Crop insurance sounds sensible; it cushioned the effect of last year’s drought. But as economist Bruce Babcock of Iowa State University shows, it’s mainly another arcane way to funnel money to farmers. It protects not only against natural disasters but also against normal price fluctuations that could be hedged in futures markets. Premiums are heavily subsidized, as are the expenses of insurance companies. With subsidized premiums, farmers buy lavish protection. Even before the drought, federal spending on crop insurance went from $1.5 billion in 2002 to $7.4 billion in 2011, Babcock reports.
In Congress, ending subsidies is unthinkable. The Senate’s legislation would trim existing levels. Still, the combined cost of direct subsidies and crop insurance under the new legislation would average $14 billion annually from 2013 to 2022, estimates the Congressional Budget Office.
Hardly anyone asks basic questions. Would we create these programs today? Why subsidize farming if it would do fine without subsidies? Indeed, meat and vegetable production is largely unsubsidized; subsidies apply mainly to grains.
Politics fosters inertia. People feel entitled. Farmers like their payments. Subsidies raise agricultural land values and, for absentee landlords, the rents that can be charged. Farm groups protect these benefits with lobbyists and campaign contributions. Congressional farm committees’ power rests on their control of subsidies.
Farm subsidies are a metaphor for our larger predicament. We no longer have the luxury — as we did for decades — of carrying marginal, ineffectual or wasteful programs. We can no longer afford subsidies for those who don’t need them or, at least, don’t need so many of them (including affluent Social Security and Medicare recipients). If we can’t eliminate the least valuable spending, then we will be condemned to perpetually large deficits, huge tax increases or indiscriminate cuts in many federal programs, the good as well as the bad.