The Economics of Subisidies and Tea Party Politics in TN-08
As political buzz continues to swirl around the seat in TN-08 that is soon to be vacated by Rep. John Tanner, a question has arisen regarding one of the candidates vying for the seat: is it wrong – or, at any rate, hypocritical or “ideologically inconsistent,” if you will – for Republican candidate Stephen Fincher to take almost $300k in campaign contributions from farming families who have received an estimated $80M in farming subsidies from the federal government? Mid South TEA Party had a release about the whole thing, but fellow Tennessean and political junkie Jenci Spradlin (@jenciTN on Twitter) gets credit for the first place I saw the question framed, just yesterday:
I replied:
There was a little back and forth:
And my friend Ken Marrero (founder of The Tennessee ConserVOLiance and @BlueCollarMuse on Twitter) chimed in:
I replied:
This is the point where I decided it would take far more than 140 characters to explain myself; thus we find ourselves here, together again. Jenci also asked:
And I promised:
So we’re all clear on the story and the premises? Good. Let’s go.
First things first: is a farming subsidy the same thing as corporate welfare?
No. They look the same because federal dollars get disbursed to (usually) wealthy recipients – like The Big Three in Detroit taking huge sums of tax-funded bailout money, the wealthiest 10% of farms receive 60% of farm subsidies (a claim for which I have not seen impartial evidence, but which we will accept as true for the sake of argument because a) the disbursements don’t change the nature of what a subsidy is and b) Jenci Spradlin has never lied to me before, and I don’t expect she has now). So the sticking point is this: what is a subsidy? Aside from being a politically-charged word used by the establishment and grass-tops Right to chide profligate federal spending – and yes, there is a problem with profligate federal spending, but it has little to do with farming subsidies – a Pigovian subsidy is a policy tool that incentivizes behaviors which benefit society at large.
Okay, we’ll bite. What does that mean?
Well, take the market for corn, for example. Corn subsidies are paid to corn farmers to incent them not to plant corn past a certain acreage on their farms. Since farmers typically pay attention only to the price of corn, and not the aggregate market demand for corn, then as prices (or marginal revenues) rise they have more and more incentive to plant extra acres; ignorant of market research, perhaps because they work sun-up to sun-down, these corn farmers – especially the wealthiest (read: largest, most capable of producing large volumes or corn) farmers – continue to expand their farms and increase their capacity for production. As this happens, though, resources (particularly capital – seed, land, tractors, silos, etc.) aren’t allocated in a Pareto-efficient manner. That is to say, inefficiencies spring up within the economy. And in fact, it is because prices reach record highs that the wealthiest farmers (again, read: largest farms with highest capacity for production) are subsidized first and most quickly – they can have the biggest and most immediate impact on a price crash.
Traditional laws of supply and demand suggest further that a surplus of corn (a non-Pareto-efficient amount produced by the misallocation of resources) will drive the price of corn far below market equilibrium and, in the case of corn markets, society suffers from a price crash: the textile producer in Georgia who uses corn products in his textile mill suffers a drop in revenues because one of his inputs in production drops in price and he mistakenly believes he can now produce more textiles…but does so in a non-Pareto-efficient manner, producing more than the aggregate market demand, thereby creating a surplus and suffering a price crash; the cereal maker in Pennsylvania suffers the same fate. Consequently, this problem – along with the Commerce Clause – is exactly why farming subsidies are well within the scope of Congress’s Constitutional authority and prerogatives.
So a corn subsidy, then, is a policy tool that is meant to stabilize prices; in other words, it is an incentive for corn farmers to produce at socially-optimal, Pareto-efficient quantities, from which everyone in society benefits; it is an incentive which prevents a corn farmer who is producing corn at market equilibrium from misallocating his resources and causing a market surplus and price crash. There is nothing inherently evil about subsidies; we subsidize medical and technological research (and society as a whole gets healthier in the absence of illness epidemics), as well as weapons research (and society as a whole benefits from the production of national security, if you will). And subsidies work to the extent to which they are appropriately applied. This is why we have market research; subsidies are a proactive tool to manage expectations of future economic performance before anything cataclysmic happens.
Well what is corporate welfare then?
Corporate welfare – or, bailout – is a sum of tax-funded monies paid to firms who have already screwed up the whole production of whatever good they bring to market. Take The Big Three, for example. GM, Ford, and Chrysler reached a point where they needed to file for bankruptcy because they had already misallocated resources in the context of aggregate market demand for their vehicles; their soaring marginal costs of producing cars were fueled by UAW wage and benefit demands – which I’ll leave alone for now because it’s a whole other can of worms – and an increasing availability of less-expensive substitutes to the cars The Big Three were making (Honda, Toyota, Kia, public transportation, bicycles, those obnoxious Vespas, Southwest Airlines, etc.) led to a surplus of American cars on the open market, which led to a price crash. There was no way The Big Three could cover their marginal costs of production with that many cars on the open market, and nobody was buying cars anyway.
So the auto bailout was a policy tool that was meant to stabilize production resources (as opposed to automobile prices); the government willingly forked over the bailout funds, despite popular disapproval for the measure, because nobody wants Michael Moore beating down their door with a camera to talk about all the nice people who lost their jobs in Flint, Michigan. The bailout sums acted as a profit margin for The Big Three, in light of economic inefficiencies for which they were solely to blame.
Unlike farming subsidies, there is an inherent problem with corporate welfare (which is why House Republicans rallied against George W. Bush to fight the Wall Street bailout): corporate welfare creates perverse incentives for firms to continue misallocating resources which have already been misallocated; what’s worse is that bailouts do not benefit society as a whole. In the example of the auto bailout, only Big Three executives and employees benefited – John Q. Consumer already had less expensive alternatives to Big Three automobiles. For more on bailouts, the brilliant economist Megan McArdle at The Atlantic has a great piece on them.
So is there nothing wrong with subsidies?
Certainly there is – but only in their application to policy problems. While they are amoral tools of economic policy tools, immoral policy makers (on both sides of the aisle) try to use them for political purposes (e.g. guaranteeing healthy reelection coffers). It is important to remember that political and policy gains are not mutually exclusive. A subsidy’s effectiveness is directly related to how appropriately it is applied in policy making. Further, subsidies are paid from tax-funded revenue pools; so markets for other goods become distorted as taxes levied within those markets affect the prices of other goods (along with the utility of consumers looking to purchase those goods).
So subsidies must be used very carefully as policy tools; they must provide at least as much benefit to society as a whole such that a) the subsidy improves whatever the status quo happens to be at the time it is applied, and b) (ideally) the subsidy offsets whatever losses in efficiency are suffered in other markets as a result of taxes levied to generate subsidy revenues. If that sounds hard to accomplish, it’s because it is. It’s extremely difficult, even for the most principled policy maker.
What other options to we have?
Well, there’s the Pigovian tax, which disincents the production of corn past a certain acreage, but which I daresay conservative activists of most stripes would prefer to a subsidy. No conservative wants to punish a good ol’ fashioned salt-of-the-earth corn farmer for working hard sun-up to sun-down. But the costs to taxpayers for some sort of compliance mechanism (to go out and make sure all the country’s corn farmers aren’t exceeding the Pareto-optimal allocation of resources) would be astronomical – not to mention the creation of a new government bureaucracy, which, as we all know, is no friend of conservative movements. I suppose we could also create a cap-and-trade system for corn farming – set a limit on maximum corn production and let farmers bid on permits that allow them to produce above the maximum – but something tells me that won’t fly with conservatives either. I won’t even dignify the threat of imprisonment or the banning of corn farming as potential viable solutions to the policy problem.
Why not let the free market work its magic and determine the prices of corn? Why involve the government at all?
Because one of the assumptions of Adam Smith’s First Fundamental Theorem of Welfare Economics is that producers and consumers both have perfect, symmetrical information – then and only then will the invisible hand of prices guide producers and consumers to a Pareto-efficient allocation of resources. But remember: corn farmers produce their goods out of their own, rational, profit-maximizing self-interest, ignorant of the aggregate market demand for the very corn they sow and reap. The information is neither perfect nor symmetrical, resulting in a market failure which lawful institutions are designed to correct. So the next time you see a conservative activist invoke Milton Friedman’s pencil lecture in their economic discussions (or arguments), make sure you remember this added context about perfect, symmetric information.
Okay, suppose we take you at your word. Does that mean farming subsidies should continue?
In my own very humble (and still developing) opinion, farming subsidies should continue indefinitely to the extent that they are applied appropriately (read: they do not too heavily distort markets for other goods, and that they actually accomplish what they are designed to do). Farm subsidies aren’t like Medicare subsidies/public option because the demand for the goods (corn and health insurance) aren’t analogous, and the goods themselves aren’t analogous in that there aren’t really any substitutes for health insurance (there are health savings accounts, but that’s really the only substitute good I can think of).
So should Stephen Fincher be allowed to take campaign contributions from families who have received farming subsidies?
I don’t think there’s anything ideologically inconsistent between taking campaign contributions from families who have received farming subsidies and fiscal conservative ideology – that is, unless fiscal conservatives misunderstand the fundamental principles of microeconomics (aside: sadly, this is why I don’t take a lot of Tea Partiers seriously beyond the consideration that they are vocal, mobile, and likely to vote – I think a lot of Tea Partiers are really anarchists in disguise; I am a libertarian, not an anarchist, and there is a huge difference between limited, lawful government institutions and no government involvement in markets whatsoever). Once a subsidy has been appropriately disbursed, and negative externalities to society have been internalized, that money becomes nothing more than income for corn farmers. It is not more inconsistent for Stephen Fincher to take contributions from these families than it is for him to accept and open a Christmas card that they purchased with subsidy funds or that was sent with a stamp purchased with subsidy funds, or even that they volunteered to drive him around on the campaign trail in a car they bought with farming subsidies, fueled by federally-subsidized corn ethanol. But I guess it all depends upon your interpretation of whether or not the subsidies become private resources once they’re disbursed.
UPDATE 1: It occurred to me in the middle of Christmas dinner that the corporate welfare to which Jenci and Ken were referring might have been the kind of “to-the-victor-go-the-spoils” type of corporate welfare rather than simply bailouts of the auto industry or Wall Street variety. This is fine, because the parameters of the model I have constructed still hold true; in the instance of the Bush/Cheney White House’s alleged misconduct regarding Halliburton and KBR, federal monies were not necessarily subsidized in a manner appropriate to the causes for which they were disbursed, and in the presence of Bush tax cuts, were not deficit-neutral.
UPDATE 2: An ardent Ron Paul supporter with whom I am friends had this to say about this piece on Facebook:
too bad the economic arguments in [this] article are ripe with massive economic fallacies
I hope anyone who disagrees will comment; I don’t write this blog to meform, I write to try to inform and to be interactive.
I meant to get this post out two days ago – it will likely be my last post of 2009, and I hope it has been helpful and informative. I apologize for the delay, and want to offer special thanks to Jenci Spradlin and Ken Marrero for spurring on these thoughts.
George, this is good food for thought. It’s easy for libertarians (or anybody, really) to hate handouts, bailouts, subsidies, welfares, etc for moral reasons without taking the time to analyze the utility of each. But morals without utility are the mark of extremists, and they make for very weak foundations for a government, an economy, and a society.
On this issue I think I’m still going to adhere to Pigovian answers, but you’ve made some interesting points here and I’ll be stewing it over. Thanks.
A great comment from my old advisor in the political science department at Belmont University:
“You’re making a huge difference in effect out of what is solely a technical difference–price vs. supply? But they’re trying to stabilize the price by controlling the supply. Note that cash for clunkers worked on the effective price, too. And farmers have a great deal more information than you presume–the ones I’ve known can give you the price of their products at the relevant exchange within the last few hours. The problem is that the market’s message is that too many people produce corn, and not all of them want to quit. Same story in Detroit–though not just too many redundant badges, also lesser average build quality.
“And, by the way, you can’t judge whether something is an appropriate reading of the Constitution by its effects. Or at least, if you can, we get to bring Lochner back. The question is whether growing produce is production or commerce, and I think the term gives the game away accurately. Read Wickard v. Filburn with a straight face–it’s like six degrees of Kevin Commerce. Then name me ONE thing not subject to the commerce power by that reading.
“The Constitution says many things, not all of them convenient–some intentionally not so. And THAT is what the #$@! Progressives forgot. And they ignored that is has a way of changing it, because that would have meant telling people what they were doing.
“You’re right to question perfect and symmetrical information–it’s often a pretty strong assumption. Read some Austrian economists (and George Akerloff on lemons). But it doesn’t change the fact that subsidies distort markets, and in this case, there’s not any policy gain. Farmers, because they tend to be the salt of the earth and hard-working–because they embody a lot of what we as Americans hold dear–have a special place in the American heart. But feeling better is the only gain–and there are plenty of ways to do that which don’t make food more expensive, leave us with surpluses to dump in other countries (distorting their ag markets), etc. Though they may involve listening to more Willie Nelson. So maybe the subsidies aren’t so bad… :)”
Alright – this is not a full analysis and commentary on everything you have posted here…. Here’s just my initial reaction. It seems there are really 3 issues here to discuss.
1. Are farming subsidies welfare?
I agree there are differences in the three items you have mentioned: bailouts, corporate welfare and subsidies. My perception of the “subsidies” is that often someone is operating an already efficient and profitable business and receives these funds by simply changing their behavior (not planting certain crops or different amounts, etc). “Corporate Welfare” is similar, but usually it is in the form of some type of a bargaining chip (enticing a business to locate in the area, etc) but not necessarily behavior modification (telling them what or what not to produce). I think that the Bailouts are certainly different for reasons you have mentioned, as well as the fact that these are really loans that must be paid back (we hope) to the government.
2. Are farming subsidies needed?
Perhaps the meat of the discussion. First off a disclaimer – I am no farmer. I have talked with many farmers, who mostly operate smaller farms, about this issue and a clear majority have told me that they would like to operate without them. Of course they don’t, however, because everyone else around them is receiving these subsidies and it would put them at a disadvantage to not take these funds. I also have lots of friends (who aren’t farmers) that own land and receive annual checks for producing absolutely nothing – when they had no desire to in the first place! I’ve also heard stories of folks receiving these funds for “not farming” certain areas that essentially amount to “unfarmable” land already. I think we can all agree that with any government program there is waste, but does the overall effect outweigh this problem?
You seem to point to the benefit of central planning of this industry, which I would concur with the intent. However, it seems that you give more credit for the gov’t ability to foresee market demand vs the actual market itself. If central planning, which let’s face it that is really what the farming subsidies are all about, is so wonderful why not regulate the entire economy from the federal level? Why would we not do this?
You have said you were a Libertarian – well, here is what your 1988 Presidential Nominee (one of the leading politicians who supports Austrian Free Market Economic principles) said on this very issue of farming subsidies: http://www.youtube.com/watch?v=4BASVCCLA3A&feature=player_embedded
This is taken from the Libertarian Platform (http://www.lp.org/platform): “Economic Liberty – A free and competitive market allocates resources in the most efficient manner. Each person has the right to offer goods and services to others on the free market. The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected. All efforts by government to redistribute wealth, or to control or manage trade, are improper in a free society.”
Of course, this could simply mean that you are “libertarian,” not a “Libertarian.”
I’ll be interested to hear your comment on this, though I suspect you’ll fall back on the Supreme Court ruling of Wickard v. Filburn (1942). To outline this case, I’ll refer to everyone’s favorite conservative, “Mr. Conservative” himself, Barry Goldwater and his book ‘The Conscience of a Conservative’ (1960). Particularly Chapter 5 “Freedom for the Farmer.” What the heck – here’s the whole chapter (I hope you appreciate it because I’m typing the whole thing out!):
“Freedom for the Farmer
‘…supervision of agriculture and other concerns of a similar nature … which are proper to be provided for by local legislation, can never be desirable cares of a genera jurisdiction. It is therefore improbable that there should exist a disposition in the federal councils to usurp the powers with which they are connected; because the attempt to exercise these powers would be as troublesome as they were nugatory.’ Alexander Hamilton in the Federalist Papers, No. 17.
Hamilton was wrong in his prediction as to what men would do, but quite right in foreseeing the consequences of their foolhardiness. Federal intervention in agriculture has, indeed, proved “troublesome.” Disregard of the Constitution in this field has brought about the inevitable loss of personal freedom; and it has created economic chaos. Unmanageable surpluses, an immense tax burden, high consumer prices, vexatious controls – I doubt if the folly of ignoring the principle of limited government has ever been more convincingly demonstrated.
We have blundered on so grand a scale that even our critical faculties seem to have been damaged in the process. No man who is familiar with the subject will deny that the policy of price supports and production controls has been a colossal failure. Yet, today, some of our best minds have no better solution to the problem than to raise the supports and increase the controls!
The teaching of the Constitution on this matter is perfectly clear. No power over agriculture was given to any branch of the national government. The sponsors of the first Agriculture Adjustment Act, passed in 1933, tried to justify the law under the so-called general welfare clause of the Constitution. The Supreme Court promptly struck down that legislation on the grounds that the phrase, “general welfare,” was simply a qualification of the taxing power and did not give Congress the power to control anything. “The regulation (of agricultural production),” the Court said in the United States v. Butler (1936) “is not in fact voluntary. The farmer, of course, may refuse to comply [a privilege not given him under present legislation], but the price of such refusal is loss of benefits is the power to coerce or destroy …”
The New Deal Congress replied by enacting substantially identical legislation, the second AAA, and now sought to justify the program as a “regulation of Interstate Commerce.” This was a transparent evasion of the Butler case; but the Supreme Court, which by this time was under heavy political fire for having thwarted the “Roosevelt Revolution,” made one of its celebrated about-faces and upheld the new act. The federal government has usurped many powers under the guise of “regulating commerce,” but this instance of distorting the plain meaning of the Constitution’s language is perhaps the most flagrant on record.
In the case that upheld the second AAA, Wickard v. Filburn, (1942), a farmer had been fined for planting 23 acres of wheat instead of the eleven acres the government had allotted him – notwithstanding that the excess wheat had been consumed on his own farm. Now how in the world, the farmer wanted to know, can it be said that the wheat I feed my own stock is in interstate commerce? That’s easy, the Court said. If you had not used your own wheat for feed, you might have bought feed from someone else, and that purchase might have affected the price of wheat that was transported in interstate commerce! By this bizarre reasoning the Court made the commerce clause as wide as the world and nullified the Constitution’s clear reservation to the States of jurisdiction over agriculture.
The tragedy, of course, is that the federal government’s unconstitutional intrusion into Agriculture has not brought us any closer to a solution of the “farm problem.” The problem, when federal intervention began, was declining farm incomes. Today, many farm incomes are still low. But now we have additional problems – production controls that restrict freedom, high consumer prices, huge crop surpluses and a gigantic tax bill that is running close to six billion dollars a year. No matter what variant of the price support-production control approach we adopt, the solution to these problems continues to elude us.
The reason government intervention has created more problems than it has solved is quite simple. Farm production, like any other production is best controlled by the natural operation of the free market. If the nation’s farmers are permitted to sell their produce freely, at price consumers are willing to pay, they will, under the law of supply and demand, end up producing roughly what can be consumed in national and world markets. And if farmers, in general, find they are not getting high enough prices for their produce, some of them will move into other kids of economic activity. The result will be reduced agricultural production and higher incomes for those who remain on the farms. If, however, the government interferes with this natural economic process, and pegs prices higher than the consumer is willing to pay, the result will be, in Hamilton’s phrase, “troublesome.” The nation will pay exorbitant prices for work that is not needed and for produce that cannot be consumed.
In recent years, the government has sought to alleviate the problem of over-production by the soil bank and acreage retirement programs. Actually, these programs are simply a modern version of the hog-killing and potato-burning schemes promoted by Henry Wallace during the New Deal. And they have been no more successful in reducing surpluses than their predecessors. But there is also a positive evil in these programs: in effect, they reward people for not producing. For a nation that is expressing great concern over its “economic growth,” I cannot conceive of a more absurd and self-defeating policy than one which subsidies non-production.
The problem of surpluses will not be solved until we recognize that technological progress and other factors have made it possible for the needs of America, and those of accessible world markets, to be satisfied by a far fewer number of farmers than now till the soil. I cannot believe that any serious student of the farm problems fails to appreciate this face. What has been lacking is not an understanding of a problem that is really quite impossible not to understand, but the political courage to do something about it.
Doing something about it means – and there can be no equivocation here – prompt and final termination of the farm subsidy program. The only way to persuade farmers to enter other fields of endeavor is to stop paying inefficient farmers for produce that cannot be sold at free market prices. Is this a cruel solution? Is it heartless to permit the natural laws of economics to determine how many farmers there shall be in the same what that those laws determine how many bankers, or druggists, or watchmakers there shall be? It was never considered so before the subsidy program began. Let us remember that the movement from the farm to other fields of endeavor has been proceeding in this country since its beginning – and with good effects, not ill.
I cannot believe that this course will lose politicians as many votes as some of them seem to fear. Most farmers want to stand on their own feed. They are prepared to take their chances in the free market. They have a more intimate knowledge than most of us of the consequences of unlimited government power, and so, it would seem, a greater interest than most in returning agriculture to freedom and economic sanity.”
Ok – That’s good coverage of background and principle, but what would happen in the US if we were to abruptly end the farm subsidies. Perhaps, we would see some of the same benefits that New Zealand realized when they ended all farming subsidies in 1984 (http://www.cato.org/pub_display.php?pub_id=3411):
“Meanwhile, the value of farm output in New Zealand has soared 40 percent in constant dollar terms since the mid-1980s. Agriculture’s share of New Zealand’s economic output has risen slightly, from a pre-reform 14 percent to 17 percent today. Since subsidies were removed, productivity in the industry has averaged 6 percent growth annually, compared with just 1 percent before reform. Farming in New Zealand scores well on the export “report card,” with producers competing successfully in world markets against subsidized farm production in much of the rest of the world.
The Organization for Economic Cooperation and Development (OECD) confirms that New Zealand has the least subsidized farm sector among the industrial nations, concluding that its reforms “resulted in a dramatic reduction in market distortions.” The OECD’s data show that agriculture subsidies account for just 1 percent of the value of agriculture production in New Zealand and consist mainly of scientific research funding. By contrast, subsidies represent 22 percent of the value of U.S. farm production.
Forced to adjust to new economic realities, New Zealand farmers cut costs, diversified their land use, sought non-farm income opportunities and altered production as market signals advised — for example, by reducing sheep numbers and boosting cattle ranching. Farmers were aided on the cost side as input prices fell, because suppliers could no longer count on subsidies to inflate demand.
The striving for greater efficiency also supported environmental protection as marginal land farmed only to collect subsidies was replaced with native bush, and overuse of fertilizers ended when fertilizer subsidies were removed.
The Federated Farmers of New Zealand believe their country’s experience “thoroughly debunked the myth that the farming sector cannot prosper without government subsidies.” It is still not too late to revisit the U.S. farm bill and debunk the myth in this country.”
I would also agree with your professor that the farmers I know are some of the most-informed individuals I’ve ever met, as well as being some of the most creative, capable and hard-working. I strongly disagree with the idea that the government should be involved in the process because the farmers are “ignorant of market research, perhaps because they work sun-up to sun-down,” as you put it. They are very much aware of market activity.
3. What does all this mean for this Congressional race?
I guess the only question that really matters is, “Will this candidate seek to continue this and other government actions that are breaking the Treasury?” I’ll support the ultimate nominee, but this is a question that myself and many other conservative activist are asking during the primary. Is this a solid Constitutional-conservative candidate who favors economic liberty or does he support government involvement, particularly from a federal level, in this and other areas of our economy? Given the other candidates testing the waters for the GOP nomination race, I hope that we have much debate on this and other issues and those in this district decide on the direction of the party through the primary process.
All that said, I hope that my involvement with various Tea Parties doesn’t make me an “anarchist” in the eyes of Mr. Scoville!
John Stossel just chimed in with a 20/20 investigation!
The comment at the very end with the Congresswoman is classic.
Economic theory can blind common sense. Farming today is a high skill job, both in terms of technique and business acumen. All successful farmers are well versed in prices and values, in marginal operating costs, and where the profit comes from. Many are highly focussed on building their family business, which is a way of life, so satisfaction comes from more acres, bigger kit. Subsidies provide them with the opportunity to attain this. Marginal returns are high, as land and machinery are 80% of the cost of production. So if the price goes up they respond by producing more – not, as is implied, thinking “that’s okay, I can sit in the hammock instead”. When corn prices drop, so production declines.
Farm subsidies in the US and in Europe go to the wrong people. Here in the UK 80% go to the landed gentry (HM Queen Elizabeth, HRH The Prince of Wales, The Duke of Gloucester and others draw huge benefit from the system), and other large farmers. People find it hard to understand that this is money raised through public taxation, withdrawn from people on modest incomes, living in ordinary houses which they have bought with large borrowings. If farming needs subsidies, it’s the smaller operators who need the funds. There are the farmers who I know, meet, and report about – inventive people who use their practical wits to survive from year to year, and who generally are producing farm product that is less reliant of pesticides, growth promoters, genetics and other high tech inputs.
So you’re saying that (1) firms can’t produce according to market demands without subsidies because they either don’t know about these demands or don’t care about them because of the profit drive, but (2) if you give a private firm money AFTER it has misallocated resources (e.g. if you bail it out), it’s bad because you’re rewarding the firm for bad behavior. How can the behavior be bad if it is unavoidable? Under this framework, it makes more logical sense to blame the government for failing to properly “incentivize” the industry before the crash, thereby avoiding such a catastrophe, than it does to blame the companies themselves. The slope gets pretty slippery from there.