"Farmers and their lobbyists persuaded Congress to set up the U.S. Popcorn Board in the 1990s on the grounds that 'popcorn is an important food that is a valuable part of the human diet.'"
Our Washington political leaders seem to be running like lemmings toward a fiscal Armageddon that Greece has recently reached. According to the Congressional Budget Office, the federal deficit was $1.1 trillion for fiscal year 2012, down from $1.3 trillion in 2011. At the end of fiscal 2012, the gross federal debt was 105 percent of gross domestic product for the year and is expected to rise to above 107 percent in the current fiscal year. No one should be sanguine that the CBO's projected lower federal deficits for the rest of the 2010s will be realized.
Nevertheless, virtually all members of Congress continue to pack "political pork" into the federal budget, in the form of both earmarks and expansions of their favorite transfer programs. Each member can correctly reason that his (or her) preferred package of pork, alone, will not significantly affect federal deficits and, therefore, the fiscal fate of the country. Such thinking derives from "the logic of collective action" that the late economist Mancur Olson laid out nearly a half century ago. As Olson pointed out, each person (or lobby) has an incentive to seek his (or its) special program because, while everyone bears the costs, only that person or group reaps the benefits. For that reason, the prospect of a fiscal doomsday is growing.
One recent example of this collective logic at work is the new subsidies Congress has included in the current farm "reform" bill for—are you ready?—popcorn. At this writing, the farm bill of 2012 has not passed Congress, with the delay perhaps due, in part, to the recent national election in early November.
The Pork in Popcorn
If the bill passes, popcorn growers will now join a long list of grain farmers (growers of wheat, corn, grain sorghum, barley, oats, long-grain rice, medium-grain rice, pulse crops, soybeans, other oilseeds, and peanuts) whose wallets have been padded by American taxpayers in a variety of forms—including payments for non-production—over the past century. The new subsidies would be in the form of government coverage of a sizable portion of popcorn farmers' crop insurance and export promotions. This benefit would be no less a subsidy than direct payments to farmers for not planting crops. A subsidy for export promotion would drive up the price of domestic popcorn and, hence, increase popcorn growers' revenues and profits at the expense of American consumers and taxpayers. Subsidized crop insurance for popcorn growers could dampen price increases but, as with the export promotions subsidies, American taxpayers would foot the bill.
How did we come to the point where even popcorn producers seek subsidies? Farmers and their lobbyists persuaded Congress to set up the U.S. Popcorn Board in the 1990s on the grounds that "popcorn is an important food that is a valuable part of the human diet." On its website, the Popcorn Board argues that its operations to promote the sale of popcorn involve no direct taxpayer dollars. However, its board members are appointed by the Secretary of Agriculture, and the U.S. Department of Agriculture oversees the collection of funds from private popcorn growers for purposes of popcorn promotions, as well as how those funds are allocated among marketing plans in the domestic and global markets. The Popcorn Board oversees the production of nearly half a million tons of popcorn produced in the United States each year, which suggests indirect government control of production. The reason: growers' required payments to the board, a disguised form of taxation, are tied to growers' production. It was a short step from that program to subsidizing popcorn production and promotion.
Total U.S. popcorn production might sound like a lot, but popcorn constitutes only one tenth of one percent of all annual corn production in the country. Admittedly, the proposed subsidy for popcorn would be slightly less that $100 million over a decade. But therein lies a source of the country's looming fiscal debacle. The popcorn subsidy is trivial in the context of the total annual federal expenditures, but to paraphrase an alleged quip by the late U.S. Senator from Illinois, Everett Dirksen, "A hundred million here and another $100 million there, and soon it all adds up to real money"—or a federal budget rapidly approaching $4 trillion with trillion-plus deficits!
As the late Professor Olson might have observed, the popcorn subsidy will likely become fiscal law because almost no one, other than the popcorn growers, will notice. Being a small lot, they have all the incentive they need to lobby their members of Congress to do their bidding. The general public will have no incentive even to know the subsidy is in the works, much less to incur the costs to oppose its enactment.
The Strained Justification for Popcorn Subsidies
Needless to say, popcorn farmers and their lobbyists do not argue that the subsidy is intended to pad their own pockets (and boost the market value of their farms) at the expense of taxpayers. Rather, they enlist arcane arguments that have a fig leaf of economic and social justification. For example, growers and their spokespersons (some of whom are paid bureaucrats inside the U.S. Department of Agriculture, who seek to maintain their own job security) argue that popcorn subsidies are justified on the grounds that farming is inherently risky, mainly because production relies on ever-changing weather patterns.
Nebraska Republican Senator Mike Johanns justified his support for the popcorn subsidy vote on the grounds that unless popcorn farmers "write a check" for crop insurance, they get no subsidy. Still, if they write their checks, they get their crop insurance at one-third of its true cost, and the government covers (or, rather, taxpayers cover) the rest. With the crop insurance subsidies, popcorn production would be encouraged, but the resulting drop in the price of popcorn would not completely offset the added tax bill for American taxpayers. The outcome is classic, laid out in many Econ 101 classes: Growers get more in subsidies than they lose on price, while taxpayers pay more in added taxes than the growers receive in net gains.
Popcorn consumers may get a break in the prices of their popcorn treats from the crop insurance subsidy, but the subsidies for the promotion of international sales of popcorn can boost overall demand and offset some of the downward price effects of the crop insurance subsidy. Indeed, the two forms of subsidies can lead to a net price increase for consumers (depending on the elasticities of supply and demand). While the net price effect is unknown, what we do know is that popcorn farmers will be beneficiaries of congressional largesse. Taxpayers would be net losers.
Nevertheless, proponents of subsidies have a comeback argument that justifies popcorn subsidies based on other subsidies (or past farm policy mistakes): Because field-corn growers get subsidies, popcorn growers must get government handouts in some form, or else popcorn growers will shift to field corn, causing a further rise in movie theater (and home) popcorn prices. Oh, the tragedy! And besides, they argue, popcorn subsidies (again, a meager portion of the federal budget) are needed for popcorn growers to offset the competitive advantage peanut-based and corn-based snacks have because of the subsidies to peanuts and corn, which lower their prices relative to popcorn. Of course, there's a better solution: get rid of the other subsidies.
Somehow, the American public has gotten the message that farming is a highly risky industry. But this problem of risk is not unique to farmers. Small business people are actually more likely to go under than farmers are. About one-third of non-farm startups fail within their first two years, and more than half fail within their first four years. After ten years, only a third are still around. The farm failure rate, by contrast, is only one-sixth the failure rate of non-farm businesses. Small business owners must also invest their own (and borrowed) funds upfront sometimes several months, if not years, before their first customers come through their doors. The federal government covers no part of their insurance costs.
Moreover, the beneficial effects of subsidies for farmers are not likely to be long lasting. As public choice economist Gordon Tullock argued nearly forty years ago, any net gains that farmers receive from subsidies will likely be largely (if not fully) captured in higher prices of farmers' resource inputs, primarily fixed assets, for example, land. If there are net gains to farmers from any farm program, the price of farm property will rise along with demand, with those higher prices feeding into higher cost structures for farmers, which will be fully evident to people who seek to become farmers after the subsidies. The farmers who are in business when the subsidies are instituted will be the prime beneficiaries, since their property rises in value. New entrants to farming will have to pay prices for land and other assets that reflect the stream of anticipated net government benefits going into the relevant future.
Once the subsidies have been fully capitalized, Tullock argued, government policy makers will be effectively "trapped" in maintaining subsidies, or even increasing them if succeeding generations of farmers are to garner any net gains. If policy makers try to cut the subsidies, they will face the howls of existing farmers who paid good money for their farms in anticipation of the stream of subsidies being maintained into the future.
The Ethics of Popcorn Subsidies
The ethics of the subsidies for popcorn and other grain crops can be tested by using Kant's Categorical Imperative. Specifically, would subsidized farmers be willing to generalize their subsidies to all?
The answer from farmers, an unheralded class of government welfare dependents, is probably no. If others received the same type of subsidies, farmers would still gain, but then they would have to pay their share of similar subsidies granted to all similarly situated non-farm business owners (and to farmers who do not get the direct subsidies that grain producers get—carrot farmers, for example). Given the much larger non-farm sector of the economy, farmers—especially the small segment of popcorn farmers—would clearly lose on the deal because their added taxes would likely exceed their own subsidies. Moreover, farmers' subsidy deficits would be magnified as extended government subsidies encouraged non-farm businesses to take greater risks that would lead to more business failures and greater need for greater subsidies—and taxes.
No, farmers want to be "special," as in "special interest." Moreover, farmers would never consider "disarming" (that is, forgoing their subsidies) unilaterally. Such unilateral public spiritedness would leave farmers with all the taxes for all others' subsidies and no offsetting subsidies of their own.
The Political Short of It All
The subsidies to popcorn farmers are hard to explain and justify on economic or health grounds, but they are easy to explain on political grounds. Popcorn is grown in twenty-five states, with the largest producers in the Midwest. In short, popcorn growers influence many farm-state votes in Congress. Many of the Congressmen are Tea Party Republicans who shamelessly chastise their colleagues for wasteful pork-barrel politics. U.S. Senator John McCain mused, "This [popcorn subsidy] is a disgraceful example of how special interests can imbed themselves in a farm bill for generations. There isn't a kernel of evidence that they [popcorn farmers] need this support from taxpayers." Why isn't the public popping mad? Professor Olson has explained why.
Estimated annual deficits will continue to decline for the rest of the 2010s and early 2020s, again, according to the CBO, which is counting on tax increases and expenditure cuts to kick in after the first of 2013. Even if those tax increases and expenditure cuts occur, the addition to the federal debt from 2013 to 2022 would still be $2.3 trillion. If Congress does not agree to go over the so-called "fiscal cliff" in January, the federal annual deficits will be much higher and the increase in debt much larger. See Congressional Budget Office. 2012. An Update to the Budget and Economic Outlook: Fiscal Years 2012-2022, August. PDF file.
Office of Management and Budget, White House. 2012. Budget of the United States: Historical Tables, Fiscal Year 2013.
Olson, Mancur. 1965. The Logic of Collective Action Public Goods and the Theory of Groups. Cambridge, Mass: Harvard University Press.
Gordon Tullock. 1975. "The Transitional Gains Trap." Bell Journal of Economics and Regulation 6(2, Autumn): 671-678.