Unthinkable…………..

Posted by Deepish Thinker on May 26, 2007
Economics, New Zealand, US Politics

Later this year congress will sit down to consider the 2007 Farm Bill. This multi-billion dollar pork-fest will establish the direction of US farm subsidy programs for the next five years. Unfortunately for US taxpayers neither radical cuts nor outright abolition are on the table.

For America’s politically powerful farmers and rural lobby beholden politicians a rural economy without massive federal subsidies is simply unimaginable. I don’t pretend to know what would happen if congress succumbed to a sudden attack of economic rationality, but there is reason to believe that it might not be all bad.

Consider the experience of New Zealand:

“Many had worried that the end of subsidies would destroy agriculture in the country, yet the agricultural sector grew as a percentage of GDP. Today approximately 90 percent of farm output is exported, making up more than 55 percent of total merchandise exports. Productivity gains have allowed farmers to remain competitive in a world market where they compete with farmers in subsidized countries. Real farm incomes have recovered, and in some sectors income is even higher than it was under subsidies.

Instead of disappearing into the mists, the country’s farm sector became known throughout the world for high-quality, innovative, and efficient agricultural practices. After the initial failures, farm numbers held constant, and the amount of land in agriculture fell only slightly as marginal land went out of production. Decreases in farm employment have been offset by increases in employment in rural tourism. Thus, the percentage of the population living in rural areas remains virtually unchanged. Real land values, which initially plummeted, have recovered and surpassed their pre-reform level.”

This is a fairly reasonable summary of New Zealand’s experience with ending farm support. Farming did not collapse, civilization miraculously survived and, in a not unimportant consideration, the government that whacked the farm support system won the next election by a handsome margin.

So why couldn’t this happen in the US?

Our correspondent omitted to mention the political circumstances that made such a radical move possible. In 1985 the incoming Labor government discovered that the country was essentially bankrupt. New Zealand was in fact on verge of a massive Argentina style debt default. The impending financial meltdown focused minds and made the unthinkable not only possible, but necessary.

While the federal government is undoubtedly on an unsustainable fiscal path, the day of reckoning is still many years away. Only when the US is backed up against the fiscal wall will a radical reform, such as applying the chainsaw of economic rationality to the bloated paunch of farm politics, become possible.