President Donald Trump is trying to rescue vulnerable Republicans in the Midwest by promising an $8 billion bailout for farmers two weeks before the midterms. That would bring direct federal payments to farmers this fiscal year to about $55 billion. The amount is about a quarter of what farms add annually to U.S. gross domestic product and nearly five times the level of direct payments in 2017.
Trump announced the payouts during a Monday night rally in Kansas and credited Sen. Roger Marshall (R) with convincing him to do so. Marshall faces an unexpectedly tight race in a state Trump carried by 16 points two years ago.
Farmers face real hardships. Diesel prices per gallon have risen about 75 percent and trade disruptions from the Iran war have boosted fertilizer prices. Pointless trade wars and tariffs have reduced foreign markets where American farmers can sell their crops and have raised prices for equipment. Ranchers have also voiced frustration at the chilling effect immigration raids have had on the meatpacking workforce.
Instead of rolling back those disruptive policies, the president is dangling money. “When the Republicans win, we will pass even more funding for our farmers,” Trump said in Kansas. This is akin to the $5,000 checks he’s promising Americans if Republicans hold the House and Senate.
Once government starts compensating industries whenever inputs become unexpectedly expensive, there is no principled stopping point. Why should a farmer’s increased diesel bill be reimbursed when a trucking company’s is not?
The special status for farmers is largely enabled by an old New Deal invention called the Commodity Credit Corporation, which gives the Agriculture Department broad discretion to distribute federal funds. Last December, the president used the fund to announce $12 billion for “one time bridge payments” to farmers facing “temporary trade market disruptions and increased production costs.” The fund has continued to serve as a backstop for farmers despite the rise of heavily subsidized federal crop insurance.
If taxpayers already subsidize farmers’ insurance against bad outcomes, why must they also repeatedly insure them against the outcomes the insurance doesn’t cover? “I would almost compare it to economic bumper bowling,” said David Ditch, a policy analyst at the Cato Institute. “A favorable treatment that really no other industry is provided.”
The more Washington creates an expectation of future bailouts, the less meaningful the concept of private risk becomes. Bailouts socialize losses while leaving profits private. No one is going to ask farmers to pay this money back when crop prices rise and fuel prices fall.
Bailouts replace market discipline with political discretion. When Trump neutralizes unwelcome price signals, capital and labor do not move toward their most productive uses. High input costs encourage conservation and efficiency. Low crop prices discourage marginal production. Loss of overseas customers encourages producers to find new markets and pressure politicians to reduce barriers to free trade. Risk encourages hedging, insurance, diversification and prudent balance sheets.
Subsidies blunt all of those signals and erode economic freedom by making formerly independent operators reliant on government largesse.
This is why no president should control enormous discretionary pots of money to distribute among politically important constituencies. The better way to actually help farmers would be to lower tariffs, open new markets, increase domestic fuel production and fully reopen the Strait of Hormuz. American farmers don’t need Washington to guarantee them a profit. They need Washington to stop making it harder for them to earn one.
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