How Fiscal 'Discipline' Already Bought the Farm
By Robert J. Samuelson
Wednesday, February 6, 2002; Page A19
This being federal budget season, we'll hear stern lectures from the White House and congressional leaders of both parties about the need to return to surpluses and to maintain "fiscal discipline." You should greet these pronouncements skeptically for obvious reasons: Pressures for new spending (defense, homeland security and a Medicare drug benefit) are intense; the willingness to raise taxes is slight; and the ability to cut existing spending -- no matter how wasteful -- is zilch. Government programs are, for all practical purposes, immortal.
Anyone who doubts this last proposition should examine the farm subsidy programs, which are the classic example of how unnecessary spending survives. Here is a parable for our larger budget predicament. Every year the government sends out checks to about 700,000 to 900,000 farmers. Since 1978, federal outlays to support farmers' incomes have exceeded $300 billion. How large is that? Well, the publicly held federal debt (the result of past budget deficits) is about $3.3 trillion. The past 23 years of farm subsidies equal almost 10 percent of the debt.
But wait: Congress is about to expand the subsidies. The Congressional Budget Office estimates that new farm legislation would increase costs by $65 billion over a 10-year period, on top of the $128.5 billion of existing programs. (And these figures exclude costs for agricultural research, trade and nutritional programs.) The Republican-controlled House has passed one version; the Democratic-controlled Senate is about to debate a slightly different version. And the Bush administration has supported what it calls the bill's "generous" funding levels. "Extravagant" would be more like it.
Government spending should reflect some "public interest." For farm subsidies, this is hard to find.
Let's examine the possibilities. Do we need subsidies to ensure food production? No. The subsidies go mainly for wheat, corn, rice, cotton, soybean and dairy production, representing about a third of U.S. farm output. The rest (beef, pork, chicken, vegetables, fruits) receive no direct subsidies. Has anyone noticed shortages of chicken, lettuce, carrots or bacon? The idea that, without subsidies, America wouldn't produce ample wheat for bread, milk for ice cream or corn for animal feed is absurd. Before the 1930s no federal subsidies existed, yet annual wheat production rose 77 percent to 887 million bushels from 1880 to 1930.
Do subsidies "save the small family farm"? In the 1930s, or even 1950s, this argument might have been plausible. No more. Mechanization and better seed varieties have promoted farm consolidation. In 1935 there were 6.8 million farms. In 1997 there were 1.9 million and, of these, about 350,000 accounted for almost 90 percent of farm production. These farms had at least $100,000 in sales. About 42 percent of food production came from farms with $1 million or more in sales. Countless newspaper stories complain that subsidies go overwhelmingly to large, wealthy farmers. But given the distribution of food production, they must go to large farmers -- unless government decides to subsidize farmers who essentially don't farm.
Do subsidies stabilize farm incomes, offsetting periods of low prices? Not much. There are two problems. First: When crop prices drop, the subsidies promote overproduction, which prolongs and deepens the price decline. Second: The value of the subsidies increases the prices of agricultural land by about 20 percent, according to the Agriculture Department. This raises the purchase prices for new farmers or lease payments for farmers who rent their fields. About 45 percent of cropland is leased. And of course, there's this question: Why should government stabilize farmers' incomes? It doesn't stabilize incomes of plumbers, print shops or most businesses.
Despite farm programs' nonexistent public benefits, Congress routinely extends the programs for political reasons. On the public-relations front, farmers are thought to be hardworking and, therefore, deserving. Somehow, it seems unfair to withdraw a government benefit they're accustomed to receiving. And if farm programs didn't exist, the congressional agriculture committees would be less powerful. So would various farm lobbies and interest groups. They all have an interest in perpetuating the subsidies. Finally, there's control of Congress.
"The main factor is a concern among lawmakers of both parties that power in Congress could hinge on a few races in heavily subsidized agricultural regions," Sen. Richard Lugar, Republican of Indiana, bravely wrote in the New York Times. "If either party stands in the way of this largesse, they risk being labeled the 'anti-farm party' and targeted with sentimental imagery associated with farm failures."
Farm subsidies are huge political bribes. Though they're legal, the ethics are questionable. But hardly anyone raises the questions. The silence defines Washington's self-serving and hypocritical "morality." Everyone in Congress is justifiably outraged these days by Enron's collapse and the losses for workers and investors. But the same legislators will vote for giveaways of billions of dollars to farmers without any sense of shame or outrage -- nor any inkling that they might be plundering the public purse and doing wrong. (The press is guilty of similar hypocrisy. Farm subsidies excite intermittent curiosity. But despite billions of misspent money, they're hardly a "scandal.")
This brings us back to the overall budget. The recent surpluses had little to do with the spending restraint of the Clinton administration or the Republican-controlled Congress. They had everything to do with two strokes of good fortune: a decline in military spending after the Cold War and a huge, unpredicted windfall of tax revenues from the economic boom. Both have now vanished, and, not surprisingly, budget deficits have reappeared. A resurgent economy and some other good fortune may restore surpluses. But we should not rely on the "fiscal discipline" of our leaders, because there's little evidence that it exists.
© 2002 The Washington Post Company