The vast majority of economists oppose farm subsidies. Greg Mankiw calls them "insane"; Paul Krugman says they are "grotesque." Why do economists – who so often disagree with one another – speak with one voice on this issue? One explanation is that farm subsidies are not only inefficient, in the sense that they make the overall economic pie smaller, but they are also inequitable in that they transfer resources from relatively poor consumers and taxpayers to relatively wealthy farm owners.
Furthermore, farm subsidies may actually be a burden to the young and aspiring farmers that they are intended to help.
NPR recently highlighted the financial barriers young Americans are facing in their attempts to farm, noting the rising cost of farmland as the major problem. Bo Bigler, a 25-year-old aspiring farmer, complains that, "The price to buy into it, it's too much; the cost of land is unreal … the only way that somebody can get into it is if a ranch was handed down to them, unless they're millionaires to begin with."
According to the Department of Agriculture, for each farmer under 35, there are six who are 65 or older. And this imbalance continues to grow. The USDA has also reported that the average age of principal farm operators has increased from 54 in 1997 to 57 in 2007. As the current farming population continues to get older, fewer young Americans are choosing to follow their fathers and grandfathers into the fields.
So what is causing this "grain drain"? Many of these young Americans are citing the cost of entry as the primary reason for choosing to enter other professions.
Proponents of increased farm subsidies argue that more generous government assistance is needed to entice more young people to farm. However, this is likely to make matters worse.
Nearly four decades ago, economist Gordon Tullock described this phenomenon as the "transitional gains trap." According to Tullock, many government programs (including farm subsidies) that privilege particular firms or industries only help the initial beneficiaries who were there at the programs' inauguration. Over time, the value of these benefits is built into the price of assets like farmland, leaving later generations to pay higher prices to enter the privileged industry. As economist David Friedman puts it, the "government can't even give anything away."
In the case of farm subsidies, many of the benefits that were initially provided have been lost over time as the price to purchase or lease land has increased to account for the value of the subsidies. Supporting this theory, economists Barry Goodwin, Ashok Mishra and Francois Ortalo-Magne have found that landowners extract a large portion of farm policy benefits from tenants through increased lease rates.
Unfortunately, Tullock's insight also explains why, once bestowed, inefficient government-granted privileges are so hard to take away. After an industry has organized itself around the gains derived from a subsidy program, the termination of that program would lead to large losses for industry incumbents. This is why Tullock referred to it as a trap.
In the case of farming, removing the current subsidies would decrease the amount individuals would have to pay to lease or purchase acreage to begin farming. This would benefit young farmers hoping to get started. But it would also reduce the land values of established farmers.
As a result, we are stuck with an insane and grotesque transfer of wealth to some of the wealthiest Americans, many of whom are not even farmers. As economist Barry Goodwin notes, "Since many landlords are nonfarmers, this implies an important transfer of subsidy benefits outside of agriculture."
What, then, are we to do? One possible solution is to buy out those current farmers who would lose value and wealth from the termination of these programs. Tullock suggests that in some instances, particularly when the gains of reorganizing the industry outweigh the costs, it may be possible to compensate those that stand to lose. Although he doubted the political feasibility of this plan, such a transition did indeed take place with peanuts in 2002 and tobacco in 2004, moving both closer to a more market-oriented approach.
But perhaps the first step is to recognize that today's farm subsidies make land more expensive for tomorrow's new farmers.
Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University. Christopher Koopman is a program manager at the Mercatus Center.
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