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Press Release

President Should Have Vetoed Farm Bill


© 2002 Copley News Service, 5/15/2002

President Reagan once accused Congress of spending like a drunken sailor and immediately had second thoughts: "But that would be unfair to the drunken sailor. At least he's spending his own money."

Well, Congress has fallen off the wagon again, spending taxpayers' money with abandon and stupidity in the farm bill it sent to President Bush, who signed it in a 12-minute White House ceremony yesterday. The new law constitutes a 10-year, $190 billion (estimated) raid on the Treasury, but that is the least of its problems.

The new law largely repeals the landmark Freedom to Farm Act of 1996, which was supposed to replace federal subsidies with a market-oriented approach. FFA was designed to increase farmer flexibility and remove market distortions created by price-support payments. In place of price support payments, farmers were to receive fixed "transition" payments that were to be phased down from $6 billion then to $4 billion this year. Instead, Congress and the president have enacted a law that provides a 70 percent increase in crop subsidies that would bring total farm subsidies during the next 10 years to more than $190 billion – or $19 billion a year.

In reality, the new farm law is nothing more than inefficient corporate welfare. Brian Riedl of the Cato Institute said, "Congress could guarantee every full-time farmer a minimum income of 185 percent of the federal poverty line ($32,652 for a family of four) for 'only' $4 billion per year – one-fifth the cost of the direct subsidies in the new bill." Moreover, contrary to claims the bill would save the family farm, two-thirds of the subsidies will go to large corporate farms and wealthy agribusiness.

The new farm law is designed to "compensate" farmers for falling commodity prices, but typical of market interventions by government, the law will be self-defeating and cause prices to fall further. Not only will it hurt the national economy, it also will harm the political faction it was intended to help. Much of the agriculture price squeeze is the direct result of the Fed's deflationary monetary policy, which drove down all commodity prices and created a clamor for other protectionist measures, such as President Bush's steel tariff increases. Also, because foreign governments extensively protect and subsidize their own farmers, American farmers have been unable to export record crop yields overseas. The result was "excess" supply, which further squeezed prices down.

The new farm law will not alleviate these price pressures; it will only exacerbate them. In order to receive subsidies, farmers must plant more crops, in turn increasing supply and putting further downward pressure on prices, calling forth even more subsidies. Sen. Richard Lugar, himself a farmer and senior member of the Senate Agriculture Committee, summed it up best: "The effect of this farm bill is an inevitable vast oversupply of agricultural commodities and lower prices."

Trade, not aid, is the key to farmers' security and prosperity. And expanding trade in agricultural products means removing foreign market barriers that artificially restrict the amount of agricultural products American farmers can export. Congress and the president had it right in 1994, when they insisted on making the reduction and eventual elimination of trade-distorting agricultural subsidies a central tenet of the Uruguay-Round world-trade agreement.

Enactment of the Freedom to Farm Act two years later was the next logical step in American leadership to bring about free and open trade in agricultural products. Enactment of this year's farm law, alas, will reverse all that progress and run the United States right up against, if not beyond, the limits on agricultural subsidies set in the Uruguay-Round trade agreement.

That's not all. Coming on the heels of Bush's tariff increases earlier this year, his signature on the farm bill signals a full-fledged retreat from efforts to discourage protectionist sentiments in the Congress. Once that genie is out of the bottle, look out!

The president's signing of the bill may grease the way for congressional passage of trade promotion authority, as the president and congressional backers claim, but our moral authority on free trade has been so damaged by now that its value has been diminished. When the president signed this bill, it validated in the eyes of our trading partners the harsh reaction of Canadian Farm Minister Lyle Vanclief: The law's protectionist elements "undermine the world trading community's long-standing efforts to move toward trade liberalization."