Our Washington political leaders seem to be running like lemmings toward a
fiscal Armageddon that Greece has recently reached. According to the
Congressional Budget Office, the federal deficit was $1.1 trillion for fiscal
year 2012, down from $1.3 trillion in 2011.1 At the end of fiscal 2012, the gross federal debt was 105 percent of
gross domestic product for the year and is expected to rise to above 107
percent in the current fiscal year.2 No one should be sanguine that the CBO's projected lower federal
deficits for the rest of the 2010s will be realized.
Nevertheless, virtually all members of Congress continue to pack
"political pork" into the federal budget, in the form of both
earmarks and expansions of their favorite transfer programs.3 Each member can correctly reason that his (or her) preferred package of
pork, alone, will not significantly affect federal deficits and, therefore, the
fiscal fate of the country. Such thinking derives from "the logic of
collective action" that the late economist Mancur Olson laid out nearly a
half century ago.4 As Olson pointed out, each person (or lobby) has an incentive to seek
his (or its) special program because, while everyone bears the costs, only that
person or group reaps the benefits. For that reason, the prospect of a fiscal
doomsday is growing.
One recent example of this collective logic at work is the new subsidies
Congress has included in the current farm "reform" bill for—are you
ready?—popcorn. At this writing, the farm bill of 2012 has not passed Congress,
with the delay perhaps due, in part, to the recent national election in early
November.
The Pork in Popcorn
If the bill passes, popcorn growers will now join a long list of grain
farmers (growers of wheat, corn, grain sorghum, barley, oats, long-grain rice,
medium-grain rice, pulse crops, soybeans, other oil seeds, and peanuts) whose
wallets have been padded by American taxpayers in a variety of forms—including
payments for non-production—over the past century. The new subsidies would be
in the form of government coverage of a sizable portion of popcorn farmers'
crop insurance and export promotions. This benefit would be no less a subsidy
than direct payments to farmers for not planting crops. A subsidy for export
promotion would drive up the price of domestic popcorn and, hence, increase
popcorn growers' revenues and profits at the expense of American consumers and
taxpayers. Subsidized crop insurance for popcorn growers could dampen price
increases but, as with the export promotions subsidies, American taxpayers
would foot the bill.
How did we come to the point where even popcorn producers seek subsidies?
Farmers and their lobbyists persuaded Congress to set up the U.S. Popcorn Board
in the 1990s on the grounds that "popcorn is an important food that is a
valuable part of the human diet."5 On its website, the Popcorn Board argues that its operations to
promote the sale of popcorn involve no direct taxpayer dollars. However, its
board members are appointed by the Secretary of Agriculture, and the U.S.
Department of Agriculture oversees the collection of funds from private popcorn
growers for purposes of popcorn promotions, as well as how those funds are
allocated among marketing plans in the domestic and global markets. The Popcorn
Board oversees the production of nearly half a million tons of popcorn produced
in the United States each year, which suggests indirect government control of
production. The reason: growers' required payments to the board, a disguised
form of taxation, are tied to growers' production.6 It was a short step from that program to subsidizing popcorn
production and promotion.
Total U.S. popcorn production might sound like a lot, but popcorn
constitutes only one tenth of one percent of all annual corn production in the
country. Admittedly, the proposed subsidy for popcorn would be slightly less
that $100 million over a decade. But therein lies a source of the country's
looming fiscal debacle. The popcorn subsidy is trivial in the context of the
total annual federal expenditures, but to paraphrase an alleged quip by the
late U.S. Senator from Illinois, Everett Dirksen, "A hundred million here
and another $100 million there, and soon it all adds up to real money"—or
a federal budget rapidly approaching $4 trillion with trillion-plus deficits!
As the late Professor Olson might have observed, the popcorn subsidy will
likely become fiscal law because almost no one, other than the popcorn growers,
will notice. Being a small lot, they have all the incentive they need to lobby
their members of Congress to do their bidding. The general public will have no
incentive even to know the subsidy is in the works, much less to incur the
costs to oppose its enactment.
The Strained Justification for Popcorn Subsidies
Needless to say, popcorn farmers and their lobbyists do not argue that the
subsidy is intended to pad their own pockets (and boost the market value of
their farms) at the expense of taxpayers. Rather, they enlist arcane arguments
that have a fig leaf of economic and social justification. For example, growers
and their spokespersons (some of whom are paid bureaucrats inside the U.S.
Department of Agriculture, who seek to maintain their own job security) argue
that popcorn subsidies are justified on the grounds that farming is inherently
risky, mainly because production relies on ever-changing weather patterns.
Nebraska Republican Senator Mike Johanns justified his support for the
popcorn subsidy vote on the grounds that unless popcorn farmers "write a
check" for crop insurance, they get no subsidy.7 Still, if they write their checks, they get their crop insurance at
one-third of its true cost, and the government covers (or, rather, taxpayers
cover) the rest. With the crop insurance subsidies, popcorn production would be
encouraged, but the resulting drop in the price of popcorn would not completely
offset the added tax bill for American taxpayers. The outcome is classic, laid
out in many Econ 101 classes: Growers get more in subsidies than they lose on
price, while taxpayers pay more in added taxes than the growers receive in net
gains.
Popcorn consumers may get a break in the prices of their popcorn treats
from the crop insurance subsidy, but the subsidies for the promotion of
international sales of popcorn can boost overall demand and offset some of the
downward price effects of the crop insurance subsidy. Indeed, the two forms of
subsidies can lead to a net price increase for consumers (depending on the
elasticities of supply and demand). While the net price effect is unknown, what
we do know is that popcorn farmers will be beneficiaries of congressional
largesse. Taxpayers would be net losers.
Nevertheless, proponents of subsidies have a comeback argument that
justifies popcorn subsidies based on other subsidies (or past farm policy
mistakes): Because field-corn growers get subsidies, popcorn growers must get
government handouts in some form, or else popcorn growers will shift to field
corn, causing a further rise in movie theater (and home) popcorn prices. Oh,
the tragedy! And besides, they argue, popcorn subsidies (again, a meager
portion of the federal budget) are needed for popcorn growers to offset the
competitive advantage peanut-based and corn-based snacks have because of the
subsidies to peanuts and corn, which lower their prices relative to popcorn. Of
course, there's a better solution: get rid of the other subsidies.
Somehow, the American public has gotten the message that farming is a
highly risky industry. But this problem of risk is not unique to farmers. Small
business people are actually more likely to go under than
farmers are. About one-third of non-farm startups fail within their first two
years, and more than half fail within their first four years. After ten years,
only a third are still around.8 The farm failure rate, by contrast, is only one-sixth the failure
rate of non-farm businesses.9 Small business owners must also invest their own (and borrowed) funds
upfront sometimes several months, if not years, before their first customers
come through their doors. The federal government covers no part of their insurance
costs.
Moreover, the beneficial effects of subsidies for farmers are not likely to
be long lasting. As public choice economist Gordon Tullock argued nearly forty
years ago, any net gains that farmers receive from subsidies will likely be
largely (if not fully) captured in higher prices of farmers' resource inputs,
primarily fixed assets, for example, land. If there are net gains to farmers
from any farm program, the price of farm property will rise along with demand,
with those higher prices feeding into higher cost structures for farmers, which
will be fully evident to people who seek to become farmers after the subsidies.
The farmers who are in business when the subsidies are instituted will be the
prime beneficiaries, since their property rises in value. New entrants to
farming will have to pay prices for land and other assets that reflect the
stream of anticipated net government benefits going into the relevant future.
Once the subsidies have been fully capitalized, Tullock argued, government
policy makers will be effectively "trapped" in maintaining subsidies,
or even increasing them if succeeding generations of farmers are to garner any
net gains. If policy makers try to cut the subsidies, they will face the howls
of existing farmers who paid good money for their farms in anticipation of the
stream of subsidies being maintained into the future.10
The Ethics of Popcorn Subsidies
The ethics of the subsidies for popcorn and other grain crops can be tested
by using Kant's Categorical Imperative. Specifically, would subsidized farmers
be willing to generalize their subsidies to all?
The answer from farmers, an unheralded class of government welfare
dependents, is probably no. If others received the same type of subsidies,
farmers would still gain, but then they would have to paytheir share
of similar subsidies granted to all similarly situated non-farm business owners
(and to farmers who do not get the direct subsidies that grain producers
get—carrot farmers, for example). Given the much larger non-farm sector of the
economy, farmers—especially the small segment of popcorn farmers—would clearly
lose on the deal because their added taxes would likely exceed their own
subsidies. Moreover, farmers' subsidy deficits would be magnified as extended
government subsidies encouraged non-farm businesses to take greater risks that
would lead to more business failures and greater need for greater subsidies—and
taxes.
No, farmers want to be "special," as in "special
interest." Moreover, farmers would never consider "disarming"
(that is, forgoing their subsidies) unilaterally. Such unilateral public
spiritedness would leave farmers with all the taxes for all others' subsidies
and no offsetting subsidies of their own.
The Political Short of It All
The subsidies to popcorn farmers are hard to explain and justify on
economic or health grounds, but they are easy to explain on political grounds.
Popcorn is grown in twenty-five states, with the largest producers in the
Midwest. In short, popcorn growers influence many farm-state votes in Congress.
Many of the Congressmen are Tea Party Republicans who shamelessly chastise
their colleagues for wasteful pork-barrel politics. U.S. Senator John McCain
mused, "This [popcorn subsidy] is a disgraceful example of how special
interests can imbed themselves in a farm bill for generations. There isn't a
kernel of evidence that they [popcorn farmers] need this support from taxpayers."11 Why isn't the public popping mad? Professor Olson has explained why.
Footnotes
Estimated annual deficits will continue to decline for the rest of the
2010s and early 2020s, again, according to the CBO, which is counting on tax
increases and expenditure cuts to kick in after the first of 2013. Even if
those tax increases and expenditure cuts occur, the addition to the federal
debt from 2013 to 2022 would still be $2.3 trillion. If Congress does not agree
to go over the so-called "fiscal cliff" in January, the federal
annual deficits will be much higher and the increase in debt much larger. See
Congressional Budget Office. 2012. An
Update to the Budget and Economic Outlook: Fiscal Years 2012-2022, August. PDF file.
Office of Management and Budget, White House. 2012.Budget of the United
States: Historical Tables, Fiscal Year 2013.
See Gus Lubin, "25
Scandalous Examples Of Government Pork That Will Drive You Crazy."Business Insider, April 14, 2010.
Olson, Mancur. 1965. The Logic of Collective Action Public Goods
and the Theory of Groups. Cambridge, Mass: Harvard University Press.
As reported by Rob Hotakainen for McClatchy Newspapers,"Federal
Spending on Popcorn Promotion Comes under Fire," September 10, 2012.
"Small
Business Failure Rates: What's [sic] the Reasons?" June 22, 2012.
Daniella Markheim and Brian M. Riedl, "Farm
Subsidies, Free Trade, and the Doha Round." Washington, D.C.: Heritage Foundation, February 5, 2007.
Gordon Tullock. 1975. "The Transitional Gains Trap." Bell
Journal of Economics and Regulation 6(2, Autumn): 671-678.
As quoted by Pete Kasperowicz. "Senate Republicans Blast
Farm Bill Revamp."The Hill. June 14.
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