Farm Subsidies & Tariffs – How US Consumers Foot the Bill

Subsidies

A subsidy is when the government takes money from a certain group of individuals via taxation and gives it to certain entrepreneurs. It enables the recipients to sell goods at a price below market price when they compete with other entrepreneurs. It makes consumers who might not even buy the goods in question foot the bill for other consumers. It also limits the sales by those entrepreneurs whose goods would have been purchased by the taxed consumers. Its ultimate damage is that it allocates goods amongst individuals against their voluntary value preferences, due to compulsive government intervention.

Tariffs

A tariff is when the government of a certain territory orders entrepreneurs from different territories to pay taxes when selling goods in its territory. This results in higher prices for the goods sold by entrepreneurs from other territories. It enables the entrepreneurs selling the same goods within said government’s territory to demand higher prices from the consumers. It transfers wealth from consumers to the government and to the aforementioned local entrepreneurs. It hurts the majority of consumers and of producers whose goods the domestic consumers and foreign entrepreneurs would have purchased with the money they would have at their disposal, had the government not intervened. Its ultimate damage is that it allocates goods amongst individuals against their voluntary value preferences, due to compulsive government intervention.

Thus The Atlantic urges the government to Tell Americans What They’re Really Paying for Their Food:

Before you start spooning up your next bowl of Frosted Flakes, ponder this: driven partly by the demand for ethanol, the price of the corn in your flakes is about 40 percent higher than it was a few years ago; the sugar easily cost you more than double the world price; and your milk is at least 15 percent more expensive than it would be in many other countries.

Americans pay much more than they should for their food. Thanks to a thicket of subsidies and tariffs that support American farmers and tilt the growing field against cheaper foreign producers, we get ripped off twice: first as taxpayers who ante up for roughly $25 billion in agricultural subsidies each year ($4 billion for milk alone in 2006); then as consumers who pay higher prices at the checkout counter because we can’t take advantage of low-price imports.

Subsidies and tariffs were originally intended to help protect small farmers–a purpose they’ve largely outlived. They keep rolling on, though, because the only people who focus on them tend to be their direct beneficiaries. Spread over tens of millions of consumers, the costs seem small: the average American taxpayer, for example, pays only $322 each year to fund subsidies. But for some of the thousands of farmers who get such payments, the benefits are huge: from 1995 to 2005, roughly 75 percent of subsidy payments went to just 10 percent of the subsidy recipients, who took in an average of $91,000 a year; and 55 farmers received more than $1 million each. Talk about a green thumb.

Given the megadeficit now darkening our fruited plain, $25 billion each year is real money; so is the roughly $2 billion in economic benefits that the U.S. International Trade Commission estimates we would get each year if we lifted all tariffs on food and agriculture items. We’d bring in more than $800 million by lifting tariffs on sugar alone. What’s more, by ending this kind of subsidy profiteering and opening our markets, we would not only save money but enable some of the world’s poorest agricultural producers to make a buck in the bargain.

So, how can we get more Americans to look up from their feedbags and demand that Congress restore some sense to the marketplace? I recommend a little truth-in-packaging. Just as food manufacturers now list their products’ ingredients and nutritional value, they should also disclose their “free-market” value.

To wit, every product whose ingredients benefit from a subsidy should include the following language on the label:

“This product has been subsidized by the U.S. government at taxpayer expense. For more information, please visit usda.gov.”

And every product that benefits from tariff protection should have the following language on the label:

“This product is protected from foreign competition by U.S. import tariffs. Its price is higher as a result. For more information, please visit usitc.gov.”

Ideally, the Web sites of the U.S. Department of Agriculture and International Trade Commission would provide not just specific information on subsidies and tariffs, but contact information for the relevant congressional committees that oversee them–hmmmm, perhaps even their chairs’ home phone numbers.

Let the angry 2 a.m. phone calls begin!

During the illusory days of inflation and consumer credit expansion individuals didn’t care a whole lot about a few extra dollars. Now, that deflation is a day to day reality, cash hungry consumers will be more receptive to the damages caused by subsidies and tariffs.

I have a simple proposal for President Obama and Congress if they were at all serious about helping US consumers: Get rid of every single subsidy and tariff imposed by the federal government.


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