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View Diary: U.S. Agricultural Policy: The Farm Bill Debate (Very Wonky) (45 comments)

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  •  Not counter-cyclical but counter-capitalist (0+ / 0-)

    The conventional wisdom about farm subsidies is that they are mostly counter-cyclical: that they exist to protect farmers against poor harvests or low food prices.  This basic theory underlies most of the arguments I've read in this thread.

    Farm subsidies aren't so much counter-cyclical as they are counter-capitalist.  And there's a very good reason for that, and a very good reason to preserve farm subsidies.

    The basic premise of capitalism is that capital will flow to the most profitable enterprises.  The assumption is that the most profitable enterprises are the most profitable because they best serve the consumers, and by implication society as a whole.  If you "build a better mousetrap," the argument says, you will be profitable, and your enterprise will attract the capital it needs to function, thus providing "better mousetraps" for all.

    The problem is that not all enterprises are created equal, in terms of profit potential.  New products, new technologies, and new markets have a built-in advantage, because they are not already saturated and their processes not already optimized.  Once a market is saturated and the production processes have been optimized, profitability happens "in the margins," primarily as a function of market share.

    Because agriculture is the oldest human enterprise, we've long since optimized the processes.  Yes, we still make technological advances, but they are of necessity ever more marginal, and their costs tend to almost offset their returns.

    Put simply, agriculture isn't profit-competitive with nanotechnology or some other new enterprise, because we've been doing it for about 10,000 years and it's hard to "build a better mousetrap" given 10,000 years of "mousetrap optimization."  So we can't expect agriculture to yield the same kinds of profit margins we'd find in new technologies, new products, or new markets.

    But humans still need to eat.  And farmers still need capital to keep their farms operating.

    Agricultural subsidies "pad" the profit margins of farming, so farmers can compete for capital on more even terms with other, more inherently profitable enterprises.  Without subsidies, capital would flee agriculture in favor of more profitable investment opportunities ... and we'd all starve.

    The subsidies are counter-capitalist rather than counter-cyclical.

    •  Wow, I agree with almost all of this (0+ / 0-)

      and yet come to the exact opposite conclusion.  You use these words and phrases... profit-competitive... wouldn't the natural conclusion be that American agriculture is inefficient?  That people in the developing world who can't make a living because of our subsidies but who would win out in a free market should have a fair shot?  How would we starve?  When things become scarce, they become expensive... that's how profit optimizes production.  As it stands, we have food rotting here and farmers starving and unable to sell their crops on the world market.  Subsidies create excess and dumping.  Why are we proud to be counter-capitalist when all this accomplishes is corporate welfare, the weakening of the U.S. economy, world poverty, and taxpayer money misappropriation?

      •  Not inefficient. (0+ / 0-)

        That agriculture can't be profit-competitive with new technologies, products, and markets does not imply U.S. farmers are inefficient.  Indeed, quite the contrary.  Any improvement in agricultural methods is quickly standardized throughout the industry (the Efficient Market Theory) and thus yields only minimal competitive advantage.

        But the larger point is that the greatest profits always lie in new technologies, new products, and new markets.  The highest profits are found in the interval between "better mouse trap" and "new standard mouse trap," before the Efficient Market Theory of process standardization, and market saturation, combine to limit profits to (smaller) market-share competition.

        Agriculture, the oldest human enterprise, simply can't compete with that.  It is, by its nature, a high-risk enterprise, because each year's crop is subject to the whims of nature.  But it's a low-yield enterprise, because it's been standardized over 10,000 years.  New improvements are ever more marginal, because there's less improvement "space" in a 10,000-year-old enterprise.

        This all means that, absent subsidies, farmers simply can't compete for capital on equal terms with newer enterprises.  They can't offer the high yields of other high-risk investments, or the low risk of other low-yield investments.

        But farmers still need capital to operate, and we still need farmers to feed us.  So we have to make agriculture attractive to capital, and that means subsidies.

        This is a case where laissez faire simply doesn't work in society's best interest.  There are enterprises that are necessary - agriculture, fire and police services, education, to name a few - but that are not profit-competitive enough to attract the necessary capital.

        That's why Article I gives Congress the power to "tax and send for the general welfare."  It's counter-capitalist, but necessary for the common good.

        •  That is all fine and good. (0+ / 0-)

          I don't see developing country farmers entering the tech industry any time soon.  If one thinks that a sizable domestic agricultural industry is a necessity for some reason, then perhaps you are right.  But I don't think what you are saying is consistent with basic laws of supply and demand.  High profits in a sector cause new firms to enter until they split the market adequately... that doesn't mean that other industries fade away.  If there weren't enough of something, its price would go up, making its production profitable.  Neither do I see what you mean by a competition for capital.  Marginal products of capital depend on capital saturation within a business.  The whole reason an economy remains intact is diminishing returns to investment, which in turn means increased returns if for some reason an industry that supplies a desired good started to decline.  Industries rise and fall with their relevance; American automakers make expensive, large vehicles and are faced with the task of providing their workers with healthcare, so they make way for international ones.  In the same way, American farming "should," in a strictly market sense, be in decline.  It does not need to be subsidized for the sake of feeding people.  Some argue that farming is a social good that is an important part of our culture and thus should be subsidized.  Others argue we need a domestic food supply for national security reasons; this argument is specious unless the U.S. plans to go to war with the world entire any time soon.  Some just think farmers are somehow romantic and should be given money.  That's fine, but their work is inefficient and the government should not help them out just because they are favored politically.  They would be more productive integrating into the more robust modern economy and leaving farming to areas that need to do it / are better at it.  There is also an enormous moral argument in that agriculture is much of the developing world's only hope for transitioning into the modern economy and the rural poor's only hope for transcending their destitution.

          •  As to the inherent risk of farming, (0+ / 0-)

            if it is indeed an efficient industry it should be able to make profits over time.. So farms should probably save their proceeds for a not-so-rainy day.  If they cannot make money over time... this is the sort of characteristic we see in the long lost industry of moving sand hills with toothpicks for example.  I would say it would be better for them to leave it to those who need to farm and can for cheaper rather than preserving this silly pioneer narrative for the benefit of the few at the expense of everyone.  And the low profit margin of farming as well as its high investment costs might help explain agriconsolidation.  Preventing this might be an argument for subsidization.  One argument I might buy would be for means-tested subsidization for organic and ecologically friendly methods.  The environment is a source of externalities and this might also help smaller farms stay afloat.

            •  You're missing the point. (0+ / 0-)

              Food isn't one of those things humans can do without simply because growing it doesn't happen to be profit-competitive.  Agriculture not, to use a common classic example, "buggy whip making."

              Human beings must eat to survive.  That means we need food, regardless of whether it's profit-competitive to farm.  While you say we could simply abandon American agriculture in favor of cheaper overseas farming, in fact there are three large downsides there.

              First is the cost of transportation efficiency.  In simple terms, the nearer the farm to the kitchen, the more efficient the food cycle.  Less is spent on transportation, and less is lost to in-transit wastage.  The transportation costs also include the CO2 dumped into the atmosphere by diesel freighters hauling vegetables from Chili or Peru that we could and should be growing here.

              Second is local food source displacement.  If the people of Chile are farming to feed the U.S., that is acreage they can't devote to feeding the Chilean people.  And in fact agricultural globalization has had precisely that effect, increasing poverty and malnutrition in places that become satellite farms for U.S. consumers.

              Third is arable land preservation.  Fallow farmland will, inevitably, be converted to other uses.  Once converted, it's a lot more difficult and expensive to recover arability should the need arise.  Oddly, the universe has a habit of serving up such needs.

              You've fallen into a classic contemporary trap: equating profit utility and social utility.  ROI is not a measure of social value or necessity.  There are some things that we need, as individuals and as societies, that simply aren't profit-competitive enough to attract capital.  We still need them.

              The United States of America is a constitutional republic, not a capitalist laboratory.

              •  I don't think you understand my argument. (0+ / 0-)

                I'm arguing that agriculture IS profit-competitive.  If it isn't, it's because there is no one who wants to buy it.  It is a fundamental premise of supply and demand, and has been universally confirmed.  Perhaps the Chilean people can't feed themselves because they don't have money to buy food.  So redistribute income.  The answer is simply not to fudge with markets, and you haven't made a convincing argument why if people need food, they won't buy it.  If it's expensive, that means that it takes a lot of resources to make.... so people will factor that into their decision, weighing the costs to society against the benefits, at least to themselves.  If it's so expensive as to be unpurchaseable, it is exactly that profit incentive that will MAKE agriculture profit-competitive and induce more farming.  Don't demagogue about capitalism.  What do you think would happen if we stopped subsidizing agriculture?  Food would disappear?  The rural poor would stop farming because all of a sudden they would be able to sell their crops and make money instead of being drowned by the U.S. treasury?  The rural poor around the world only have agriculture to turn to.  If you want to dispute basic price mechanisms, fine, but then come out and say it.  Humans desire what they need, and if they cannot get what they desire, it's because they don't have enough income... it's not because we haven't screwed around with prices enough.  As to your comment about social utility versus profit utility... economics does not consider profit utility, it considers social surplus.  The only two objections one might make to this is that the poor cannot represent their desires through their purchasing decisions, which, again, calls for income redistribution, or that there is some sort of externality in the production of food, meaning outside of the producers and the consumers of the food.  I have suggested the national security externality as one a person might claim, but you are not making that argument.  Can you think of any others?  Otherwise, it is basic laws of supply and demand you are challenging.  If people want something, they will be willing to spend their income on it.  It works in every market and in food as well.  The reason we have a global food crisis is that developed world subsidization has driven the global rural poor out of the market.  With barely any income, it is hard to purchase the food they need, especially when politically connected, ill-advised special interests like the biofuel movement consume a huge market share, increasing demand and driving global prices sky high.

                •  Just because American agriculture isn't (0+ / 0-)

                  profit-competitive doesn't mean global agriculture isn't.  Is it very important to you that the person who farmed your food was a middle-class American rather than someone outside the country if the same safety standards are applied?  Might I ask why?  And if you truly believe internationally that no industry is profitable except high tech or whatever is sexy at the moment, may I ask about the probably 99% of industry that is not in this category?  Why does it exist?  Why doesn't everyone become software engineers?  If you say because they don't have the opportunity, you are right... some only have the chance to farm, and that is a chance we should give them, especially considering that they are more efficient at it than we are.

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