A joke runs, “If you laid all the economists in the world end to end, you still wouldn’t reach a conclusion.” Economists are famous for disagreeing on fundamental questions, from health care to taxes to interest rates. So it’s worth listening when 87.5% of the American Economics Association agree the government should end farm subsidies .

And if a chorus of economists piques our interest, sharp attention is in order when the Cato Institute, Heritage Foundation, and National Review echo their usual opponents Environmental Defense, OxFam, and Robert Reich. For once, they are all in agreement, and they all agree farm subsidies are harmful. But with so many voices denouncing them, it is easy to mishear what farm subsidies are.

What Are Farm Subsidies?

Farm subsidies are annual payments from the federal government to agricultural producers. They come under several headings, titles, and programs. It is worth explaining the types of subsidies to better understand the debate surrounding them.

Subsidy payments can be “coupled,” which means the amount a farm receives is tied to its output in the year it gets the subsidy, in other words the more the farm grows the more money it receives. Other subsidies are “decoupled,” in which case the farm’s payment hinges on factors other than its output, such as its acreage, prices, and how much it grew in the past.

Loan Deficiency Payments are coupled subsidies. When the world price of a crop falls below a price called the “Loan Rate,” the government pays each farm the difference between the world price and the Loan Rate on every unit the farm sells. They have nothing to do with loans, and the name is a leftover from a past subsidy program.

Direct Payments are decoupled. Every year, the government pays a farm a fixed payment that depends on how many acres the farm cultivated in the past and how much the farm grew on those acres, no matter what current prices are.

Counter-Cyclical Payments act like a hybrid of the other two subsidies. Like Loan Deficiency Payments, the government pays a farm Counter-Cyclical Payments in years when prices fall below a “Target Price,” which is higher than the Loan Rate. But like Direct Payments, Counter Cyclical Payments are decoupled and depend only on the farm’s acreage and how much it grew in the past, not its current output.

There are other forms of aid to farms, including smaller subsidy programs for conservation, nutrition, and disaster assistance. Conservation subsidies are different because they pay farmers not to plant crops in order to raise prices and preserve lands. Also, the government uses import tariffs and quotas to prop up the prices farmers receive, by raising the price of foreign produce that might compete. Farmers also pay less per acre in property taxes, and the government helps pay their crop insurance. Finally, because farmers are exempt from anti-trust laws, they can collaborate to limit supplies and raise prices, like OPEC does with oil.

Economic Problems

In a market, a product’s price is a signal between buyers and sellers. It indicates how much consumers want the product and how scarce the resources used to make it are. A price system ensures that producers make things people want using as few resources as possible, even taking into account all the alternate uses of the machines, workers, and natural resources—like land—used in production.

Of course, all the benefits of a transaction aren’t always built into the price. For example if I discover a new farming technique, then everyone benefits from my discovery. However, I might not benefit personally enough to make research worth my time and money. So, there’s good reason for the government to spend tax dollars on things like basic research, a military, poverty relief, and roads that help society at large.

However, farm products don’t render any external benefits. I pay my money, receive my produce, and eat it. The farmer and I reap all the benefits of this transaction, just like if I bought a massage.  The idea of “fair” prices for farm products is misleading. Like masseuses, farmers receive what others feel their produce is worth.

When the government subsidizes farming, farmers receive more money than consumers would be willing to pay them through voluntary transactions. It is as if  the government takes taxpayers’ money and buys them gift certificates for soybeans: if people really wanted that many soybeans, they could have bought them themselves. Subsidies send a false signal to producers and encourage people to farm, even when some of the resources involved could be more usefully employed in other industries. As Steve Miller, a Georgia cotton grower, told the Atlanta Journal-Constitution, “[Market] prices don’t have anything to do with what we’re doing. We’re just looking at government payments.”

Recently, Jimmy Carter twice ignored that all resources have alternate uses. First, he spent an afternoon writing an article about cotton instead of helping at Habitat. Second, he wrote, “Cotton production costs 73 cents/lb in the United States and only 23 cents/lb in West Africa, so American farmers do need protection.” But the reason it costs more to make cotton here is that the resources could, instead, make something else worth close to 73 cents. I grew up in Alabama, where I expect that something else would be timber and peanuts. Without ‘protection,’ Americans could buy cotton from Africans and pocket the difference. Although ending cotton support would entail a one-time, painful transition for cotton growers, this arrangement would leave both Americans and Africans better off.

Environmental Problems

The Environmental Working Group, Environmental Defense, and Pitt’s Free the Planet all oppose farm subsidies, because subsidies distort the harmony of nature as well as markets.

First, subsidies make it profitable to farm marginal lands that would otherwise be called unproductive. Farmers then cultivate these lands, which might have been used for forestry, eco-tourism, or open space. The higher demand also makes land expensive to acquire for preserves and parks.

Second, since subsidies encourage growing more, farmers use more pesticides and fertilizers on more pieces of land.  These chemicals run off into lakes and rivers, contributing to a summertime “dead zone” algae blooms in the Gulf of Mexico. Non-point pollution from agriculture is not as regulated or monitored as point pollution from factory discharge, so farmers get away with most of this damage .

New Zealand ended subsidies in 1985. The Property and Environmental Research Center found that since, “the use of fertilizer has declined and there was a halt to land clearing and overstocking, which had been responsible for widespread soil erosion.” Even the Federated Farmers of New Zealand agree, “subsidies restricted innovation, diversification, and productivity by corrupting market signals and new ideas,” which engendered, “a wasteful use of resources, with a consequently negative impact on the environment.” Farm subsidies stand out as a policy area where reducing government intervention will actually improve environmental quality.

Trade Problems

Farm subsidies have become the main stumbling block to advancing America’s trade prospects. In 2004, the WTO ruled that existing cotton subsidies violate previous agreements America signed with other WTO nations. The ruling came as no surprise, given that cotton exported from the US in recent years has sold for 61 percent below the cost of production.

The Doha Development Rounds of international trade negotiations started in Qatar in 2001. After their initial failure, the talks have been resuscitated and subsequently failed six times. These negotiations aim to reduce poverty worldwide by opening markets in both rich and developing countries, but rich countries’ refusal to cut farm subsidies has, more than any other issue, hastened the breakdown of every round.

On the issue of international trade, farm subsidies change from a taxpayer’s annoyance into a menace to every American’s future livelihood. A successful bargain at Doha would mean reduced tariffs for US goods and services in the world’s fastest-growing markets. Given the foregone prosperity implicit whenever the Doha Rounds fall apart, a simple summary of farm subsidy layouts fails to sketch a true picture of what Americans could enjoy without farm subsidies.

Defenses for Farm Subsidies

Farm unions present several reasons that the government should continue subsidizing agriculture. Three stand out as worth answering.

Pass-Through Effect: “Subsidies help consumers, by boosting supplies and lowering prices.” The problem is that consumers pay for the discount with their tax dollars. So, the Pass-Through Effect is an imaginary savings, like paying 10 cents for a 10-cent coupon.

It is true that low-income consumers benefit from lower prices. However, a farm subsidy is an imprecise way to help the low-income, given it lowers prices for all consumers instead of just the low-income. Food stamps are a cheaper and more targeted way to ensure that it is hard to starve in America. Besides, the US is a country where the poor often suffer from obesity, so health and education spending trump cheaper corn syrup at relieving poverty. Finally, food could be cheaper anyway without the tariffs, import quotas, and conservation subsidies that inflate prices: the Organization for Economic Cooperation and Development finds US farm policies force consumers to pay an extra $12 billion for food every year.

Stability: “Farmers need subsidies to guard against changing prices and disasters.” However, farmers can first smooth their incomes by saving in good years. If a farmer cannot keep farming even by saving wisely, instability is not the problem, but rather that the long-term stream of income from farming is too low for that farm. Second, there exist high-tech markets for futures contracts in produce: farmers already hedge their risks with contracts to lock-in prices for years ahead. Third, farmers can buy private crop insurance to guard against natural disasters and crop failures, as everyone does with life, car, and home insurance.

Farmers can ride the market’s crests and troughs with these private methods. Just a third of US agriculture is subsidized. The other two-thirds—and all the farms in New Zealand—manage to thrive without subsidies. It makes little sense that soy growers cannot hedge meet these challenges, while orange growers can.

National Security: “Subsidies keep us from becoming dangerously dependent on other countries to feed ourselves.” However, America currently produces so much food than that it exports a quarter of its produce. Most vegetables, fruits, timber, and meats grow with hardly any subsidy. Further, it is a stretch to imagine that growing the crops currently subsidized would become impossible without subsidies and further stretch to imagine that all the countries growing staple crops would cooperate in history’s largest embargo to starve the United States. If the US is really concerned that Americans be fed during wartime—and not just that American farmers do the feeding— the hope should be that friendly countries in Latin America have developed agriculture industries. These countries have a harder time evolving productive agriculture, though, when US tariffs and subsidies put them at a competitive disadvantage.

Why Do Farm Subsidies Exist?

Farm subsidies were born in the Great Depression, when agriculture comprised 10 percent of GDP and farmers were a quarter of the population. Subsidies were a lifeline to poor rural folk suffering from the Dust Bowl, falling prices, and rising interest payments. Then, Secretary of Agriculture Henry Wallace justified subsidies as “a temporary solution to deal with an emergency.” The emergency ended, so why is the temporary solution still around?

The standard answer is that the constitutional system of representation is to blame. For example, California has as many citizens as the twenty least populated states, but has only two senators to their forty. The argument runs: “Farmers, though just 2% of the population, are spread among many sparsely populated states, so they can bully the money out of the rest of us.”

This explanation is facile, but flimsy, since polls aren’t split between farm state voters and the general public. The truth is that 80% of farm state voters and 77% of Americans support subsidies, as long as payments go to small farmers. Likewise, 65% of both groups oppose subsidies to large farms.

Farm subsidies persist, because voters hallucinate an ideal form of farm aid: in the 11th hour, a grudgingly merciful government saves the family farm—preferably the actual Joad family’s farm in Grapes of Wrath. “We spend all that money on those welfare mothers,” the logic runs, “Can’t we help hardworking, struggling family farmers?” However, subsidies fail even this humble goal.

Do Farm Subsidies Help Family Farmers?

Subsidies help few of the farmers voters would like to help. Only four in ten farmers receive subsidies, while 10%—mainly corporate farmers—receive 72% of the funds. What if a tenth of the elderly found themselves awash in 72% of Social Security checks? Likewise, 93% of subsidies go to just five crops—corn, soybeans, cotton, wheat and rice. And while most farmers missed out, Ted Turner and Scottie Pippen both earned over $130,000 in government susidies over four years. Responding to such outrageous cases, in 2007 the Bush Administration tried to curb the amount a married couple can receive in subsidies from $360,000 to $250,000 per year, but the measure failed in the Senate. Earlier in 2007, the Washington Post found $1.6 billion in subsidies paid to people who don’t farm, including a Houston surgeon who earned $490,709 without growing anything.

If voters feel humanitarian responsibility for farmers, their sympathy is misplaced. Every year since 1996, average farm household income has exceeded average US household income. It is now $81,420. The lion’s share—89%— of farm household income actually comes from off-farm sources, meaning members of farm households earn most of their money at jobs like everyone else does. They are not the people voters picture farming for a living, but enthusiasts farming for enjoyment and earning money while they’re at it.

Enthusiasts abound. There are 2,022,000 family farms in America, but the USDA classifies most of these—64.7%—as rural residence farms that earn little or no income from farming (ERS USDA). The preponderance of these relatively unproductive operations explains why subsidies help such a small portion of farms. Bob Young, president of the American Farm Bureau, a lobbying group, makes a strong point by citing, “The 38 percent of producers who provide 92 percent of our food receive 87 percent of all farm program payments. That seems pretty much on balance to me.”

There are two sides to this coin. On one hand, subsidies do help people who farm for a living. For the 4.3% of farms receiving over $30,000 per year in subsidies, farm income actually averages 55.8% of net household income, verses 11% for the average farm household. Meanwhile, farms that get less than $30,000 in subsidies generally don’t earn most of their income from farming.

On the other hand, though, subsidies fail at helping farmers who would not make a living otherwise. Farms in this 4.3% have an average household income of $136,346. That places them in the top 10% of American households. If the goal were simply to reduce farmer poverty, the government could pay every full time farmer an amount 185 percent of the federal poverty level—$38,203 for a four-person family—for just $4 billion per year, a fraction of the $20 billion paid now.

Whether these facts are a call to reform subsidies or to end them depends on whether supporting family farms is a worthy goal of federal government policy. In fact it is not, and farm subsidies should be eliminated altogether.

Why Support Family Farms?

“Agriculture is our link to the past, to a time when family was the axis around which all life revolved. In today’s fast-paced, interconnected world, there are few industries where sons and daughters can work side-by-side with Moms and Dads, grandmas and grandpas.”

This quote from Republican Representative Ken Moran of Kansas underscores the American sentiment that small farmers need special protection.

Voters’ feelings mislead them. Today’s farmers choose farming over other ways to make a living. If they enjoy a higher quality of life for it, why should tax dollars cushion their choice? “Farmer” is not an essential designation, like being mentally disabled or born into poverty; it’s the outcome of an ongoing choice to farm made by rational individuals aware of their options. Cushioning that choice is fundamentally different than providing help to someone who would be considered “needy.” It is closer to providing a reward for a lifestyle voters find endearing.

Subsidizing farm output will always mean welfare for corporate farms, as long as economies of scale and professionalism make these farms the most efficient way to grow food. But if the government managed to limit aid to small farms that would fold otherwise, the aid would only sponsor inefficiency, with a commensurate waste of resources. It would be strange policy to indulge a fetish for an outmoded way of doing business. Propping up an inefficient small farm is no different than propping up a blacksmith against a competing factory. Does subsidizing blacksmiths seem ridiculous because it inherently is ridiculous, or because the government doesn’t already do it?

Besides, the traits admired in the mythic small farmer are independence and self-reliance. It’s contradictory to express this admiration with a crutch from the federal government. Subsidies composed 47% of total farm income in the year 2000. But America’s largest welfare program for the poor, the Earned Income Tax Credit, matches just 40% of the first $11,340 in income for a with household with two children. Considering the conservation subsidy mentioned above, it’s worthwhile to ask what the public reaction—in particular the reaction of rural voters—would be to a welfare program that paid urban residents to not go to work.

Missed Opportunities

To justify an expense, it should be credible not only that the expense produces benefits, but also that no other use of the money produces more benefits. Can we say this with conviction about farm subsidies? They render little benefit but damage the country’s environment and trade position. Meanwhile, farm subsidy funding could otherwise pay for research on alternative fuels, school vouchers, medicines for the indigent, fighting terrorism, or shoring up Medicare. To argue that the government can buy farm subsidies and, for example, cancer research, ignores conservation of cash—the government can spend on both, but subsidizing farms always means less money for anything else. A compassionate person should favor spending that helps the truly disadvantaged or society at large.

The public misses out when the government subsidizes farmers. The government paid $23 billion in subsidies in 2005. Educators complain No Child Left Behind is underfunded, given its demands, but the farm subsidy money could have doubled its $24 billion budget. Near doubling was likewise possible for the National Institute of Health, which gives $28 billion per year to fund medical research. That year, the government could have quadrupled the budget of the National Cancer Institute—$5.8 billion—or tripled the budget for the Head Start program—$7 billion. The net payment to farmers oscillates depending on crop prices, but averages about $20 billion. To keep paying farm subsidies means indulging a fantasy at the expense of urgent needs these programs could relieve.

Conclusion

Farm subsidies damage the efficient allocation of resources, the environment, and America’s trade prospects. They stand out starkly as a government program without any sound justification under any ideology. Meanwhile, funding for farm subsidies could assuage pressing social problems if rechanneled toward more worthy budget items like research, health, and education.

However, farm subsidies and their hazards will survive as long as voters deny that every job is worthwhile when voluntary exchange rewards all its contributions. Farmers really do occupy a unique place in the economic landscape, but it is one place among many. It is something like superstition to exalt the farmer above the programmer, designer, bus driver, autoworker, novelist, CFO, coal miner, or janitor- a hard day’s work in any of these positions helps make America prosperous.

Lewis Lehe can be reached at ljl10@pitt.edu.