Of agricultural subsidies and collective action

The Cato Institute has released a new video exposing the U.S. Department of Agriculture as a federal agency whose ratio of regulators to regulated (i.e. farmers) is totally out of proportion.  According to the video, over the course of a century, the number of farms in America has plummeted from six million to two million, while the number of USDA employees has increased from three thousand to over one hundred thousand.  And if those figures aren’t enough to raise eyebrows, the USDA currently doles out over thirty billion dollars in subsidies to the agricultural industry per year!

Far from distributing the funds evenly, the money goes almost exclusively to large producers who make up only 38% of our nation’s farmers.  Furthermore, 90% of the money goes to support only five crops: corn, cotton, soybeans, wheat and rice.  Why?  Why does a large-scale soybean producer get the benefit of government assistance while a small producer of say, lima beans, must fend for himself?

While there are historical reasons, there is also a major political one which the American economist Mancur Olson identified in his book The Logic of Collective Action: Public Goods and the Theory of Groups.  Olson described a familiar political phenomenon: small groups who stand to gain from a particular piece of legislation have a strong incentive to see that piece of legislation passed, even if it means spending significant amounts of money on advertising or lobbying.  So long as they spend less on obtaining the legislation than they stand to gain from that legislation itself, they are acting rationally.  Let’s suppose, for example, that you’re a sugar beet farmer and that you stand to receive a substantial government subsidy if Congress passes a particular farm bill.  It would be rational for you to spend any amount of money less than what you stand to receive under the legislation.  If it passes, you still come out ahead, in spite of your investment.

Conversely, large groups who are not united by the pursuit of government goods do not have the same incentive to act collectively.  As an individual taxpayer, I am hurt if Congress passes legislation that gives taxpayer dollars to sugar beet farmers.  But, I am only hurt in a very small amount—let’s say a couple of dollars.  For me to try and lobby my representatives, raise awareness of the issue and defeat the legislation—all because it will harm me to the tune of a couple bucks—just isn’t going to happen.  I would have to spend more time and money trying to defeat the bill than it would ultimately harm me (at least economically).  Moreover, it will be difficult for me to band together with other taxpayers because they have similar incentives.

Many other economists and thinkers have pointed to this phenomenon as one of the major realities of politics today.  So what’s the solution?  A scaling down of the amount of available “government goodies” would go a long way.  But even better, how about a renewed commitment to the proper role of government?  If government were to stick to its proper role of protecting freedom and individual liberty, and get out of the business of distributing “goodies” entirely, the problem takes care of itself.