Monday, August 27, 2012

Why Do Farmers Deserve Federal Help?

My title is a question which is often asked, particularly by fiscal conservatives and free market types. Why help farmers when we don't help restaurants or dry cleaners or other small businesses which fail.

The simple answer is: they don't deserve Federal help..

But simple is often wrong.

The heart tugging answer is: family farms are the cornerstone of the country.

But that's easy emotion, based on an agrarian myth which doesn't work these days.While most field crops are still grown on family farms, even though the family may be a corporation or partnership, those families are spread rather thinly over the landscape, so rural churches and organizations are at best on life support.  See Prof. Putnam's Bowling Alone.

The historical answer is: because they used to have lots of political power and they still have enough to get legislation passed.

But that answer isn't one of principle, it's one of power: farmers deserve help because they're powerful enough to get it.

So is there an answer which is principled, or at least plausibly principled?

Yes, I think so.  You start with the idea that we're one nation, one society, and part of that means we care for each other.  You add in the contrary principle that we believe in freedom and the market, so people should stand on their own two feet.  The free market principle says we shouldn't keep restaurants from failing (which they do at very high rates) because their success or failure is market-driven.  There are exceptions, of course: when the oil well blew out in the Gulf, BP and we compensated the businesses hurt by the oil spill.  When a hurricane comes through, FEMA will help to rebuild.  Those exceptions serve to clarify the rule: when success or failure is due to the efforts of the individual operating within the constraints of the free market, then no federal help is warranted. So if the failure is from exogenous causes, events outside the system, then one can argue for federal aid. Hence the long history of disaster aid, which gradually has consolidated into crop insuance.

Going further, I can argue for help based on the structure of the market system in which farmers find themselves, or at least found themselves in the past.  As commodity producers with no power to set prices, they were at the mercy of the market.  (Airlines are also commodity producers with no power to set prices individually, but they're so few of them they can signal each other when they're ready to raise prices.  Even so, I understand over its history the airline industry has never made a net profit.) Consequently it was justified for the government to use its power to permit cartels to be formed, as in the "marketing orders" for various fruits and vegetables and the classical production adjustment programs of the last century.

For the last argument, I can question whether, with modern means of information and marketing, hedging the risks, government intervention is still required.  It is true, I think, a disaster like this year's drought will cause oscillations in the supply/demand for field crops next year.

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