Top Five Worst Subsidies

Anyone versed in basic economics knows that government subsidies are almost always a bad idea. To be sure, government support can be crucial in furthering basic research and other beneficial activities that for-profit corporations avoid. But it’s a sad reflection of America’s budget process that we continue to subsidize activities that are well established and often highly profitable. In other cases, we taxpayers distort costs through our subsidies, thus encouraging over-consumption of a subsidized good relative to an unsubsidized one.

While many articles on this blog have been devoted to the topic, I couldn’t resist – so here’s my top-five list of most-reviled government subsidies:
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Fatten us all with Farm Subsidies

This New York Times Magazine article does an excellent job of exposing how farm subsidies have contributed to obesity amongst Americans, and particularly amongst America’s poor.

In a nutshell, by subsidizing the overproduction of corn, soybean, and wheat, the American government drives the cost of these staples down, which in turn encourages overconsumption. All the extra caloric energy produced by America’s subsidized farmers gets translated into Twinkies, candy, potato chips, and myriad other junk – junk that interestingly offers far more calories per dollar than more healthy foods. The junk food fits perfectly into a low-income budget, which helps explain the paradoxical poverty-obesity correlation in the US.
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I want to be a Farmer

The Census Bureau has reclassified farmers and ranchers as management, with only farm workers officially classified as being in the farming, fishing, or forestry occupations. And according to the USDA, farm households earned 10% more on average than non-farm households. Farming seems like a great business to be in! But if farmers are doing so well, why do we pay them $30 billion per year in subsidies?

Over two hundred dollars in taxes per working American were paid to American farmers last year. On top of that, we protect our farmers from foreign competition in many markets, leaving the American consumer to pay double or triple world prices for commodities like sugar. Meanwhile, the average wheat farm receives twenty grand a year in direct cash payments.

It seems that we American taxpayers have been forking over extra grocery money so that farm management can earn above-average incomes! Proponents claim that American farmers are the most competitive in the world; why not let them compete, saving us on taxes and at the grocery store to boot? Reducing farm subsidies will end a cherished way of life, subsidy-supporters respond. If farming is so cherished as a traditional American way of life, then why does the Census report that only 0.7% of the population is involved in it? Most farm workers are Hispanic immigrants – so exactly what kind of “traditional farming” do farm subsidies mean to protect?

In international negotiations, the Bush administration, like others before it, has always tied reduction in our subsidies to reduction in other nations’ subsidies. Even absent EU cooperation, the US should move forward to slash subsidies and open agriculture markets. Altruistic motives notwithstanding, we should do this simply to save our taxpayers and consumers money.

If America were able to cut subsidies and open agricultural markets, it might just find another problem going away: illegal immigrants wouldn’t want so desperately to come to the US if they could sell us their produce from their home countries.