Agency. The thing to remember about them, they pass out a lot of dollars.

7:42NRCS, Natural Resources Conservation Service, as their name implies, they're the ones that are the true believers, they want to take care of the land. And generally in your rural office, the FSA is on one side of the office building, across the hall is the NRCS. RMA is the risk management agency, subdivision of the USDA, also could be termed Federal Crop Insurance Corporation. DCP is the direct and counter-cyclical program, this is the one I call payment for being a farmer, that's all you need to know, the DCP pays you for being a farmer, don't have to do anything, grow, not grow, they just pay you that money directly.

8:30EQUIP, Environmental Quality Incentives Program, it's the one I call payment for being a rancher. CSP, Conservation Stewardship Program, payment for playing along with the USDA. I wanted to call it, you've been a good boy in the past, here's some money. If you keep being a good boy in the future, we'll give you more money. CRP, Conservation Reserve Program, that's payment for not farming. Other programs, if we have some time we'll talk about those. This is just a few of the programs and endeavors that the Department of Agriculture has.

9:16What we want to do next is get into a few specific examples. I truly could go on for hours and tell you about direct conflicts within programs that the USDA has. One program will head you this direction, the other program will head you that direction. Payment for both. So the first one we have, and this is a simple one, maybe it'll make you chuck a little bit, we're talking about spy versus spy. I know a lot of you are older here and I know, you might not admit it, you've read Mad Magazine and you remember spy versus spy. Well that's The situation we've got here, bats versus railings, under an EQIP contract, the Department of Agriculture will pay you to put in a stock tank.

10:05They cost there, they don't pay the whole thing. One of the requirements is to have a railing around that tank to keep young calves and livestock from getting into the tank and drowning. You've got to have that or you don't get your money. I was in the NRCS office the other day and the young technician hands me a brochure and he says, hey, this is good, read it. It directly encourages you to remove your railings from the tanks because bats and other birds, and I didn't know this, they drink in flight. They swoop down, get their drink and swoop up. And of course, if you have bats and these birds are highly desirable. If you have the railing around the tank, they can't drink in your tank. So consequently, you've got Habitat that encourages them to fly and hit the railing and drown, okay?

10:57So just a simple little example of two conflicting directions. The next one's a little more serious, and we call that Equip versus Equip. You can receive a direct incentive payment. The whole program and practice is very complicated. I'm just going to give you the very brief part of it. You can receive a direct incentive payment if you enter into a rotational grazing contract on your range land. And under this contract, you're to leave a half to a third of the standing forage at the end of the growing season. And it's very beneficial to the long-term health of your grass.

11:44That's about all I can say about it. you receive a direct cash payment for that. However, there's another equip program that is for the preservation of mountain plover habitat. The mountain plover is a little tweety bird that doesn't live in the mountains, it lives out on the plains, and it needs bare ground to nest. So under this other equip contract, you can receive direct incentive payments to graze that grass down to bare ground at the end of the season. So we've got one program that encourages you to leave four or five inches of standing forage. Another program that pays you to graze it down to the bare ground, about like this carpet.

12:34Are you with me? We can take real good care of the grass or we can take real good care of the mountain plover. both at odds with each other, but we'll pay it for both of them. Okay, the last example, now we're getting serious because we're talking about big dollars. There's dollars involved in these other two, of course, and this one's a little bit harder to understand and there's a lot of subtleties, but you remember spy versus spy. This is more spy versus spy versus spy. It's the Risk Management Agency versus the CRP versus the NRCS. This is happening a lot in our part of the world right now. It's very, very costly and just very quacky.

13:25It makes no sense whatsoever. The Conservation Reserve Program contract is a ten-year contract. It pays direct rents to take highly erodible farmland out of production and plant it back into native grass. A lot of those contracts are expiring and the farmer has the option to re-enroll for another ten years. And I want you to keep in mind the goal of CRP take the highly erodible ground out of production. So the farmer has to decide what to do with this ground. The same farmer has another 320 acres of native rangeland, never been plowed, never been farmed. The NRCS has a goal to get the rancher to leave that ground in grassland, not touch it, keep running cattle on it.

14:18So we've got the goals of the CRP and the NRCS in mind. Risk Management Agency is their purpose, that's the federally subsidized crop insurance. Their purpose is to help the economy of the farmer, not your economy, but the economy of the farmer. I want you to remember that with federally subsidized crop insurance, you can insure yourself a profit. Now, if you can tell me of another business that can insure a profit, I want you to talk to me afterwards. I want to look at the returns on it and the margins, and I may sell my place and go into that business. You can insure a profit. That's the honest truth. I can give you numbers. I could talk for hours about that and show you how it really works.

15:09So what does this farmer rancher do? Does he go into CRP, leave the grassland in production? Here's what he does. He re-enrolls the ground in CRP. He's going to get, in our area, over 10 years, $128,000 to leave that ground out of production for 10 years. Then he goes to his 320 acres of native rangeland that the NRCS would like him to leave that way. And guess what? He turns that into farm ground. Okay, then he goes to his private insurance company and purchases RMA subsidized insurance and guarantees himself a profit.

16:00So the results are that there's no net decrease in plowed land, so that CRP goals are negated. In fact, more highly erodible ground, poor farm ground, than the CRP ground, goes into farm production. Okay? There's no net crease in wildlife habitat, and that has become one of the big goals of CRP. It's evolved from taking highly erodible ground out of production, and putting even more productive ground, taking it out of production, to create wildlife habitat. And that's a whole other area. It's just whacked out. The ground with lower productivity is farmed, and the best case scenario for that poorer ground to the farmer would be a crop failure, because then you just go collect your insurance payment.

16:53You don't have to pay the cost of harvest, which lowers your margin. You're still going to make a profit, but it lowers the margin. So the best case is a hundred percent crop failure, collect your insurance check. Okay, questions, or wait, I'm sorry Tyler, just a small sampling of the incoherence here and as you could see he could go on and on and on so what's what conclusion do we draw from our economic analysis of this the only policy is rent seeking right because all these stated policies whether it's you know the policy goals the environmentalist or the policy goal of food security what all these other things and we only listed a few of the pertinent ones They're all negated by another government program that's working in an opposite direction.

17:42So this is just strictly about the money. It's all about the money, right? As one of my good friends in college said, politics is the world's second oldest profession. This is politics at its finest, doing what they do best, and of course closely related to the world's oldest profession. So this is what it is. Push your button for your government handout. That's all we have. So hopefully we'll have some questions at the end. Thank you very much.