Wednesday, August 10, 2005

Benefit without the burden.

NPR has had an interesting series these past few weeks in which they send correspondents around the country to interview people about their relationship with the government. This morning, they interviewed cattle farmers in Missouri who are currently suffering from a fairly extended drought.

As you may know, Missouri is, on the whole, very conservative and, not surprisingly, so are its ranchers. Thus, in the course of the five minute spot, I heard the sort of small government complaints that I tend to expect. Towards the end of the post, the interviewer spoke with a rancher by the name of Vernon Zelch. Mr. Zelch raises beefaloes, a creature that is half cow, half buffalo. Mr. Zelch pointedly complained about the Conservation Reserve Program, a program which pays farmers to keep certain environmentally-sensitive acreage free from tilling and planting. The lands the CRP typically pays for are in riparian zones or free-standing wetlands, the preservation of which is generally essential to ground and surface water quality and which often serves as excellent wildlife habitat. Mr. Zelch's complaint is that the CRP drives up land prices for ranchers because the government will pay more per acre for preservation than the rancher can pay a farmer per acre to plant a feed crop. Moreover, Mr. Zelch pointed out that his tax money is being used to drive up his operating costs.

When I first heard this, I rashly assumed that Mr. Zelch was just another one of the subsidy-grubbing rural welfare queens in Missouri who voted Republican and than took his share of the $62 million that Missouri ranchers received in livestock subsidies in 2002. I was wrong. Mr. Zelch, it turns out, received a mere $5,605 in farm subsidies between 1995 and 2003. Compared to the teat-sucking corporate welfare whores like Missouri Delta Farms, Mr. Zelch is hardly a speck in the farm subsidy universe. If I could apologize to Mr. Zelch, I would.

However, let us consider the merits of his argument for a second. He's basically arguing that subsidy programs like the CRP distort the market and lead to inefficiency in the agricultural system. In fact, in the interview, he says that the government should leave the agriculture business alone and let farmers plant where, when and how they want. This is, of course, the typical free market argument. My problem, as always when discussing economics and free markets, is the underlying assumption in Mr. Zelch's argument. Namely, Mr. Zelch assumes that he and other ranchers are operating with perfect or near perfect information. Moreover, his argument suggests that the government is over-paying for land conservation. Is that the case?

I can't say, it's really an empirical question. However, given the history of human endeavours, particularly as they affect the natural environment, I'd say that Mr. Zelch is probably incorrect. Market failure is common when discussing environmental values, and commodity markets typically undervalue environmental services. Thus, when Mr. Zelch asserts that he can only pay $28 per acre for tillable land, I doubt very much that his figure includes external costs of tilling such as water pollution. Meanwhile, by definition, the government's payments of $35 per acre DO include the productive value of preserved land and, perhaps, other environmental service values.

Consider this water quality report from the State of Missouri for 2002. If you go to page 9, you will see that the greatest source of pollution for classified water bodies in Missouri is none other than agricultural runoff. This certainly suggests that farmers and ranchers, generally, are externalizing some of the costs of their operations in the form of water pollution. Again, whether this holds true of Mr. Zelch, I cannot say. However, atleast with regards to the Conservation Reserve Program, there seems to be some reason to believe that the prices it pays are not so much inflated as inclusive of values not typically captured in market prices.

In any case, I owe an apology to Mr. Zelch for my rash assumption about his acceptance of farm subsidies. I owe no such apology to the other ranchers on the program who bitch about big government and then demand disaster relief. Boys, that's what we pay taxes for. As contract law suggests, there's bound to be some burden to go with the benefits you receive.