Lainey Howard-Pd. 2
Throughout American history, the government has placed subsidies, or “benefits given by the government in the form of a cash payments or tax reductions”, on specific industries or individuals in order remove some sort of hardship(1). There has always been a disagreement regarding the idea of subsidies. On one hand, they are viewed as beneficial to the economy and a positive use of public funds; however, others disagree completely with the thought of subsidies. In fact, some even argue that subsidies cause more harm than good, and should therefore be demolished completely. Arguments regarding the use of subsidies have dated back to centuries ago. Specifically, Bastiat, a French political economist in the nineteenth century, did not necessarily agree with the idea of government interference through subsidies. As he expressed throughout his written works, specifically Economic Sophisms, Bastiat was a huge advocate for free market trade and did not believe industries should be forced to subsidize. Recently, subsidies towards agriculture have become a large controversy. Bastait would disagree with the subsidies placed on agriculture based on his theory that the government should not interfere in peoples lives, especially when it comes to forcing industries to do something.
In order to understand the pitfalls of subsidies, one must understand why they have been put into place. Farming subsidies were originally created in the 1930’s in order to help the crumpling incomes of those living on farms, which at the time was about 25% of Americans. Henry Wallace, the Vice President of the United States at the time, described these newly founded agricultural subsidies as “a temporary solution to deal with an emergency.” Interestedly, Bastait would have probably agreed with Henry Wallace. He believed, “under extraordinary circumstances, for urgent cases, the State should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions”(2). Although Bastait might have agreed to subsidies being a short term fix, he would not approve of the subsidies being implemented today. In particular, present day agricultural subsidies are used to relive farmers from poverty and help them receive an income while keeping crop prices low. However, In reality, most farmers do not even need these subsidies. Based off the average income, farming household make about 61,000 dollars per year, which is above the national household income ($51,000)(3). Because of this, Bastiat would argue that agricultural subsidies are not necessary and a waste of government funding because the farming industry is making well above the national incomes of non-farm households, and therefore the government should not interfere.
In addition to relieving farmers from poverty, agricultural subsidies are implemented to reimburse farmers for money they might have lost due to low agricultural prices. Although this might be the case in some instances, these subsidies are mainly being granted to commercial farms, where they induce overproduction which then causes prices to lower even more. In this case, subsidies are basically worsening the situation by making the prices of crops even lower(4). Bastiat was a firm believer in a free market. Typically, when dealing with a free market, overproduction is viewed as the supply surpassing the demand that consumers have on a product. Normally, the solution to this would be less production; however, the government uses subsidies in order to fix the problem. Although subsidies seem like an easy fix, they actually restrict the farmer. For example, when the government decides to protect a farmer from low prices, and subsidize there crops, they only agree to subsidize specific products. Because of this, farmers cannot grow what they want, and must produce what the government wants. Bastiat would not agree with this because by definition, a free market involves “a market economy based on supply and demand with little or no government control”(5). In the circumstance of these agricultural subsidies, the government does not allow farmers to produce there crops freely, instead, they must grow whatever the government is willing to subsidize.
Apart from to taking away farmers freedom to grow what they would like, agricultural subsidies also only benefit large commercial farms. This is because majority of smaller farms are not permitted to receive large amounts of subsidies. Because of this, these larger farms are overshadowing small farmers and making it increasingly difficult for young, smaller farmers to compete with such enormous commercial farms. In some instances, the larger farms actually buy out the small farming businesses. The subsidies granted to these large farms are denying opportunities to smaller farmers; however, the average American is not informed about this(6). Bastiat wrote about the “seen and unseen” throughout his works. In this theory, Bastiat claims that often times, people only see the benefits of governments actions, making the negative side effects of their actions harder to identify. Because of this, Bastiat would urge us to recognizes the flaws in granting commercial farms with such large subsidies. Bastiat would argue that the unseen blemishes regarding the exclusive distribution of subsidies would be the market distortions that small household farms must undergo without the aid of subsidies. Although the larger farms are capable of producing bigger quantities of crops at lower prices, they are also buying out smaller farms, making it harder for new farmers to enter into the farming industry. These instances of farm consolidation actually lower the amount of jobs in the farming industry; therefore hurting the economy.
By taking Bastiats theory on the seen and unseen into deeper consideration, it is easier to understand the flaws of agricultural subsidies. Perhaps one of the largest defects of these subsidies is the cost they have on Americans. As the farming industry continues to grow and expand, so do the amount of subsidies granted. Although this might appear to be a positive thing, it is important to remember that all federal spending is due to taxes. Therefore, in order for these subsidies to be granted, Americans will have to be taxed more. Not only do the increasing amount of agricultural subsidies lead to higher taxes, but they also make the economy less productive, by increasing regulations and policies that restrict international trade(7). These trade restriction actually raise the price of food. If Bastiat were to assert his opinion on these trade barriers, he would advise the government to implement free trade on farming. Not only would this create a more competitive food industry, but it would also allow for a consistent availability of food supply for consumers. Bastiat was a large advocate for free market trade because he believed buyers and sellers should be able to buy, sell, and trade freely. Governments should take into considerations the benefits free market trade on agriculture would have to the economy.
Bastiat focused on the full picture when examining economic policies. In regards to subsidies, Bastiat viewed them as only being necessary in emergencies. If he were to state his opinion on present day agricultural subsidies, he would disagree with them completely. In looking at the seen and unseen, Bastiat would argue that instead of relieving farmers from poverty, they actually hinder the development of independent growth and the government should refrain from getting involved. Also, Bastiat would argue that these subsidies should be revised because they take away the freedom granted to farmers to grow what they want. Instead, the government decides what crops can be grown based on what they are willing to subsidize. This interferes with Bastiat’s opinion on a free market. As opposed to the government interfering and deciding what crops should be grown, he believes farmers should produce and sell what they would like without the governments interferences. These subsidies cost Americans mass amounts of money in taxes and higher food prices. In order to compensate for this Bastiat would advice that all trade barriers be lifted in order to implicate free market trade. By doing so, this would help this economy and allow for a reliable, competitive food supply. Regardless of Bastiats opinion on subsidies, the government should look into the effects these agricultural subsidies have on America and consider revisions.
“Subsidy Definition | Investopedia.” Investopedia. January 1, 2014. Accessed December 10, 2014. http://www.investopedia.com/terms/s/subsidy.asp.
Riedl, Brian. “How Farm Subsidies Harm Taxpayers, Consumers, and Farmers, Too.” The Heritage Foundation. June 21, 2007. Accessed December 10, 2014.
Noss, Amanda. “Household Income: 2012.” Census. September 1, 2013. Accessed December 10, 2014. http://www.census.gov/prod/2013pubs/acsbr12-02.pdf.
“Free Market Definition | Investopedia.” Investopedia. January 1, 2014. Accessed December 10, 2014. http://www.investopedia.com/terms/s/subsidy.asp.