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Source link: http://archive.mises.org/7008/farm-bill-follies/

Farm Bill Follies

August 20, 2007 by

A farm is a business, nothing more, nothing less, writes Dan McLaughlin. It’s reason for existence is to serve society, and the sign it is doing so is measured by its profitability. Any business that cannot succeed without government support is unsound. It needs to change, to improve, to become more efficient, or get out of the business. Government support of inefficient producers in any industry only makes it more difficult for those who are efficient and trying to do it right. It also encourages special interests to fight for their share of the loot from the shakedown of taxpayers. FULL ARTICLE

{ 31 comments }

Kathy H August 20, 2007 at 10:13 am

Interesting article. One other consideration: We would probably all agree that government subsidies and other meddling has distorted the farming business model. Farmers make economic decisions, planting decisions, and so forth based on subsidies instead of on markets. The government has succeeded in turning farming into a surreal, government influenced industry.

Now, what happens when free trade is introduced into the mix? Given the distortions already in place, if we pull the rug out of under the farmers, and they go under, are Americans prepared to eat mostly imported food? Should we be like the Romans and import most of our grain? It is easy to imagine our food suppliers blockading our ports in time of war. These are the inevitable results for nations that choose to stop growing their own food.

Anthony August 20, 2007 at 10:52 am

Obviously the better solution would be to try, as far as possible, to undo the malicious effects of previous intervention – which is to say it is sometimes better to prefer gradualist approaches (the ultimate end always being disengaging the State from the market to the maximum.)

Brian August 20, 2007 at 11:22 am

If one looked in to the writings and example of farmer and writer, Joel Salatin, you would see the model of the “potential” free market local farmer. I say “potential” because even as Salatin has makes a very good profit from selling his grass-ranged animal produce he is encumbered by a large number of federal, state and local regulations that cut into his business. Salatin is an outspoken critical of the Farm Bill and is considers himself a libertarian. He recently wrote a book titled “Everything I Want To Do Is Illegal
War Stories From the Local Food Front.”

Santiago Dussan August 20, 2007 at 12:04 pm

It is a good article which shows that free market is the only way to assure an efficient production of any commodity, including justice services. In a free market, bad, injust and inefficient judges would be thrown out of it just as the farmers mentioned in the article.

NM August 20, 2007 at 12:45 pm

“A farm is a business, nothing more, nothing less. It’s reason for existence is to serve society, and the sign it is doing so is measured by its profitability”.

I have to disagree. The reason for any business to be in existence is to make a profit. If society is served in the process, then so be it. If social service and not profit is to be the fundamental reason for a particular enterprise, then it should be a “non-profit” organization, whatever that means. I am talking Rational self-interest here. Unprofitable businesses will shut down – that’s one of the laws of Laissez Faire capatalism. No rational individual would want to continue to operate an unprofitable business.

Bob Shoof August 20, 2007 at 1:49 pm

Farm subsidies are a travesty that show that the government must be dragged kicking and screaming into economic and technological advancement.

Nelson August 20, 2007 at 2:00 pm

“It is easy to imagine our food suppliers blockading our ports in time of war.”

If you had the choice of living in the country with more food, or the country with a better military, which would you choose in time of war?

I was trying to find the Machiavelli quote that said something to the effect that “Armies need weapons, food and gold to be effective, but with the first they can acquire the other two.” If someone can find the exact quote (and translation), let me know.

DickF August 20, 2007 at 5:10 pm

Good paper but the unholy alliance between the farmers and government didn’t just start in the 1930s. If you look at the history of the US you will see the political power from Jefferson, “the gentleman farmer,” to the current crop of subsidy bound politicians. Even Bryan’s “Cross of Gold” speech was significantly inspired by farmers and farm prices.

DickF August 20, 2007 at 5:23 pm

NM,

Don’t become too cute with laissez faire. You must understand that the free market inspires cooperation and agreement because any successful business must serve the needs of people. As I am sure you understand any business that does not will fail.

This spirit of cooperation is in contrast to the spirit of greed that is fostered by socialism. Man must get his sustenance from the state and that forces him to go to battle with his fellow man to gain the favor of the bureaucracy. This is an important distinction between a business and a state social program.

The reason for any business is to provide a service to consumers first, then from this comes profits. You place profit above the consumer and you are destined to fail. You place the consumer above profit and you will make profit hand-over-fist.

The reason I am responding to you is because we laissez faire types must not allow socialism to lay claim to service when the claim is not deserved. It is laissez faire that provides for the wants and needs of people, not socialism. Socialism forces conflict.

Lee Van Ruler August 20, 2007 at 5:29 pm

Why is it that the memory is so short? When my father purchased his 2nd farm (1961), his products were sold at wholesale while he purchased at retail. Corn was $1.80/bushel and a new tractor was $7,000.; now, (up till 2006) corn was still not much more than $1.80/bushel and the tractor was $50,000.00 – due to the retail structure of the providers and passed on union costs. A ‘fair’ return by the corporation is 7-10% – and the farmer gets what is offered. Without some of those long term subsidies, your food would be comparable in cost to your housing costs. The bad in any business supported by the government is highlighted without a full and complete study of the isolated items that may impact the whole. Should all farm subsidies be eliminated – maybe not; should some be eliminated due to tarrifs and other ‘special interests’ such as sugar – more than likely.

Bob Shoof August 20, 2007 at 6:08 pm

Lee: The whole reason the subsidies are there in the first place is because the government is trying to protect American farmers from cheap foreign food. The very existence of subsidies suggests that food will be cheap even after the subsidies are eliminated.

Furthermore, I don’t see how you can compare food prices to tractor prices. It’s apples and oranges.

Anthony August 20, 2007 at 6:30 pm

I agree with Bob – this is especially true in Europe.

P.M.Lawrence August 20, 2007 at 7:57 pm

The assertion “A farm is a business, nothing more, nothing less. It’s reason for existence is to serve society, and the sign it is doing so is measured by its profitability.” has some hidden assumptions, ones on which the whole argument stands or falls. The easiest way to highlight them is to show how the French have treated farms historically – and why, in their own terms, it makes perfect sense to prop them up.

Farms are not businesses (say the French, or did until very recently), they are producers of a vital raw material: conscripts. The best way for France to get more conscripts is to encourage the production of peasants, which means running farms in labour intensive ways to create a demand and nursery for new peasants. Only an idiot would try to make individual farms profitable rather than treating them as cost centres for France’s larger needs.

Obviously this is 100% rational, so it cannot be stopped by reasonable argument – the values are different. The French would simply dismiss NM’s reasoning as irrelevant and immaterial.

What is not so obvious is that part of the argument still applies even if you are after profit: making farms optimise profit does in fact throw certain costs elsewhere, because there are market imperfections that show up in any employment situation. The costs and benefits of hiring and firing also work through as vagrancy costs, usually replaced with social security costs (I gather that in the USA “social security” has a narrower meaning; this is the wider one). Kathy H, we would not “all agree that government subsidies and other meddling has distorted the farming business model”; it has changed one set of distortions for another, and sometimes there is actually an improvement (from being right twice a day on the stopped clock principle).

Anyhow, a certain degree of subsidy for farms does make sense, to offset these market imperfections; this is the Pigovian approach. Of course, it also applies for all forms of employment, and Coasian approaches are also available – giving rise to people having more direct personal ownership in economic activities (but enslaving them is also Coasian).

Dave August 20, 2007 at 10:19 pm

Mr. Lawrence,

It behooves you to demonstrate these alleged “market” imperfections and how the government could somehow correct and improve those imperfections.

I don’t know much about French agriculture, but I do know what “conscript” generally means: one who is forced to do labor by some authority, generally entailing service in the army.

Considering the nature of concription, the immediate repsonse to one who claims that this sort of corcion, or any sort of corcion, for that matter, is rational should be: “Rational? For whom?” There is no way one could give a rational, realistic argument that this is “rational” once one acknowledges that one group of people-generally the elitists- are gaining at the expense of others.

Or do I misunderstand what you mean by “conscripts”?

I don’t really agree with Dan McLaughlin’s article, by the way. For one thing, it ignores the fact that there is NOT a free market in farming, nor where (or are) the Mom and Pop stores operating in a free market. Dan’s article shows many elements of what Kevin Carson calls “vulger libertarianism”.

Jonathan Garsey August 21, 2007 at 12:30 am

If you are examining with a critical eye the subsidies for small farmers, then you should even more critically examine the many forms of subsidies received, directly or indirectly, by large agribusinesses. For example, family hog farming in North Carolina has been obliterated by large scale hog farming that has taken advantage of the environmental laws written for small farms. The large scale hog farms are able to undercut costs of the small farmer simply by not bothering to properly process the hog waste thus polluting the environment and passing the savings onto the consumer. Another example is Monsanto, who genetically modifies corn to be compatible with their herbicides and insecticides; and, also has obtained patents on corn genes. Monsanto then prosecutes innocent farmers whose crop contains some of their patented genes when Monsanto should be reimbursing the farmers for contaminating their crops with their unwanted genes.

Anthony August 21, 2007 at 6:40 am

I’ve heard of Monsanto – quite a vicious company that one.

Connie August 21, 2007 at 10:08 am

My husband and I are ‘small’ dairy farmers. We milk 80 cows, have been at it for 20 years, and just recently hired 1 part-time employee. Our gov’t payments amount to 1% of our total income. We would do just fine without it, but we are so highly regulated I figure if the gov’t is going to tell me what to do they can help pay for it. Much of it is nonsense and just keeps the gov’t employees busy. However, I know several large farms, both dairy and crop, that rely heavily on gov’t payments, to the point that gov’t payments determine their profit level. So the idea that bigger is more efficient and therefore more profitable is false.

I have no problem with the US becoming a net importer of all food commodities, we are in some catagories already, I can grow my own. Knowing what I know of the conditions under which imports are produced, processed, and shipped I wouldn’t want to have to rely on that for my own use.

Bob Shoof August 21, 2007 at 2:32 pm

Connie: “However, I know several large farms, both dairy and crop, that rely heavily on gov’t payments, to the point that gov’t payments determine their profit level.”

I agree, and I think that’s a far bigger problem than the pittance the smaller farms get from the government. But I think you’ve misunderstand our point. We’re not saying throw the small farmers under the bus so big business can thrive. We’re saying let the market take its course. Whether that is good for big or small business is irrelevant to us.

Connie August 21, 2007 at 6:54 pm

Bob – I was responding more to the article. The writer seems to believe small is inefficient and is only able to survive with gov’t assistance, whereas big is efficient and profitable, good for the consumer, etc. and thrives without gov’t assistance. Blanket statements just don’t work in the farm sector. Success and failure comes in all sizes. The farm bill is written more to appease processors than farmers. My elected representatives are so much more knowledgable than me when it comes to farming, though, that I’ve stopped wasting my time presuming to advise them on farm issues. (At least that’s what they tell me)
Connie

P.M.Lawrence August 21, 2007 at 10:53 pm

Dave, it does not ‘behoove [me] to demonstrate these alleged “market” imperfections and how the government could somehow correct and improve those imperfections’ – I didn’t suggest the latter just there (though it happens to be true, sort of) and I already did the former, when I wrote:

The costs and benefits of hiring and firing also work through as vagrancy costs, usually replaced with social security costs…

As it happens, there is a “government fix” of sorts; it consists in the government removing certain burdens it put in through the way it funds social security via consolidated revenue raised from unhypothecated taxes (or, in some countries, from policing to keep vagrancy under control that it pays for in the same way). “Unhypothecated” means not connecting the payers to the things done, in this case not connecting employers to some of the costs of any job losses. The things governments do now make a bias towards retrenching or not hiring in the first place, and the fix works like a Pigovian subsidy, although it isn’t an actual subsidy but a virtual subsidy – a tax break that reduces burdens on actual and potential employers, so undoing the bias (it’s not a subsidy since the government isn’t really giving funds back, just not taking them in the first place). I describe it in various articles on my publications page http://member.netlink.com.au/~peterl/~publicns.htm.

Of course, a “government fix” only makes sense because we are starting from a position where governments are active, and describing how to wind their activities back (though, knowing them, they would probably try to do it wrong, maybe insisting on handling any wind back via a huge bureaucracy to manage “entitlements”). The right fix is the other one I mentioned, a Coasian or individual level fix (no, I won’t spell that out again – reread my earlier post if you must). You really shouldn’t have jumped to the conclusion that I was recommending a “government fix”.

And you shouldn’t have to ask “rational for whom?” about french conscription. I told you for whom – for the French. They are actually eliminating conscription right now, and facing great popular resistance. Sure, the objectors don’t register that this is an imnprovement; mostly, they are people who already went through conscription, and now they want the benefits of protection by newer conscripts. It’s the same logic as retired people voting for payments to support retired people, feeling right with themselves since they themselves paid for an earlier round. This time, it’s the vast majority of Frenchmen who are in that situation, not a smaller group of retired people.

P.M.Lawrence August 21, 2007 at 10:56 pm

Drat. Finger trouble. Please ignore a lot of the emphasis from “behoove [me]” to “when I wrote” inclusive.

P.M.Lawrence August 21, 2007 at 11:05 pm

It’s my day for typos. My publications page is actually at http://member.netlink.com.au/~peterl/publicns.htm.

P.M.Lawrence August 21, 2007 at 11:07 pm

Sigh. This system doesn’t like that final full stop. Try this for the publications page: http://member.netlink.com.au/~peterl/publicns.htm

Paul Marks August 22, 2007 at 2:50 am

The idea that taxes and regulations “protect” the United States from imports is false.

Indeed the level of taxes (caused by the level of govenment spending – especially on the “entitlement programs”) and the level of regulations are the principle reason why American production is becomming uncompetative.

This includes farm production. For example about half of all apple juice in the United States is imported.

“But all nations subsidize farmers so the United States must”.

This is an “argument” that is wrong on two levels. Firstly if other people do a bad thing (and taking money by the threat of violence to give to farmers, or anyone else, is bad)it does not make it any less bad for oneself to do it.

But also (and this should interest people who cling to the, false, idea that economics is an empirical subject) all nations do NOT subsidize farmers.

For example, New Zealand used to have an extenstive system of subsidy and control – it no longer does (and it still has a very large farming industry).

With the end of government subsdies should come the end of governmment regulations – all government regulations (it is not in the interests of American farmers to kill their customers with unsafe food).

That is the deal that farmers should get – no subsidies, but no regulations either.

Bob Shoof August 22, 2007 at 9:39 am

P.M. Lawrence: “And you shouldn’t have to ask “rational for whom?” about french conscription. I told you for whom – for the French.”

Well that’s great for the majority of the French who willingly choose to be conscripted (seems like an oxymoron to me). But what about the minority who are forced against their will? Or do you take the same position as many in Democracy-obsessed societies that the minority doesn’t really matter?

BTW, I’m all for tax breaks.

Paul: “The idea that taxes and regulations “protect” the United States from imports is false.”

I don’t know that anyone is arguing that taxes and regulations protect farms, unless I missed something.

P.M.Lawrence August 22, 2007 at 10:06 am

No, Bob Shoof, you didn’t read it right.

Practically all Frenchmen do not want to be conscripted, before they are called up (although they have usually been indoctrinated to approve in principle). After they are out, practically all of those want the next lot conscripted so they can get some benefit from the system in their turn and to justify their own past sacrifice to themselves. Because of the age ranges involved, that means that practically all Frenchmen eventually start favouring it in practice as well, and a majority at any calendar date are in that group.

That does not mean I approve. It’s amazing how often people read a description as approval.

Paul Marks, although New Zealand still has a very large farming industry even after its reforms, that’s not the most relevant metric. It lost a lot of farmers who suffered unnecesarily from a badly handled (by government) transition. This is usually obscured by “survivor bias”, because government statistics accurately but misleadingly show how much better off farmers are now per capita; the statistical base leaves out the people who went out of business, producing spurious metrics just like shooting the sick to improve health statistics (or the way discharging patients early improves hospital statistics). Babies were thrown out with the bathwater.

By the way, “everybody else is doing it” really does make a valid case at the national level; there is a Prisoner’s Dilemma involved. Ending protection unilaterally really does hurt the country doing it, at least in most cases, even though everybody would – eventually – be better off if everybody stopped doing it. That’s because there are other mechanisms involved over and above those considered by the theory of comparative advantage, in particular just who the gainers from reform are. Since governments have distorted that too, farmers usually lose and it can even happen – often does happen – that the gainers aren’t in the reforming country (they are usually mediated by multinational firms domiciled or with beneficial owners elsewhere).

Dave August 22, 2007 at 6:43 pm

Ok Mr Lawrence, fair enough. I now understand what you where saying; sometimes it takes a two by four across the head for me to get the point…but I will eventually get it.

I am still not sure about the vagrancy costs that you mention in the context of hiring and firing, I need to think more about that. Do you address this somewhere on your website? (Asks the man too lazy to look himself.)

By the way, how do you prefer to be addressed? I remember reading somewhere on Kevin Carson’s blog where you discussed your preference but I can’t remember the details. “Mr. Lawerence” sounds snide to my ears- which is not the intent- unless, of course, “Mr. Lawrecne” is how you wish to be addressed.

Dave August 22, 2007 at 6:51 pm

Ignore my question about where you discuss the vagracny costs of hiring firing. I had forgotten you gave a direct link to your publications page. The paper(s) discussing this are easy to find; now I need to read and digest them.

Bob Shoof August 22, 2007 at 7:39 pm

P.M. Lawrence: Sorry, a careless mistake on my part.

P.M.Lawrence August 22, 2007 at 8:27 pm

Just call me P.M.Lawrence, or use my initials PML.

Incidentally, I shall probably be changing my ISP at the end of the week, so my publications page may go into hiatus.

refinancing November 13, 2011 at 11:43 pm

Great piece of writing!!

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