The Downward Spiral of Protectionism
Originally published in The Daily Comet on May 24, 2019 by Gwayne Gautreaux
Government is notorious for creating problems with the one hand, only to try to solve with the other. It is much easier for politicians to quantify progress through change rather than maintaining the status quo.
There is no better example of this than the massive government “protections” granted to certain sectors of business and industry. The problem occurs when those in one industry absorb the excess cost imposed by protections granted to those in another industry, by seeking further subsidization to counter the ill-effects of policies like tariffs, quotas, or other types of subsidies.
More specifically, this scenario is clearly representative of the conditions within the agriculture industry today. While farming lobbyists have repeatedly asserted the critical role agriculture plays in the economy, almost every major industry can lay claim as the most vital to American interests. The agriculture sector has been the benefactors of billions of dollars in subsidies a year, which have since been bolstered to offset the excess burdens brought about by the recent surge of tariffs. The unintended consequences have resulted in higher costs for farmers and less disposable income for consumers of U.S. agriculture.
Therefore, when the president vows to ‘protect’ U.S. farmers from unfair market conditions, it is only because U.S. policy weakened their ability to compete in the first place.
Creating a Problem to Solve
In his defense, President Trump was certainly not the first to utilize farm subsidies, but never has the downward spiral of protectionist policy been so pronounced as it is today. Ultimately, government has been preserving the “safety net” around agriculture by subsidizing everything from price supports to risk insurance with the one hand, to the tune of $140 billion a year in taxpayer-funded subsidies, collected by the other hand.
Farm Subsidies
By pricing their yield above market rates, farmers are incentivized to produce in-excess of what consumers demand, thus creating a surplus to which government must purchase in order to maintain a benchmark price for the industry. Anytime the price falls below its target, government will subsidize the difference by purchasing more supply. Additionally, farmers are even paid to practice conservation efforts, either by re-developing certain tracts of land or by taking land out of development. However, if government truly desires conservation, then subsidies that incentivize farmers to over-produce would be phased out or eliminated. In essence, government has been subsidizing the very same risk they themselves have induced.
Likewise, the question remains: should U.S. taxpayers be indebted to an industry whose average household income in 2016 was well in excess of a hundred thousand dollars?
There is no reason why the farming industry cannot stand on its own two feet. Other businesses across the board face the volatility of the market daily, in addition to all sorts of financial risks. [This shouldn’t be construed as an attack on the farming industry — While agriculture subsidies should be eliminated, any form of protection, especially those that minimize the competitiveness of farmers should be abolished as well].
Profit / Loss
In closing, what has been so obviously disregarded during this presidency is the notion that in a market-based economy, individuals face the danger of failing in as much as they have the chance to succeed. More importantly, if the market is to work properly, responding to a “loss” is just as important as acknowledging the “gains”. Rather than relying on the exorbitant safety net of subsidies, the solution can be as practical as restructuring management or as technical as innovating to be more competitive. Imagine the economic impact to society if the common practice of the U.S. government was to protect every business in every industry from the ill-effects of the market. The agriculture industry is no exception and would learn to adapt to changes with resiliency and not through the mode of dependency government has provided. President Trump does a great job of highlighting the benefits of government protection but hardly ever seems to recognize the costs.
