November 24, 2020

Common Sense: Richer Farmers, Bigger Subsidies

Just about everyone, that is, except the powerful farm lobby and its allies in Congress, which every five years or so since the Depression has managed to fight off any meaningful reforms and actually increase farm subsidies.

And now they’re doing it again.

Last week House Republicans stripped the farm bill of its food stamp provisions, citing runaway costs and rampant waste and fraud in the $80 billion federal program. Fueling conservative outrage in Congress and the news media was a man who continued to collect food stamps after winning $2 million in the Michigan lottery two years ago.

But the bitter and much publicized debate leading up to the party-line vote tended to obscure what happened to the rest of the bill in the House: many of the same legislators up in arms about government spending and welfare abuse nonetheless voted for an increase in federal subsidies to wealthy farm interests.

“What’s remarkable and extraordinary about the farm bill is that, at a time of record crop prices and federal deficits, the House overwhelmingly passed a bill to increase subsidies,” Scott Faber, vice president for governmental affairs at the Environmental Working Group, told me this week. “Only an evil genius could have dreamed this up.”

The debate over food stamps provided a smoke screen for the agriculture subsidies, he said. “Unless you read the fine print in the agricultural press, you wouldn’t have noticed.”

The Environmental Working Group has long campaigned for changes to farm subsidies, citing among other concerns the negative impact that farm subsidies have on the environment.

“It’s hard to understand how anyone in the House who calls himself a conservative could support this, but many did,” said Chris Chocola, president of the free-market-oriented Club for Growth, which opposed the bill and lobbied against it.

Mr. Chocola is a former congressman from Indiana’s Second District and commutes to Washington from his 40-acre farm near Elkhart. He said he’s spent most of his life in agriculture.

“With the federal debt and deficit we have, to be subsidizing millionaire farmers makes absolutely no sense,” he said.

Many farm commodity prices, farm incomes and farmland values are at or near record levels, notwithstanding a severe drought in some parts of the Great Plains.

Earlier this year, the Agriculture Department projected that farm income in 2013 would be $128.2 billion, the highest since 1973, fueled by “record crop production levels” and “high prices for many crops.” Moreover, surging prices of farmland — 2013 was the third year of double-digit increases, according to the Federal Reserve Bank of Kansas City — have greatly improved farm balance sheets, the department said, and raised the net worth of many farmers.

Despite flush times in the farm belt, the bill the House passed last week provides what the Environmental Working Group calls the most generous farm subsidies in history. It increased crop insurance subsidies and raised price targets for a wide variety of crops, locking in price guarantees at their recent near-record levels.

Under previous incarnations of the farm bill, such subsidies expired every five years unless Congress acted to extend them. It always did, but at least there was an opportunity for periodic changes reform. Under the new bill the subsidies are permanent.

“It’s frightening,” Mr. Chocola said. “They’re locking in historically high commodity prices at taxpayer expense. And maybe the worst is that this is now permanent.”

The Senate version of the farm bill, although it retains financing for food stamps, contains many of the same generous farm subsidies.

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Taking a Closer Look at the Result of a Credit Downgrade

A downgrade to the nation’s credit would probably increase the cost of borrowing for the federal government and for everyone else. But the Obama administration, House Republicans, some economists and Wall Street strategists have concluded that the economic impact would be surprisingly modest, one reason that negotiations over a “grand bargain” for debt reduction broke down.

The plans being debated instead by House Republicans and Senate Democrats would not reduce the federal debt to a level that most economists regard as manageable, and it seems likely that further efforts will await the results of the 2012 elections.

A compromise between the parties would avert the catastrophic consequences of default, but even if Congress agrees to pay its bills, one of the three credit rating agencies, Standard Poor’s, has said it may remove the United States from its list of risk-free borrowers.

“A downgrade has lots of downsides, but they’re minor in comparison to not raising the debt ceiling on time, so I think the focus is correct at this point,” said Mark Zandi, chief economist at Moody’s Analytics, a sister company to the rating agency that rates debt securities.

“What’s most important is raising the debt ceiling. That’s the minimum that they need to do to make sure the recovery in fact remains a recovery.”

Asked Thursday whether his plan would avoid a downgrade, House Speaker John A. Boehner said, “That is beyond my control.” He said the legislation, which the House passed Friday on a party-line vote, is “as large a step as we’re able to take at this point in time.”

President Obama warned Friday morning that the government was at risk of a downgrade, “Not because we didn’t have the capacity to pay our bills — we do — but because we didn’t have a AAA political system to match our AAA credit rating.” But administration officials say that the White House also regards the issue a secondary concern.

Earlier this month, there was widespread alarm in Washington when S P, followed by Moody’s and Fitch, another credit rating concern, warned that the soaring federal debt, and the political standoff over raising the debt ceiling, had placed the nation’s credit rating at risk.

The federal government makes about $250 billion in interest payments a year. Even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments. And the credit rating agencies have said other downgrades would follow like dominoes.

For example, Fannie Mae and Freddie Mac, the huge mortgage companies that are backed by the federal government, would be downgraded, raising rates on home mortgage loans for borrowers. Maryland and Virginia, and many local governments near Washington, their economies tied to the government, would also be downgraded. So would New Mexico, because an unusually high proportion of residents depend on federal benefits.

“A default on our nation’s obligations, or a downgrade of America’s credit rating,” 13 financial company chief executives said on Thursday in a letter to the president and Congress, “would be a tremendous blow to business and investor confidence — raising interest rates for everyone who borrows, undermining the value of the dollar, and roiling stock and bond markets — and, therefore, dramatically worsening our nation’s already difficult economic circumstances.”

Still, Washington’s fears of a downgrade have eased for several reasons.

Standard Poor’s warned that it might downgrade the United States in the next three months if the government did not agree on a credible plan to reduce its debts by about $4 trillion — the number used in the talks between Mr. Obama and Mr. Boehner.

But the other two agencies, Moody’s and Fitch, have shown greater patience, saying that progress toward paying down debts did not need to start immediately. That is significant, because a downgrade by a single rating agency matters less than a consensus. Investment managers, for example, may not be required to divest holdings like Treasury securities if they are downgraded only by S P.

Moody’s said on Friday that it would maintain its Aaa rating for the United States so long as the Treasury keeps paying bondholders and Congress passes a long-term deal to extend the debt ceiling. The announcement said that failure to act by Tuesday night, or to meet other obligations, including Social Security payments, would not prompt a downgrade.

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