Posts Tagged ‘Subsidies’

One of the fundamental questions that we must ask ourselves is, what is the purpose or function of government.  As I have said on previous occasions, I believe the primary goal of any government is to defend the lives, liberty, and property of the citizens against any threat either foreign or domestic.  To a lesser extent, a government must also serve to provide needed services that, for either security reasons or economic ones, cannot be handled by the private sector.  Unfortunately, this viewpoint has gone into decline as more and more people view the government merely as a tool to achieve some tangible gain at the expense of the rest of the citizenry.  This trend is not some sort of new phenomenon, but has existed since the dawn of politics.  As Adam Smith writes in The Wealth of Nations, “People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. 1 In this article, we will be discussing three of these widespread conspiracies.

The first of these conspiracies is subsidies and quotas.   Rather than let the free market act unfettered, the government interferes in order to promote certain industries.  Basic economics teaches that, under normal circumstances, if one area of industry experiences a glut of production, supply will rise as demand remains constant.  Therefore the price will plummet.  With diminishing revenue, less efficient suppliers of that product will stop producing and switch into a different market as to enjoy a better rate of return.  Conversely, if demand increases or supply drops then prices will rise and, as a result, new suppliers will come into being and/or current suppliers will increase their outputs in order to take advantage.  Although prices will fluctuate in the short run, over time assuming no intervening factors, they should remain relatively constant.  Subsides and quotas destroy this natural process.  They serve to keep prices artificially high or low and do not reward efficiency.  For a real world example, let’s look at the topic of sugar subsidies.  The reason sugar costs more than other sweeteners in this country is that the government subsidizes the industry.  As most citizens do not buy large quantities of sugar at one time, they do not notice the increase, but it does create significant wealth for sugar growers.  According to the Cato Institute, on March 12, 2010, sugar prices in the United States were 78% higher than elsewhere on the globe. 2 As the costs are so widespread among the millions of consumers, no one raises a fuss, while the benefits are concentrated in the hands of a relatively small number of producers. Large-scale buyers, like Pepsi, are affected by the higher prices and must switch the sweeteners they use in order to cut costs thus causing the rise of products like high fructose corn syrup.  Although we could import cheaper sugar from abroad to force prices back to the free market norm, the government sets strict quotas to limit these imports and thus keep this artificial price in place.  Unfortunately, the sugar industry serves as one of many glaring examples of a sector that uses the federal government for their own monetary gains at the expense of the public.

The second is the relatively new phenomenon of hate crime legislation.  These sorts of laws apply additional civil or criminal penalties for those who perform acts against people of other races, religions, or lifestyles.  Although potentially noble in thought, in practice the whole idea becomes utterly absurd.  Robbery is robbery, assault is assault, battery is battery, and murder is murder.  One should suffer the same consequences regardless if one commits an offense against a Jewish person, a black person, a homosexual person, or someone who happens to be all three.  It should make little difference legally if the perpetrator and victim happen to share a color or creed or end up being totally distinct.  In an episode of South Park, the creators display the ridiculous nature of so called hate crimes when their judge, pronouncing sentence against one of the character, announces, “I am making an example of you to send a message out to people everywhere: that if you want to hurt another human being, you’d better make damn sure they’re the same color as you are.” 3 The great fear of hate crime legislation is the way it further divides society and sets up special privileges for members of certain groups.  Should a criminal who harms me be treated any differently than a criminal who harms you in the same manner?  Isn’t the goal equality for all under the law?  Is justice blind, or does she favor certain classes?  Does it matter when you are robbed whether the perpetrator simply wants your money or commits his or her act because of hatred?  Couldn’t a special interest group promote hate crime laws merely to offer greater protection to individuals within their organization at the expense of everyone else?  In order to keep each person equal under the law and the penalty for crimes consistent, we must do away with any and all hate crime laws.

The third conspiracy is pork barrel spending.  Unfortunately this problem is extremely expensive and pervasive.  The pork watchdog group Citizens Against Government Waste defines pork as congressional spending that consists of one or more of the following:  “requested by one chamber of Congress, not specifically authorized, not competitively awarded, not requested by the President, greatly exceeds the President’s budget request or the previous year’s funding, not the subject of congressional hearings, or serves only a local or special interest.” 4 The most infamous pork project was Alaska’s “bridge to nowhere” which would cost $398 million and link the town of Ketchikan to the island of Gravina, which contains an airport and the homes of roughly fifty people.  Although such a plan would no doubt be helpful to the town of Ketchikan, shouldn’t the citizens of Ketchikan pay for it rather than have the burden be shouldered by every citizen of the United States?  Unfortunately, too many members of Congress view U.S. tax dollars as a trophy to be carried home to their constituents.  Regrettably, the problem is not limited to one party as both Republicans and Democrats covet pork.  The worst among them have been former Senators Ted Stevens of Alaska and Robert Byrd of West Virginia.  Fortunately both are out of office, but I’m sure a number of politicians aspire to step into their shoes.  Although the state of West Virginia has benefited greatly from his largess, having named over thirty public works after Byrd including a statue of himself in Charleston, just imagine what else could have been done with that $1 billion, including returning it to the hardworking taxpayers.  According to the 2010 Pig Book published by CAGW, recent pork includes:  potato research, lobster research, brown tree snake removal, theater restoration, museum funding, and music education.  Do these projects fall under the authority of Congress according to the Constitution or are they merely a conspiracy to funnel our money to special interests?  From a politician’s point of view aren’t they mainly a tool for boosting support and improving their reelection chances?

Although there are many more conspiracies against the public, subsidies, hate crime legislation, and pork barrel spending are three of the more egregious violations.  Given the general ignorance of the public and their willingness to blindly assume that their representatives are looking after their best interests, these schemes will continue.  But there is some growing hope.  With the rise of the tea party movement, more and more Americans are realizing that our government has been overrun by the whims of special interests. Special interests will never change, but that doesn’t mean that leaders must bow to them.  Government is not and cannot be about exploiting one’s neighbors for selfish gains either monetarily or legally.  Although Election Day has just passed, we must always remember to only vote for candidates and politicians who share these convictions both in word and in deed.  Then, and only then, will we shake free of these conspiracies and restore government to its proper role.

1      Smith, Adam.  The Wealth of Nations. Book I, Chapter X pg. 152. London:  Methuen & Co, 1904. Print.

2      Ted Dehaven.  “Sugar Subsidies Not So Sweet”  The Cato Insitute.  March 17, 2010. Web. October 13, 2010.  <http://www.downsizinggovernment.org/sugar-subsidies-not-so-sweet>

3      “Cartman’s Silly Hate Crime 2000”  South Park.  By Trey Parker & Matt Stone.  Comedy Central. April 12, 2000.

4      “What is Pork Barrel Spending?”  Citizens Against Government Waste. Web October 13, 2010.  <http://www.cagw.org/about-us/frequently-asked-questions.html#What_is_porkbarrel_spending&gt;

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Guest post by Brent

The United States government is currently heavily involved in domestic agriculture. Intervention in domestic agriculture by the United States is not justified. I believe government intervention in the agriculture market is resulting in more harm than benefit and a market-based environment would lead to more favorable outcomes for the agriculture market and the American people.

Federal programs to aid domestic farmers are very costly to the American government. “Farm support programs cost taxpayers nearly $20 billion a year” (Griswold 2007). The costs of farm support programs have been rising every year. From 1995 to 2004 the average cost of farming subsidies was $14.3 billion per year, from 2002 to 2006 subsidies cost the American people an average of $20 billion per year with $25 billion alone in 2005 (Frydenlund 2007). With the rising national debt the American government cannot afford to continue the practice of providing subsidies to agriculture firms.

A government subsidy to farmers creates high levels of income disparity in the agriculture market. In 2003, the wealthiest 10 percent of farmers collected 72 percent of the government subsidies handed out (Frydenlund 2007). Many people believe that farm subsidies have been put in place to protect the “local” farmer but that is simply not true. The large agriculture firms are the ones receiving the majority of the benefit as Frydenlund (2007) points out. The struggling rural farmers are not the ones receiving the benefits of subsidies, “ While farm programs have enriched certain farmers, they have failed to deliver long-promised rural development” (Griswold 2007). Studies have found that areas in the United States where subsidy payouts are high tend to have poor job and population growth. As Frydenlund (2007) discusses the results of a study conducted by the Federal Reserve Bank of Kansas City, “Job gains are weak and population growth is actually negative in most of the counties where farm payments are the biggest share of income”.

Government intervention in the form of subsidies to farmers increases environment degradation. For example, Griswold (2007) writes that farm support programs promote the overuse of fertilizers and pesticides which damage the environment. The price of land conservation also rises due to land owners being able to receive government subsidies from allowing farmers to use their land (Frydenlund 2007). Edwards (2007) of the Cato Institute writes, “Lands that might otherwise be used for parks, forests or wetlands get locked into farm use”. By providing incentive to turn land to usable farm space, the federal government is decreasing the amount of land set aside for environmental conservation efforts. If the free market were allowed to run its course, the amount of land set aside for conservation would increase due to lower opportunity costs and therefore the amount of harmful fertilizers and pesticides would in turn decrease.

Government subsidies in the agriculture market can cause higher food prices for American consumers. The government subsidies of ethanol are a prime example of subsidies driving up the price of food. Farmers responded to ethanol subsidies by devoting more corn to the production of ethanol which lowered the supply of “food” corn. This intervention results in a rise the cost of food, “Rising food prices in response to ethanol mandates also illustrate an important point raised by Ludwig von Mises in his various critiques of interventionism–there is no such thing as an isolated government intervention” (Carden 2010). This is a major point against government intervention, the act of intervention can affect many unintended areas of the economy. A free agriculture market would be able to keep food prices at a desirable level of equilibrium. Government intervention in food markets lead to inefficiencies and higher prices.

Many supporters of government farm support claim that subsidies in agriculture are necessary in order to maintain adequate levels of domestic food production for national security reasons. For example, Young (2007), chief economist for the American Farm Bureau describes farm subsidies as an “insurance policy”.  Guell (2008) also suggests, that without government aid many farmers would have declared bankruptcy and halted growing. This scenario of farmers leaving the industry due to lack of government intervention has not been true across the globe. The farmers of Australia and New Zealand are a prime example of this scenario being false. Farmers of these two nations receive dramatically lower government payouts and yet their populations have experienced no food disruptions or shortages since government spending was cut due to improved efficiently throughout the newly free market of agriculture (Griswold 2007).

Government intervention in farming and agriculture is not justified and it producing an outcome that is suboptimal compared to letting the free market reign. Federal subsidies are contributing to higher food prices, environmental degradation and increased income disparity. Fears of national security risks due to a free agriculture market have been disproved by Australia’s and New Zealand’s agriculture market. In order to achieve an optimal outcome for the people of the United States, the government must cutback or remove current intervention in the farming and agriculture market.

Works Cited

Carden, A. 2010, America’s Food to Fuel Problem, Viewed on 26 February 2010,


Edwards, C. 2007, Ten Reasons to Cut Farm Subsidies, Viewed on 27 February 2010,


Fydenlund, J. 2007, Farm Subsidies: Myth and Reality, Viewed on 28 February 2010,


Griswold, D. 2007, Online Debate: Should the United States Cut Its Farm Subsidies?,

Viewed on 27 February 2010, http://www.cfr.org/publication/13147/

Guell, R 2008, Issues in Economies Today, 4th edn, Mcgraw Hill/Irwin, USA.

Young, B 2007, Online Debate: Should the United States Cut Its Farm Subsidies?,

Viewed on 27 February 2010, http://www.cfr.org/publication/13147/

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I’m sure that many of you got to sample the limited edition Pepsi Throwback.  I certainly did and I must say that I thought it tasted much better than regular Pepsi (though I wish they offered a caffeine free variety).  If you didn’t know what sets the beverage apart from the normal variety, what makes the drink special, it is the sweetener.  While Throwback uses natural sugar (from cane, beet or both), these days most non-diet carbonated soft drinks (whether regionally called colas, pop, Coke, or something else) contain high fructose corn syrup.

But…this isn’t a food review blog?  What does this Pepsi product have to do with politics?  Representative Ron Paul has the answer.  In his bestselling work, The Revolution: A Manifesto, he discusses this topic.  The reason for the switch is one of cost.  It is cheaper for soft drink manufactures to use the corn syrup.  But wait, you say…in other countries they use sugar, why would it be more expensive in the U.S.A.?  The answer is subsidies and quotas.  Not only does the federal government subsidize corn growers, as Ron Paul tells us, “The United States government limits the amount of sugar that can be imported from around the world.  These quotas make sugar more expensive for all Americans, since they now have fewer choices as a result of diminished competition.  The quota also put at a competitive disadvantage all those businesses that use sugar to produce their own products.  That’s one reason that American colas use corn syrup instead of sugar:  American sugar, thanks to the quotas, is simply too expensive.”  (p. 72).  Paul goes on to agree with my assessment of sugar versus high fructose corn syrup writing, “And it’s also a reason that colas in other countries taste so much better.” (p. 72)

Although I’ve read that given the popularity of Pepsi Throwback, it will be returning to the market later this year, it will only be for a brief time.  So if you haven’t tried this sugar sweetened drink, you will have another chance.  Unfortunately, government interference with the free market will likely make sugar drinks too expensive to be sustainable in the long run, despite the superior taste.  After all, with corn farmers receiving additional income from our tax dollars, and the price of sugar kept artificially high, without substantially higher retail prices sugar products like Pepsi Throwback will be nothing more than a memory of days past.  I say that it’s high time to let the unfettered market decide, not the powerful corn and sugar lobbies.  Given a true choice between sugar and corn syrup, I know which one should be thrown back.

P.S.  For far more information on this subject, I recommend reading the drink comparison site bevreview.com.  They have a very comprehensive article on the subject.

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