Can agricultural economists contribute to good public policy? - Farm Bill 02 Choices

Choices: The Magazine of Food, Farm and Resource Issues, Fall, 2002 by John E. Lee

Should agricultural economists continue to serve primarily the ag production community, or should they consider the interests of a broader selection of stakeholders? In either case, a more transparent and public discussion of policy alternatives and their consequences would help everyone involved.

Agricultural policy is sometimes characterized as a rent-seeking enterprise based on political power and money. The commodity policies are called a game in which politics overpowers economics and economists. In this characterization, anything that economists do, such as modeling consequences of alternative policies, is often thought to be for their own professional entertainment. The making of the 2002 Farm Bill, and the response to it in academic circles, has prompted suggestions that there is truth to this view.

Policies are adopted to favor powerful special interests that have at least the passive acquiescence of the majority of voters. Voters acquiesce if they agree that the policy is good, if they feel they are not affected, or if they are largely ignorant of the consequences of the policies. When it comes to farm policy the vast majority of Americans seems to fall into the latter two categories.

Considerable research evidence shows that U.S. farm policies have serious negative side effects, and most readers of CHOICES are familiar with the litany of problems that stems from the farm support programs. Economists continue to argue that heavy financial subsidies drive production costs up, drive commodity prices down, distort the mix of production inputs, distort trade patterns, abet the trend to fewer and larger farms, and reduce the viability of farming in poor agricultural countries.

Recently, a cotton industry spokesperson suggested that the 2002 Farm Bill was good for all segments of the cotton industry.

Since the attractive payments likely encouraged more production, input suppliers, ginners, warehouse operators, shippers, and merchants were happy because they make their money from cotton flowing through the system. Millers were happy because they purchased cotton at lower prices. Deficiency payments and program payments compensated producers for providing the increased output for the rest of the industry. Similarly, lenders speak enthusiastically about the 2002 Farm Bill because it keeps land values (collateral) rising and makes farm lending less risky.

So it goes with one industry and interest group after another. Cotton and lending (banking) are interest groups with persuasive lobbyists. They provide tangible support to members of Congress who support their views. They pay scant attention to the concerns of a few unorganized academics who often spend more time picking at each other than informing the policy decision process.

Comprehensive economic "transparency" contributes to informed public policy. However, if all participants in the public policy process had a common knowledge base regarding the likely consequences of prospective policies, they could approach policy decisions as informed decision-makers and voters. Even where special interests are pervasive, comprehensive transparency could serve as a powerful restraint on behavior that runs counter to the broader social good.

Economics is an appropriate science for providing transparency about policy options and outcomes. More than any other science or discipline, economics utilizes analytical frameworks designed to evaluate tradeoffs, costs, and benefits. Moreover, the common analytical frameworks used in the discipline are flexible enough to encompass a wide array of public concerns and policy objectives. The fact that applications of the economist's analytic frameworks are often very narrow does not detract from the potential for those applications to be far more comprehensive. Motivation and resources are required for that to happen.

Economic transparency can be useful in improving public policy if several conditions are met. These include but may not be limited to:

Policy analyses must distinguish between problems and symptoms, as well as cause and effect. Legislators and farm lobbyists frequently argue for higher commodity subsidies to offset low prices and rising costs, without acknowledging that the low market price and the high costs of inputs can be partially attributed to the very policies they are supporting.

The analysis and publication of information on consequences must be comprehensive. Typically, analyses of farm or food policy options address only impacts on farm income, government costs, and trade, and this is often done in a static context. The impacts of these policies are much broader include such things as:

The progressiveness or regressiveness of redistributions of income and wealth resulting from farm subsidies and food programs.

The ways in which various policies have driven, constrained, and otherwise affected the structure of agricultural and food markets.

The consequences of the interaction between policies and technological change.

The performance of the general economy. (Americans spend so little on food that they have extra disposable income for other things. Does this help drive the consumer economy? If so, does this make expenditures on farm programs a good investment? If this is true, are there other ways to achieve the same results more efficiently?)