Agricultural Subsidies

The impact of agricultural subsidies on welfare, both domestically and internationally, was a key topic discussed May 2-4, 2008 at The Understanding Liberty and Choice: Free Trade, Globalization, and Economic Development. This joint FTE and Liberty Fund colloquium discussed the neo classical view of trade as well as contemporary views of trade. Two of the texts - In Defense of Globalization and The Travels of a T Shirt in the Global Economy included analysis of the impact of subsidy in the agricultural sector.

This analysis was extended on the Becker-Posner Blog. On May 4, Posner wrote:

There is no justification for the Farm Bill in terms of social welfare. The agriculture industry does not exhibit the symptoms, such as large fixed costs, that make unregulated competition problematic in some industries, such as the airline industry, about which Becker and I blogged recently. It is true that crops are vulnerable to disease, drought, floods, and other natural disasters, but the global insurance industry insures against such disasters, and in addition large agricultural enterprises can reduce the risk of such disasters by diversifying crops and by owning farm land in different parts of the nation and the world. If a farm enterprise grows soybeans in different regions, a soybean blight in one region, by reducing the supply of soybeans, will increase the price of soybeans, so the enterprise will be hedged, at least partially, against the risk of disaster. Supply fluctuations due to natural disaster create instability in farm prices, but farmers can hedge against such instability by purchasing future or forward contracts. There is no "market failure" problem that would justify regulating the farm industry. All the subsidies should be repealed.

http://www.becker-posner-blog.com/archives/2008/05/the_outlandish.html

Becker responded:

Posner presents evidence on the sizable subsidies received by American farmers from the federal government of the United States. However, the US is not unique, for every rich country including France, Germany, Great Britain, and Japan, heavily subsidizes their farmers, no matter how small the agricultural sectors. In fact, some of these other countries subsidize farmers more generously than even the United States. On the surface, this universal tendency for rich countries to subsidize farming, no matter how different are the details of their political systems, is a paradox. For since only a small fraction of the populations of these countries work in agriculture, farmers cannot contribute much to any majority voting coalition.

http://www.becker-posner-blog.com/archives/2008/05/farm_subsidies.html