This article was originally published in The Washington Examiner
Cronyism is the practice by which government officials provide preferential treatment (such as loans, subsidies or regulatory preferences) to handpicked firms or industries. It is a bipartisan practice, as we may once again find out if lawmakers reauthorize most of the farm bill currently moving through Congress. There is no justification for extending our current regime of agricultural subsidies -- a clear example of cronyism.
In 2012, the Department of Agriculture is projected to spend $22 billion on subsidy programs for farmers. Introduced in the 1930s to help struggling small family farms, the subsidies have become the poster child for government welfare for the affluent. Farm households have higher incomes, on average, than do nonfarm U.S. households. Figures from the USDA show that in 2010 the mean farm household income was $84,400, up 9.4 percent from 2009. This is 25 percent higher than the average U.S. household income of $67,530 as reported by the Census Bureau for 2010.
Second, farm subsidies tend to flow toward the largest and wealthiest farm businesses. According to the Environmental Working Group database, in 2010, 10 percent of farms received 74 percent of all subsidies. These recipients are large commercial farms with more than $250,000 in sales and mostly produced crops tied to political interests. The Cato Institute's Tad DeHaven and Chris Edwards calculate that more than 90 percent of all farm subsidies go to farmers of just five crops -- corn, wheat, soybeans, rice and cotton. For every federal dollar spent on farm subsidies, 19 cents goes to small farms, 19 cents to intermediate (middle-income) farms and 62 cents to the largest commercial farms.
The tragedy is that while cronyism benefits the haves, all other Americans -- especially those with lower incomes -- suffer from the resulting distortions. Take the domestic sugar industry as an example. The government protects its producers against foreign competitors by imposing U.S. import quotas, and against low prices generally with a no-recourse loan program that serves as an effective price-floor. As a result of these government actions, U.S. consumers and businesses have had to pay twice the world price of sugar on average since 1982, according to economist Mark Perry.
The irony is that the USDA also spends $80 billion a year trying to alleviate the high costs of food of poorer Americans through programs such as food stamps for 46 million Americans. The one hand takes, and the other gives.
Why then? One reason is that the U.S. farm lobby contributes millions of dollars to political campaigns to maintain federal support for the subsidies, according to the Center for Responsive Politics. The agribusiness sector as a whole spent $124 million for lobbying in 2011. For the past decade the amount of money this sector has spent on lobbying has grown more than 60 percent.
Also, based on a 2011 report by the Environmental Working Group's Farm Subsidy Database, 23 farmers currently serving in Congress signed up for taxpayer-funded farm subsidies between 1995 and 2009. The data show that half of all funds distributed for agricultural subsidies go to eight states (Iowa, Illinois, Texas, Kansas, Nebraska, Minnesota, North Dakota and Arkansas).
Such spending surely gets attention. Economists know how potent this type of lobbying can be. In his seminal 1971 article, "The Theory of Economic Regulation," Nobel laureate George Stigler introduced something called "capture theory." Stigler argued that regulatory agencies are subject to pressure from both interest groups and the electorate at large. But, as interest groups are better able to organize and promote their interests, they hold power over what regulations are put in place.
But this cronyism isn't good for taxpayers. Nor is it good, in the long run, for the industry it supports. Congress must put an end to farm subsidies and all other preferential treatments that farmers have been receiving for years.