The Disaster of Federal Farm Policy
Someone once defined metaphysics as searching in a dark room for a black cat that isn’t there. For the last 35 years in Washington, I have been searching for rational government policies. And, like that black cat, I’m starting to doubt that it is actually there.
But what I find on a regular basis is the notion that “Washington knows best.” The arrogance of policymakers is stunning - and it continues regardless of how many debacles they uncork.
Federal policies are far more irrational, wasteful, and oppressive than they are usually portrayed. Leviathan has been greatly aided by a mainstream media that often utterly fails to understand the programs or interventions - and is accustomed to being spoonfed by politicians and government flacks.
I had been sniping in DC at federal agencies for a couple years before the day I picked up my Washington Post one morning in early 1983 and saw a banner headline announcing that the feds were planning to shut down 78 million acres of farmland that year.
Here was a mystery - because everyone knew that Ronald Reagan was a champion of free enterprise. I couldn’t help suspecting that there was a story here.
Now, keep in mind - federal farm programs had started 50 years before - in response to market failure. FDR’s Brain trust decided that there was something intrinsic in markets for crops that prevented them from working. FDR’s Agriculture Secretary said that a farm dictator was needed to fix the problem. The primary evidence that markets had failed was that crop prices were not as high as politicians thought they should be. So the feds intervened to fix it. And since it worked out well for politicians, they kept fixing it every year for the next half century.
By early 1983, farm programs were a total trainwreck. In 1981, Congress passed a farm bill to govern agriculture for the next four years. Five year plans worked out fine for Stalin, so why not a four year plan to control US farmers?
But Congress got a few details wrong. Congress expected inflation to keep roaring along so price supports for major crops rose each year. The Federal Reserve hit the brakes on the money supply and inflation slowed faster than almost anybody but Ron Paul and Lew Rockwell expected.
By late 1982, the United States had huge grain surpluses and exports were plummeting because federal price supports made American crops uncompetitive on world markets. Farmers could earn more by dumping their harvest on USDA instead of selling it in the marketplace. Farm program costs quickly doubled and USDA was stuck with the largest government-owned crop surpluses in history.
So the Reagan administration launched the Payment in Kind program to counteract the boneheaded signals sent by other farm programs. PIK gave farmers $25 billion worth of surplus crops to sway them to idle their land - in addition to $50 billion in other handouts that year. [Subsidies converted to current $s] The 78 million acres that were shut down was more than double the entire land mass of Alabama - or the entire states of Ohio, Indiana, and much of Illinois.
The previous year, I had read several good books on the history and follies of agricultural policy - including one by Bill Peterson, a friend of mine who I’m happy to see was honored by a special panel at AERC. I started writing about this farm shutdown and eventually snagged an assignment from Readers Digest - which meant that I no longer had to go to the pawn shop to pay rent. But that’s another story.
Politicians thought PIK was great because farmers were the salt of the earth and bombarding them with handouts was like subsidizing American virtue. But almost nobody in DC cared about the collateral damage this program inflicted. Shutting down all that farmland wiped out a quarter million jobs for farm laborers and farm-related businesses at a time when the nation was struggling to recover from the worst recession since World War Two. Across the Midwest, hundreds of fertilizer, farm-equipment, and seed dealers had to close shop because PIK cut their sales by up to 50 percent. And the cutback in harvests - combined with a drought that Washington failed to forecast - spurred a spike in feedgrain prices that bankrupted vast numbers of unsubsidized poultry, cattle, and pork producers.
But USDA Secretary Block proclaimed PIK “the most successful farm program in history.” Since I was writing a piece for a large circulation magazine, his staff grudgingly allowed me to interview him. .
Block was a West Point graduate and a successful hog farmer who once described himself as “a country boy on loan to the Department of Agriculture.” I thought of telling him I was just a “country boy on loan to Reader’s Digest” but I kept my mouth shut.
Block was affable and stayed friendly despite my edgy questions. When I pushed Block on why the feds were shutting down so many acres, Block stressed the need “to avoid starving farmers off the land.” But farmers were worth ten times more than other Americans, and that didn’t explain why many farmers were paid triple by the feds for not planting, compared to what they could have harvested from a crop.
Block said PIK was necessary because the “federal government must move toward a more market-oriented agricultural policy.” I asked then how come Reagan signed that bill in late 1982 boosting crop price supports even higher, thereby making farmers more dependent on the government?
Block was puzzled and he denied that any such law had been passed. His portly press secretary sitting by his right hand squirmed as if someone had just broken wind, leaned towards Block, and said softly: “I think he is referring to the provisions in last September’s Omnibus Budget Reconciliation Act.” Block shrugged. I paused, expecting an answer - and then realized that I might not hear anything until the cows come home.
The contradictions in the policy never seemed to register with Block. Maybe that was why he was nominated for the job.
PIK didn’t make a lick of sense but it became the prototype for the rest of the 1980s. USDA kept paying farmers to idle more than 70 million acres - as federal policymaker continued to have one foot on the accelerator and one foot on the brake. It was easier for politicians to shut down American agriculture than to untangle self-defeating federal farm policies. There were endless surpluses of subsidized crops because politicians decided that market-clearing prices were a luxury that America could not afford - at least an election time.
Between the start of the Reagan administration and 1995, consumers and taxpayers have been forced to pay more than $370 billion for handouts for farmers. For the same amount of money, the federal government could have bought all the farmland in 41 states.
Obviously, something had to change. So in 1996, the Republican Congress pass the Freedom to Farm Act - a law that was loudly hailed by conservative Washington think tanks and some conservative editorial pages. That bill was very popular with reformers because it ended subsidies. Or so it said. Actually, it replaced old-fashioned handouts with "market transition payments." The Freedom to Farm act actually tripled subsidies compared to what farmers would have received under prior law. Wheat farmers got 50 times more in subsidies for their 1996 crop than they would have received if Congress had merely extended existing farm programs. “Market transition payments” were popular with farmers, so Congress extended them and eventually dropped any pretense of ending subsidies.
Congress is now working on a new farm bill to cover the next four years handouts. The odds of budgetary decency breaking out are slim and none - and “Slim just left town,” as Dan Rather liked to say. But the perennial failures of farm programs remain one of the starkest reminders of why Washington’s power and spending needs to be radically slashed across the board.