Monday, July 2, 2012

Cowen on eliminating agricultural subsidies

I'm a sucker for a good anti-agricultural subsidy remark. Here's what Tyler Cowen had to say in a recent reader-submitted Freakonomics Q&A:

Q. Let’s say the ~$20B in U.S. subsidies for corn wheat, rice, soybeans, dairy, etc. are gradually dialed down to $0 in the next 10 years. What do you think the impact on food would be ? Would prices rise? Would flavor and health improve?<
A. Eliminating agricultural subsidies would improve the federal budget and the long-term fiscal outlook. There is no reason not to do it.
That said, sometimes foodies overemphasize how much those subsidies skew the world of food. Many of the bad sides of our corporate food world would still remain, or be virtually as prominent, though only customers would have to pay for them. We will still have too much corn syrup in our diets, and too many fruits and vegetables without much real taste and too much processed food.
Some agricultural subsidies make food more expensive, such as when they are combined with price floors, other subsidies make it cheaper, or lead to a distribution of surplus abroad, keeping food off the home market but boosting the amount of aid. The overall effects of agricultural subsidies on food prices are quite complex.
How many times have we all heard someone criticize agricultural subsidies, but before we could bring our hands together to applaud, the speaker went on the say the only problem with them is they are going to the wrong farmers.

Cowen's point about the subsidies having little effect on food prices, as other policies also distort prices, is complimentary to a similar Freakonomics Q&A in 2008 with Daniel Sumner:
Q: Is there any evidence to support the claim that agricultural subsidies contribute to obesity?
A: The short answer is no. There are lots of reasons for dissatisfaction with farm subsidies, obesity is not one of them. 
The reasoning is that, although farm subsidies programs have made the price of corn and soybeans slightly cheaper for buyers in the U.S., the accompanying trade policies have raised the prices of sugar and dairy products. Furthermore, farm costs comprise such a small fraction of the retail price, the small farm price effects have tiny retail price impacts. Finally, in rich countries such as the U.S., buyers respond little to any food price declines or increases.

1 comment:

  1. Want to have some fun, talk to a lefty about it. I discussed it with someone and his college educated opinion was that without subsidies every farmer would go bankrupt simultaneously. I tried to point out that some produce isn't subsidized and yet we still get that food every year without problem, but it wouldn't make it through his filter. I was wondering about forcing disclosure somehow or making the money have so many strings, like a fedral contract, that you could not comply economically.