Obama makes Bush look good

Too much spend­ing: The bill increas­es spend­ing by almost $20 bil­lion over the next ten years, at a time when net farm income is at an all-time high. Much of this addi­tion­al spend­ing is dis­guised by bud­get gim­micks that take advan­tage of for­mal scor­ing rules to hide­re­al spend­ing increas­es.

New sug­ar pro­gram: The bill would make the gov­ern­ment buy sug­ar for 2X the world price, store it, then resell it at about an 80% loss to the tax­pay­er. Sug­ar sells for about 11¢/lb on the world mar­ket. The US gov­ern­ment would have to buy sug­ar for about 22¢/lb, store it, and then auc­tion off the excess to ethanol plants. We esti­mate that such an auc­tion would net the gov­ern­ment about 4¢/lb. In addi­tion, this new pro­vi­sion would require the gov­ern­ment to guar­an­tee that domes­tic sug­ar pro­duc­ers get 85 per­cent of the domes­tic sug­ar mar­ket.

Sub­si­dies for rich farm­ers: Farm­ers would be eli­gi­ble for gov­ern­ment sub­sidy pay­ments if their incomes were as high as $1.5 mil­lion if mar­ried, and up to $750,000 if sin­gle. We had a big fight with Con­gress last year over whether fam­i­lies with income of 3 times the pover­ty lev­el should receive tax­pay­er-sub­si­dized health insur­ance. This bill would sub­si­dize amar­ried farm­ing cou­ple with income more than 107 times the pover­ty lev­el (which is $14,000 for a cou­ple). Put anoth­er way, such a cou­ple would be in the top 0.2% of the income dis­tri­b­u­tion. You would be sub­si­diz­ing their busi­ness with your income tax­es.

Get­ting the best of both worlds: “Ben­e­fi­cial inter­est” is a pro­vi­sion of cur­rent law which allows you to lock in a gov­ern­ment sub­sidy pay­ment when the mar­ket price for your good is low, and then hold the actu­al good and sell it when the mar­ket price is high. You thus get the best of both worlds – sub­sidy pay­ments as if crop prices were low, but prof­its from sell­ing your good at a high­er price. The Pres­i­dent pro­posed a “pick-your-price” reform, in which you lock in the sub­sidy at the same time that you lock in the sale price, so you can’t play tim­ing games. The con­fer­ence report does not include this reform, and con­tin­ues the prac­tice of cur­rent law.

Using food aid $ inef­fi­cient­ly: Under cur­rent law, US food assis­tance for hun­gry peo­ple around the world must be spent pur­chas­ing US crops. The Pres­i­dent pro­posed to allow up to 25 per­cent of US glob­al food assis­tance to be spent pur­chas­ing food from local farm­ers (in the coun­try where the peo­ple are starv­ing). This allows US dol­lars to be spent pur­chas­ing food, rather than pay­ing trans­porta­tion costs. It also encour­ages the devel­op­ment of farm­ing infra­struc­ture in these coun­tries. Con­gress failed to include this for­ward-look­ing pol­i­cy that will help save lives over­seas. This means few­er starv­ing peo­ple will get food, and these coun­tries’ farm­ing infra­struc­tures will be less well devel­oped.   (Quot­ed by Greg Mankiw)

There’s more on this top­ic, with bud­get analy­sis, from the Bush White House here.

You be the judge. I find it dif­fi­cult to accept, as Bhag­wati and oth­ers appar­ent­ly do, that Obama’s con­sis­tent attack on lib­er­al eco­nom­ic poli­cies and open mar­kets is just cam­paign rhetoric. That was only ever a state­ment of faith rather than analy­sis. But it looks increas­ing­ly mis­lead­ing. Soon­er or lat­er all these chick­ens will come home to roost.

Ben Muse believes the the chick­ens are here already, with 48% of the US pop­u­la­tion now believ­ing that trade agree­ments are bad for the econ­o­my (accord­ing to the Pew Cen­ter sur­vey)

As recent­ly as Novem­ber 2007, opin­ion was split between those who felt trade agreee­ments were good, and those who felt they were bad (40% to 40%). So over the peri­od of the pri­maries opin­ion shift­ed quite a bit. I assume that the impact is main­ly due to the attacks on trade launched by Oba­ma and Clin­ton dur­ing that time.

(My thanks to Simon Lester for the point­er to Obama’s state­ment.)

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