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[Leafsnail]

But do remember tax rates are always > 0.

There are suggested systems with negative tax rates, actually, and if they were necessary to counterbalance an increase in food prices for the poor they could be implemented (if you can get past the kneejerk reaction against it).

[DJ]

Well something isn't right here then. You got a good with constant demand that doesn't depend too much on it's price and yet it can't be made profitably. This just doesn't make any sense.

[counting]

Negative tax are in effect being subsidy and a form of social security. So yes it's already been used in most country. The problem is if we are going to called it "tax" and make a unity rate depend on income rate. (Mostly social welfare programs have already taken care of most problems due to the increase of income differences, but also created some other problems in the process). And how many people qualified to receive subsidies. (If the ratio is high, social rifts will occur)

Also in microeconomics the ratio of Ed/Es (elasticity of demand/supply) will determine who receive benefit or losses due to the tax/subsidy policy. When this ratio is low, consumers will be affected more, otherwise producers. So things like food are generally with less Ed means a less Ed/Es ratio. People as costumers are beneficial from the subsidy policy mostly, some will go to producers with less production scale. But this is only a general observation not a rule. Reality is much complicated than this.

[Nikov]

Again, speaking specifically of the US, overproduction. "Subsidies" are largely just the government saying "We'll buy it, if no one else bids higher, for $1.00 a bushel". The government takes what it buys and uses it for either foreign aid or filling caves. It doesn't go to market. If subsidies cease, prices could fall below levels being profitable to harvest during good years. Minimum prices prevent this from happening, so food isn't left to rot in half their fields while farmers sit on what portion they silo waiting for the prices to rise above their production costs or they get a huge 500,000 gallon vat of barrel-proof whiskey. At which point they sell the whiskey to gas stations.

The USDA hasn't needed to step in for a while now in corn and soybeans because those prices boomed with ethanol and biodiesel initatives. There were one or two really good years for US farmers while gas prices were still low but corn and soybeans were at record levels. Said farmers replaced their 1960's combine harvesters (damn things cost $200-400,000!) and generally improved their capital to be more efficient.

[Phmcw]

So Nikov, what is so different with education and healthcare? Because right now, you seems pretty anti free market. (And Btw the US have protectionist laws too).

[DJ]

Again, speaking specifically of the US, overproduction. "Subsidies" are largely just the government saying "We'll buy it, if no one else bids higher, for $1.00 a bushel". The government takes what it buys and uses it for either foreign aid or filling caves. It doesn't go to market.

Now this makes perfect sense to me, and IMO is how things should be. But it's either not subsidy or I got the wrong word when I tried to translate "poticaj" from Croatian.

As I understood it, government pays you x dollars per acre to plant certain crop (or no crop at all), and then you harvest that crop and sell it on the market. And being paid by the government to plant it allows you to sell it cheaper. This is how it works in most of Europe AFAIK, and it makes zero sense to me. In fact, I think they even have certain quotas they'll subsidize (x acres of wheat get subsidized this year, anything over that doesn't get subsidy), which just reeks of central planning to me. The worst part IMO is how they subsidize fishing when Adriatic is almost completely devoid of fish nowadays.

Oh, and as far as overproduction being the problem, should they really encourage it then? Shouldn't the government let the invisible hand reallocate some of that capital and labour to industries that are in higher demand?

[counting]

There is many forms of subsidy. And "the price" regarding the policy of subsidy are not that strait forward. Even if the price "drops" doesn't mean its cheap. (relatively to international standard). A widely observed scene when subsidy apply to small farm owners, is that since their productivity is so low, it not possible for them to sell their products with a comparative price to large industrialized farming companies. Hence the government subsidy will support these originally not efficient small farms to survive (for whatever reasons). But the price is still relatively higher than the international level. And the larger farms will sometimes hijack the subsidy policy (the amount of subsidy to them is relatively not important, or been excluded from subsidy) and raise its product market price as well. (Governments will buy certain price anyway)

So in effect the domestic farming product price will be cheaper due to the subsidy policy compared with all products produced by small farms hypothetically, but not as cheap as in a more competitive market. (like the international market, and due to the green revolution, current mechanical agriculture can deduce the costs greatly with enough capitals, and thus the price, and monopolies in agriculture industries are more and more common)

And an ironic thing is that since the policy should increase the number of farms and increase the chance that new and young small businesses can survive, but the results are sometimes the opposite. There is also the problems of distributors. It's a major factor to the consumer price. Modern global agriculture is a weird hybrid of very advanced with backward departments.

[mainiac]

ITT: people discussing how political science affects complex accounting with neither empirical data nor reference to expert opinions.

[Nikov]

Technically my father is an expert opinion, and I've discussed this with him extensively.

Right now I'm for free market, but practical. The current US system lets prices work, as no farmer wants to sell at what the USDA buys at. Farmers diversify, rotate crops, fallow poor land for a modest sum, and do countless other things to still let the invisible hand work. It just has a safety net for the times when everyone does so well prices crash. Now, really letting the market work would improve the competitiveness of the business farms. There's nothing inherently wrong with them, but as a matter of national character I prefer most of our farmland held by yeomen rather than merchant-princes.

[Aqizzar]

Well I can certainly admit when out of my depth.  I'll still go right on believing that the specific numbers in farm subsidy are based on lobbying as much or more than actual economics, but thanks anyway Nikov for the enlightening perspective.  I now know more about farms, and have an excellent case study to point to where everyone benefits from government circumventing the free market.

In a perfect world, the protectionism would be gone and the United States would be the Saudi Arabia of corn and corn derivatives. If that happened we wouldn't need subsidies. It requires everyone else to cooperate with us against internal protectionist pressure. I don't anticipate that happening.

This would be a "perfect world" for American agriculture, were other countries to throw their markets open to American imports.  But they're looking at the issue from the same direction you are in regards to themselves.  Since American farms can massively outproduce those of most of other countries and more efficiently, American imports would price domestic farmers out of the market.  Other countries can adopt a market-floor solution like America has, and/or they can bar/tax imports their native farmers can't effectively compete against.  I couldn't guess why countries in general would favor one option or another (it's probably a lot cheaper to just ward off foreign imports than buy up food at a rate that would make their farms competitive against America), but they all do it for the same reasons America protects its farms - a secure domestic food supply and stable market prices.  Whether it always works is another question.

[counting]

I got a data regarding the Ed/Es.

In 2001, US sugar business
Domestic price  :$0.215/pound.
International price : $0.083/pound.
Production : 17.4 billion pounds. (3.74 billions worth of productions domestically)
Consumption : 20.4 billion pounds. (0.4 billion went into tariff)

We got Es = 1.5, and Ed = -0.3

Qs = -8.7 + 1.214P
Qd = 26.53 - 0.285P
Quantity at the unit of billion pounds, and price at cents. (1/100 dollars)

The total subsidies to agriculture is about 20 billion dollars/year. The reality of who gets this government help is interesting. Actually, farm products that receive large subsidies account for just 36 percent of agricultural production. Two-thirds of all farm subsidies go to just 10 percent of farms, most of which earn over $250,000 annually. The larger farms usually hijack these subsidies.

Thus Ed/Es is 0.2, a quite small number. And if there is no protection against import in sugar, and the subsidy policy. The sugar industries within U.S border will shrink to a level of 1.4 billion pounds production level at $0.083/pound international prices. And if there is no import at all, but purely supported by limited domestic production, the domestic price will go up to $0.882/pound. So yes, although the model is greatly simplified, but tell us that this policy is effective in a way to protect the price not going too high (drop 3/4 of the price) if the industry can not sustain itself domestically. But in a way also increase the price domestically compared to international market. In order to protect the smaller sugar industries in U.S, it is hurting other industries, and customers. There are many papers discuss the negative effect of such policies.

P.S the policy of subsidy is also always accompany with the tariff policy or import quota limits. So the subsidize/protected agriculture industry will have their "protected price" domestically.

[DJ]

Like I said, government buying at minimum price makes perfect sense to me, unlike the other subsidy system I mentioned. And this government supply can be released on the market when prices are high, so it can act as a shock absorber to keep the food market relatively stable. And hey, it might even put a couple of extra bucks in the budget, if it's sold with a modest profit.

As far as land ownership is concerned, we're on the same page. In general, I prefer small business to dominate all sectors (excluding ones where it's impractical, like telecommunications and railways). I think that this raises competition which makes for a healthier economy. The only issue is how to encourage small business over mega corporations, and any measures I can think of are perfect environment for legal loopholes.

Secure domestic supply is a serious issue, yeah. But I don't really see countries becoming dependant on just one other country. I don't have any numbers, but gut feeling tells me that USA doesn't produce *that* much food to be able to supply the whole world. And I definitely don't see complete elimination of domestic farmers, as import prices would quickly rise as the volume of imports increases until domestic stuff becomes cheaper. True, they wouldn't be able to cover 100% of domestic needs in case of an embargo or something, but the government reserves should get the country through a couple of seasons while domestic production expands.

[Nikov]

Well I can certainly admit when out of my depth.  I'll still go right on believing that the specific numbers in farm subsidy are based on lobbying as much or more than actual economics, but thanks anyway Nikov for the enlightening perspective.  I now know more about farms, and have an excellent case study to point to where everyone benefits from government circumventing the free market.

Frankly, that is all you wanted out of the thread anyway.

[Aqizzar]

Some interesting reading on land-based American subsidies, since buying unsold production is not the only thing the government does.  The article is from 2006, and I know agricultural policy has changed since then, but I'm having a hard time finding more contemporary research.

Long story short, the Congress of 1995 wanted to strip out all the crazy farming regulations and subsidies that had grown up since the 1930's, and passed "Freedom to Farm" as a transition to a simpler system, but in the way of transitional legislation, the new system didn't materialize and the temporary fix remained.  Essentially, however land had been used for 15 years prior to the legislation became what it was scheduled as (for certain crops), and whoever owned the land would be paid a yearly sum, regardless of whether they actually grew anything, as long as the land went undeveloped.

A lot of farmers figured out they could make more money by growing different crops (or animals or whatever), or make easier money by letting the land sit fallow and collect the checks.  Farmers who rented or leased their land saw their rent increase by exactly whatever they were scheduled to receive.  If land was sold, the payment transitioned to whoever bought it, and farmland prices across the country have gone up since (meaning higher property taxes) as wealthy investors snapped up land and let it sit there making money.  The highlight story was about how residential properties built on old farmland continued to receive payments for the former usage - buy ten acres, build a house on one, and get free cash for your nine acre farm base without so much as mowing.  I was wondering about that USDA graph, where the vast majority of "farmland" is owned by "small family" farms, but accounts for a tiny portion of actual output - there's your reason, a lot of registered "small family farms" are farms in name only.

It wasn't exactly an endemic problem but certainly a major money sink, although I'm sure things changed somehow with the 2007 expiration of agricultural policy.  I'm still looking.

[Nikov]

Here you go.

Most U.S. farms—98 percent in 2004—are family farms, defined as operations
organized as proprietorships, partnerships, or family corporations that
do not have hired managers. Nonfamily corporations make up a small and
stable share of farm numbers and sales, accounting for less than 1 percent of
farms and 6-7 percent of farm product sales in each agricultural census
since 1978.

Emphasis mine. But thanks for pointing out waste, fraud and abuse of the taxpayer's dollars in the government subsidies.

...an excellent case study to point to where everyone benefits from government circumventing the free market.

Looks like it isn't win-win for everyone when the government steps in! The government paying suburbanites to not grow rice in their backyard seems pretty silly to me.

Anyway, does this answer your question regarding the US perspective, DJ? What you describe in Europe sounds like a hybrid of bad centralized planning and peasant alms.