Cut the Farm Aid, Keep the Food StampsChris Farrell
Now what? Congress has once again failed to pass a major farm bill. The latest setback came when the U.S. House of Representatives on June 20th couldn’t agree on a $939 billion agriculture bill after the Senate had already passed its $955 billion version. The main reason the House couldn’t muster the required votes was a set of sharpening disagreements over food stamps. Specifically, the legislation called for $21 billion in cuts to the food stamp program over the coming decade. Rebellion set in after a series of proposals by House Republicans targeted the program even more, including a work-requirement to qualify for food stamps and language permitting states to drug-test food stamp applicants. What happens next is unclear.
Here’s a proposal for Congress to consider. Separate the farm bill from the food stamp program. Then eliminate all farm subsidies. The federal government started subsidizing agriculture in 1933; after 80 years, it’s high time for the era of taxpayer support to end. In sharp contrast, Congress should back the food stamp program—technically the Supplemental Nutrition Assistance Program, or SNAP. The recent experience of SNAP during the Great Recession demonstrates that it’s an effective and efficient part of America’s social safety net.
Subsidies targeted at profit-making enterprises usually make for bad economic policy. (Think steel.) Farming is no exception. The subsidies throw a lifeline to farmers who scrape by year after year. The near-certain prospect of a government bailout encourages troubled farmers to take bigger-than-prudent risks. The federal farm payment system has evolved into a Byzantine maze. A playground for rent-seekers, the rules favor farmers who are adroit at exploiting the system.
Put it this way: Why should farming be treated any differently than computer companies or the corner dry cleaner are? In an interview several years ago, economist Steve Blank, head of the department of agricultural and applied economics at Virginia Tech (at the time, he was at University of California, Davis) succinctly captured the issue. His grandparents on one side of his family ran a mom and pop grocery store and butcher shop. His other grandparents owned a farm. “”Why were my mother’s parents doing something more valuable than my father’s parents?” he asked. “They were both part of the food chain. Why should the government pay one and not the other?” he asked. Good question.
Farming is hardly a failing business. In 2013 net farm income is expected to reach its highest level since 1973—at $128.2 billion, after adjusting for inflation—according to forecasts by the U.S. Agriculture Department’s Economic Research Service. To be sure, the short-term price tag for breaking the subsidy habit would be steep. If the experience of deregulating airlines, financial services, telecom, and other industries is any indication, painful consolidation would follow. But longer-term, thanks to opportunities created for savvy entrepreneurs, the farming industry’s overall strength and competitiveness would climb.
The food stamp program, on the other hand, worked well during its biggest test, the deep recession that technically ended in early 2009. Yes, the number of food stamp recipients has soared in recent years. SNAP is one of the few means-tested government programs available to almost all low-income households. The program expanded from a monthly average of 26.3 million in 2007 to over 46 million in 2011, according to the Center on Budget and Policy Priorities, a Washington think tank. Approximately one in seven people and one in four children benefited from food stamps in 2011, both all-time highs.
Question is: Was the growth in food stamps way above what it should have been? Recent research suggests the steep rise in the program largely reflects the trauma from the worst downturn since the 1930s and the subsequent anemic recovery.
For instance, economists Marianne Bitler at the University of California, Irvine and Hilary Hoynes at the University of California, Davis examined the program (PDF) as part of their scholarly research in The More Things Change, the More They Stay the Same: The Safety Net, Living Arrangements, and Poverty in the Great Recession.” What they found is that food stamp usage was “very consistent” with previous historical cycles. A different study, by Peter Ganong and Jeffrey Liebman of Harvard University, attributes the rise in local unemployment for at least two-thirds of the increase in enrollment from 2007 to 2011. Relaxed income and asset threshold rules, as well as temporary changes aimed at childless adults, accounts for a further 18 percent of the increase (PDF).
In other words, the last couple of years have been really bad, with high unemployment, under-employment, and anemic hiring. The food stamp program accomplished a public policy goal: Reduce food insecurity and hunger during tough economic times. SNAP enrollment growth started to slow in 2012 and participation rates will decline in coming years, assuming that Federal Reserve Board Chairman Ben Bernanke was right when he said on June 19th that “the downside risks to the outlook for the economy and the labor market have diminished.”
The economics and the ethics of SNAP are compelling. There’s no good reason to cut the program. The same can’t be said for farm supports. Subsidies aren’t good for business.