Inequality is unjust and immoral – if government force is used.

Today, 9/16/2014, The Des Moines Register once again reinforced the idea that there is something inherently wrong with increasing income inequality.  (See “Ag economy cited in study showing growth in rich-poor gap” – link below.)  In a free market, where government does not interfere except to stop fraud and force, people only become wealthy by producing things that others value and purchase voluntarily.  Under free market capitalism, voluntary trade only makes every participant richer.

Unfortunately, we don’t have a free market in much of our agricultural sector.  So, an important question is how did the wealthy gain their wealth. If they gained their wealth by receiving subsidies from our government, then they gained their wealth by making others poorer. Today, farmers receive various kinds of government subsidies, both directly and indirectly.  For example, crop insurance premiums are subsidized 60% by taxpayers, regardless of the income or wealth of the farmer. And, crop insurance not only covers losses from natural disasters, it also covers loss of profits due to lower crop prices. There should be no subsidy at all for crop insurance, but it is particularly distasteful when the subsidy goes to the rich.  So, we must blame our own government’s policies for at least some of the unjust and immoral aspects of income and wealth inequality.

The new welfare dependent class – businesses

If seems as if all businesses now require some type of welfare program.  The definition of economic development is grants or loans or special tax breaks given by our government to businesses.  Banks get their welfare indirectly – from loan guarantees from many government programs.  Of course our farmers must be protected from losses by government – through crop insurance subsidies that not only cover natural disasters, but actually protect against price declines.  All types of energy companies receive special tax credits or tax breaks.  The biggest manufacturers in Iowa receive large tax credits for research.  Now, Mediacom and John Deere want a grant of $800,000 from the federal government to help bring high speed internet to farmers who buy high-tech, internet connected tractors that cost hundreds of thousands of dollars.  We should say no!  We need to reverse the trend of expecting taxpayers to fund all types of economic development.  Just as with with individuals and families, welfare for businesses create dependency.  Our economy will continue to grow sluggishly as long as we look to government to manage our economic development.

Wind energy jobs created?

“Iowa has enjoyed tremendous economic benefits by being a leader in both wind power development and wind manufacturing.”  So wrote Mike Prior, Milford, interim executive director, Iowa Wind Energy Association, in a letter to the editor on 2/4/2012, (“Wind energy is important jobs provider”)  He went on to extol the many benefits that Iowans have enjoyed as a result of the funding that taxpayers have provided to those in the industry.  He urged that we, “… continue to invest in Iowa’s future.”

Good economic analysis must consider both what is seen and what is not seen.  We see the jobs.  We see the payments to farmers.  What we don’t see are the other jobs that would have been created if people had been left to spend or invest their own money.  Other jobs would have been created that would not be dependent on government handouts.  Instead, we hear a never-ending story about how we must continue to provide taxpayer support or the investment and jobs will be lost.  This is very typical when government creates new “incentives” and makes “investments” in what should be left to the private sector.

Welfare for wind energy producers is like all other special interest giveaways: the benefits are large and concentrated among the few who who are politically connected, and and costs are relatively small and disbursed among many taxpayers. This is a classic case in public choice theory.  Those who directly benefit have a great incentive to lobby government to continue the subsidies, and those who pay the taxes don’t have a strong incentive to oppose any specific program.

We need legislators who will stand against political favors for special interest factions who press their political power for their own self interest.

Link to Register article:  http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=2014302040081

5 more years of farm welfare?

It appears that those in charge of reconciling the differences between the House and Senate versions of the Farm Bill will not be doing anything to reduce the obscene amount of welfare going to farmers.  Money “saved” by eliminating direct payments is being shifted towards more subsidies for crop insurance.  Senator Grassley’s effort to place a cap on the total welfare payments received by any one farmer appears to have been watered down at best.  Farmers have higher incomes and greater wealth than most citizens. They should pay the full cost of their crop insurance.  Now, lets hope that either the full House or Senate will vote this bill down.  We don’t need five more years of welfare for rich farmers.

Farm Bill blackmail!

Almost every day we are warned that we must pass a Farm Bill because, “… if we allow the current bill expire we will revert back to the 1949 law that will raise the price of milk to $7 per gallon!”  Why is it that this situation never changes?  I’ve heard this same threat for decades.   Any new Farm Bill should include a provision to repeal this archaic 1949 law and stop all government intervention in farm markets if the Farm Bill expires.

Income inequality is not the problem.

Income inequality is not a problem in and of itself.  As long a people earn their income through honest, peaceful and voluntary exchange, then there is no moral reason for our government to redistribute that wealth.  What is a problem is when government places its thumb on the scale and unfairly helps the rich to get richer, or hurts the poor and makes them poorer.  To the extent that a person gains wealth by unequal preferential treatment by government, it is morally correct for government to use its force to take away that wealth.

One good example of the many unfair government policies that wrongly favor the rich is the special low income tax rate on “carried interest” income earned by hedge fund managers.  They call it carried interest, but it is nothing more than a bonus based on performance.   In any other situation, this type of income is taxed at regular income tax rates. Somehow, hedge fund managers have sold politicians on the idea that carried interest is a special kind of income that should be taxed at lower rates.  Another example is the Oil Depletion Allowance for oil companies.  Another is farm subsidies for rich farmers.  We do not need to raise tax rates on ordinary income, we do need to do away with the unfair preferences, tax breaks, and subsidies that go mostly to the wealthy.

A good example of government policy that hurts poor people is that of keeping interest rates low in order to prop up housing prices.  If housing prices had been allowed to fall to their free market levels, housing would be much more affordable for poor people.  Instead, our government tries to fix the problem that it helped to create (unaffordable housing) by giving rent subsidies to the poor – creating more dependency on government, but not fixing the underlying causes of the problem.

To misquote Walter Scott, “Oh what a tangled web we weave when first we practice to use our government to achieve social goals.”  The solution to many of our economic problems today is to reduce the size and scope of our government.  Many unfair crony capitalist subsidies and tax breaks exist because our government has expanded far beyond its Constitutionally limited powers.  The primary just powers of government are to protect our lives, liberty and property; and to resolve disputes.  The scope and powers of our current federal government are clearly way beyond the limited government that our founding fathers created.  Lets start by closing unfair tax breaks and lowering spending to match.

Stop crop insurance subsidy!

Taxpayers subsidize about  60% of the premiums that farmers pay for crop insurance – regardless of how wealthy the farmer is, regardless of the income of the farmer, and regardless of whether or not the owner actually even works on a farm.  Crop insurance covers not only losses due to disasters, but it also covers losses due to low prices.  There is no ethical, moral, or food security reason why wealthy farm owners should be receiving any subsidy.  Most farms, like most other businesses, need disaster insurance.  But, there is no good reason why taxpayers should subsidize the premiums.  Farmers say they need a 5-year farm bill so that they can properly plan.  That is understandable.  Let’s let them plan on not receiving any subsidy on their crop insurance.

Ethanol credit speculation – for dummies

Speculators are being blamed for increases in ethanol RIN credits!  Renewable Identification Number (RIN) credits are issued to manufacturers for every gallon of ethanol that they blend into gasoline.  All manufacturers are required to meet targets for blending ethanol into their gasoline – in order to meet national Renewable Fuels Standards.  If they fail to meet their targets, they have to pay substantial penalties.  Some manufacturers exceed their targets so they have excess credits that they are allowed to sell.  Others fail to meet their targets and either have to purchase credits from other manufacturers or pay the penalties.  If, for the entire market, it appears there will be a shortage then the price of the credits will go up.  If it were possible for a few speculators to “corner the market”, then they might be able to hold out for higher prices.  But, the there were truly a shortage, then manufacturers who have excess credits could just as easily do the same.  In either case, this puts pressure on manufacturers to blend more ethanol.  If there is a shortage of ethanol, then the price of ethanol should rise.  If the price of ethanol rises than ethanol producers will try to increase their production to capture more profit.  In any case, the credits are doing what they are supposed to do: reward manufacturers who blend excess gallons and penalize those who blend less than their target.  If the entire market is below the target, then there will be incentives to produce more ethanol.  Speculators help the market to work as it was intended.  The real problem here is the entire Renewable Fuel Standards that uses force, in the form of money penalties, to make everyone use more ethanol than they would in a voluntary market.  This is a classic case of unintended consequences that occurs when people discover, as Friedrich Hayek wrote, “…how little they know about what they imagine they can design.”

Farm Bill changes needed.

The Farm Bill should not pass until the following changes are made:

Separate the food stamp program (the SNAP program) from the rest of the farm bill.  The huge size of the food stamp program dwarfs the farm subsidies and, in effect, hides them.  Farm subsidies need to be exposed to a more open process.  It would also help make the food stamp program more transparent.

Stop subsidizing crop insurance.  Make farmers pay 100% of the cost.  If that raises the price of food, so be it.  If it reduces farmers’ incomes, so be it.  Subsidizing crop insurance is not a proper role for our government.  Today’s federally subsidized crop insurance not only covers losses due to unforeseen disasters, it also covers drops in revenues!   If farmers had to pay the full price for their coverage, they might prefer higher deductibles and lower levels of coverage.  But to add insult to injury,many farmer who receive subsidies are also very wealthy.  There is no good reason why wealthy farmers should be subsidized, even for crop insurance.  If our goal is to help poor farmers, then surely the subsidy should be phased out as a farmer’s wealth and income increase.

Establish a maximum amount of subsidy that can be received by any individual or commonly owned group of farms under all farm subsidy programs combined.  Again, we shouldn’t be subsidizing big farmers or farm organizations.

Don’t place tariffs on imports unless the country of origin first places tariffs on our exports to that country.  Free trade is beneficial to all.  It is voluntary!  It requires no intervention by government other than to resolve disputes.  Free people should not be forced exchange or be prevented from voluntarily exchanging with another party.  Amazingly, under the current Farm Bill, we pay Brazilian cotton farmers almost $150 million per year as compensation for the damage done to them by the subsidies we provide to our U.S. cotton farmers!  Is that not insane trade policy?

Separate the “rural development” programs from farm subsidies.  Again, the tens to hundreds of millions of dollars spent in this area are hidden within the much larger primary subsidy programs.  It is questionable whether or not rural economic development is even a proper  role of government.  In any event, consideration of spending for rural economic development should not be mixed with farm subsidies.

Tie environmental practices to any subsidies granted.  We shouldn’t expect perfectly clean water in our lakes and rivers.  Wild animals have defecated in them forever.  But, it reasonable to expect farmers to not fowl the water down stream from them, and to pay for damages when they can be reasonably determined.  The idea of requiring minimum buffer strips between farms and rivers and lakes is reasonable.

Still no reason to subsidize crop insurance

The opinion piece by Doug Stark on 3/24/2013 in The Des Moines Sunday Register gave several great reasons why crop insurance is important and beneficial to both farmers and our economy. (See: “Another View: Crop insurance stabilizes jobs and economy” link below.)  However, he did not give a single reason why taxpayers should subsidize the premiums.  Purchasing insurance to cover various types of risks is usually a smart business decision.  Most businesses and individuals by various types of insurance to cover a variety of risks of loss.  But most businesses and individuals are expected to pay the full cost of whatever coverage they need – unless they are poor.  Most farmers are not poor.  Most farmers should not receive any subsidy.  Maybe only poor farmers should be given a welfare voucher that would provide a partial subsidy up to a specific dollar amount premium.

 

Link to Register article: http://www.desmoinesregister.com/comments/article/20130324/OPINION01/303240035/Another-View-Crop-insurance-stabilizes-jobs-economy