Posts tagged with: corporate welfare

ForbesAlejandro Chafuen, president and chief executive officer of Atlas Economic Research Foundation and board member of the Acton Institute, recently wrote a piece for Forbes.com about crony capitalism.

Chafuen used to spend his summers in Argentina, so he begins his article with a story about a friend from Argentina. Enrique Piana, known to his friends as “Quique,” was heir to “Argentina’s oldest and most respected trophy and medals companies.”

During part of the ’90s, the government of President Carlos Menem, and then-Minister Domingo Cavallo, had a policy for the importation of gold and exports of gold fabrications that amounted to a major subsidy for exporters. Attracted by the incentives, Quique, who had become CEO of his company, became a key player in a scheme whereby exporting overvalued gold-plated products netted them 30 million in subsidies for fake transactions. As it seems that none of the medals were sold at artificial value to true customers, the only victims here ended up being the Argentine tax-payers.

The scheme involved a “business” in the United States. As there is still substantial respect for rule of law in the United States, Quique was indicted, captured, and—after some months in a U.S. jail—extradited to Argentina. In his book, he lists the government officials who he claims knew about the scheme and who received bribes for his fraudulent activities. I will not mention them here. None of them were sentenced to jail. (more…)

Blog author: John MacDhubhain
posted by on Tuesday, July 17, 2012

Turns out that cronyism hits more than just your pocketbook. There’s a good chance it’s hitting your waistline too.

That’s the takeaway from this editorial by Charles Lane. You see, cheese is one of the highest fat foods we eat, and our country overproduces cheese because of government created market distortions.

Charles Lane points out how price supports for milk lead to an overproduction of milk. We have more milk than we would ever drink in its liquid form. So where does all the surplus go? It gets turned into butter and cheese. Basically, because milk is overproduced, the cost of producing other dairy products declines, lowering prices for consumers and increasing the amount of cheese that is consumed.

Which sounds great, until you remember we have an obesity problem in the United States. And the fact that farmers are already better off than most families. Price supports, subsidies, and quotas all represent market distortions that benefit the politically connected, rather than representing what the people that make up the market really want. I guess we can be thankful the milk is at least used for something, unlike other cases of government managed food policy.

The point is, if we find ourselves concerned that the American diet is contributing to obesity, maybe we should first stop subsidizing it? As Lane concludes in his opinion piece:

When you think about it, the whole trillion-dollar farm bill amounts to a vast federal subsidy to this country’s sugary, starchy, cheesy diet, filled out with grain-fed beef, pork and chicken.

I love candy, pizza and hamburgers as much as the next guy. I just don’t see why businesses that profit by supplying that diet deserve an advantage over potential innovators and competitors. Still less do I see why they should get that advantage at taxpayer expense.

Last week, PowerBlogger Andrew Knot and I wrote posts about American sugar policy and farm subsidies, respectively. Now, the United States Conference of Catholic Bishops, as well as the Catholic Relief Services and National Catholic Rural Life Conference, have come out with a joint letter on the 2012 farm bill that just passed the Senate. Among other things, they urge Congress to reduce agricultural subsidies, and limiting crop insurance to small and medium sized farms.

In 2010, the government gave out $96 billion in farm subsidies. As I pointed out last week, the median farmer’s income is already 25 percent higher than the median American’s. Furthermore, most of the farm money is going to a small number of the farmers. Big farms tend to get a much larger share of the handout than small and medium sized farms do. American agricultural policies represent welfare and protectionism for the already well off.

The USCCB’s letter can be read here.

This morning I found that a commenter on my post about government failure in feeding the poor in India had complained that we should not trust “corporations who own the government.” I think this is a point worth further consideration. After all, I would argue that in the United States we have lousy agricultural policy. We essentially still have policies from the Great-Depression era aimed at manipulating prices, and business interests predictably engaging in a form of regulatory capture.

Jordan Ballor and Ray Nothstine wrote a good piece in Acton Commentary on the issue of agricultural policy here. I particularly like their discussion on Abraham Kuyper:

What the Dutch theologian and statesman Abraham Kuyper said of the manual laborers of the nineteenth century is equally true of agricultural workers in the twenty-first. “Unless you wish to undermine the position of the laboring class and destroy its natural resilience,” he warned, “the material assistance of the state should be confined to an absolute minimum. The continuing welfare of people and nation, including labor, lies only in powerful individual initiative.”

When you look at the numbers, the simple fact is that most of the farm subsidies are given to large farms, not the small farmer whose image is used by those lobbying for welfare.  I highly recommend Veronique de Rugy’s Washington Examiner op-ed on this issue. She points out that the median farming household earns a wage 25 percent higher than the median American household. Are these the people who need welfare? (more…)

Channeling his inner Ralph Nader, John Stossel calls shenanigans on the GOP talking points touting the viability of nuclear power.

As I noted in the context of a recent commentary on Obama’s promise of a new generation of nuclear reactors, Ralph Nader has asked a prescient question: “If these nuclear power plants are so efficient, so safe, why can’t they be built with unguaranteed private risk capital?”

Stossel similarly says, “I like the idea of nuclear energy too, but if ‘America is on the cusp’ of a revival, then taxpayers shouldn’t have to offer billions in guarantees! In a free country, when something is a good idea, it happens. Private capital makes it happen, without government force.”

Stossel raises and dismisses the disposal issue, which I examine at some length here.

In the end, I agree with Nader and Stossel on this point. But as I’ve said I’m a bit more sanguine about the chances of nuclear to compete on a level playing field. The problem is determining how well it can do without guarantees or subsidies when so many other forms of energy are on the receiving end of government largesse. It’s not right to ask nuclear power to go unsubsidized when its competitors don’t have such limitations.

For a look at the playing field from 1999-2007, see this summary paper, “Federal Financial Interventions and Subsidies in Energy Markets 2007″ (PDF). Historically nuclear power has been handicapped relative to the incentives given to other forms, including fossil fuels. Add to that the extra regulatory burden, and you can see why there’s been so little movement in building new power plants in the last thirty years.

Readings in Social Ethics: Abraham Kuyper, The Problem of Poverty. References below are to page numbers.

  • With next week’s reading of Rauschenbusch in view, here’s how Kuyper evaluates Christian socialists: “Socialists constantly invoke Christ in support of their utopias, and continually hold before us important texts from the Holy Word. Indeed, socialists have so strongly felt the bond between social distress and the Christian religion that they have not hesitated to present Christ himself as the great prophet of socialism” (27).

  • Here’s what Jesus’ social message really consists in: “If you ask what Jesus did to bring deliverance from the social needs of his time, here is the answer. He knew that such desperate needs grow from the malignant roots of error and sin, so he placed the truth over against error and broke the power of sin by shedding his blood and pouring out his Holy Spirit on his own. Since rich and poor had become divided because they had lost their point of union in God, he called both together back to their Father who is in heaven. He saw how the idolizing of money had killed nobility in the human heart, so he held up the “service of Mammon” before his followers as an object for their deep contempt. Since he understood the curse that lies in capital, especially for the man of great wealth, he adjured him to cease his accumulation of capital and to gather not treasure on earth, where moth and rust corrupt and thieves break in and steal (Matt. 6:19). He rejected the rich young man because he could not decide to sell all his goods and give to the poor. In his heart Jesus harbored no hatred for the rich, but rather a deep compassion for their pitiable condition. The service of Mammon is exceedingly difficult. Sooner would a camel go through the eye of a needle than would a rich man enter the kingdom of heaven (Matt. 9:16-24). Only when the possession of money leads to usury and harshness does Jesus become angry, and in a moving parable he tells how the man who would not release his debtor is handed over to torturers and branded as a wicked servant who knows no pity (Matt. 18:23-35)” (37-38).
  • Likewise Kuyper says: “The socialists so flatly reverse [this] when they preach it: “But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you.” (Matt. 6:33). For both rich and poor, Jesus’ teaching simultaneously cuts to the root of sin in our human heart” (39-40).
  • The deep interconnections between material want and spiritual need: “A charity which knows only how to give money, is not yet Christian love. You will be free of guilt only when you also give your time, your energy, and your resourcefulness to help end such abuses for good, and when you allow nothing that lies hidden in the storehouse of your Christian religion to remain unused against the cancer that is destroying the vitality of our society in such alarming ways…You do not honor God’s Word if, in these circumstances, you ever forget how the Christ, (just as his prophets before him and his apostles after him) invariably took sides against those who were powerful and living in luxury, and for the suffering and oppressed. Even more appalling is the spiritual need of our generation. When, in the midst of our social misery, I observe the demoralization that follows on the heels of material need, and hear a raucous voice which, instead of calling on the Father in heaven for salvation, curses God, mocks his Word, insults the cross of Golgotha, and tramples on whatever witness was still in the conscience–all in order to inflame everything wild and brutish in the human heart–then I stand before an abyss of spiritual misery that arouses my human compassion almost more than does the most biting poverty” (62-63).
  • Solidarity as expressed ultimately in the sacrament of communion: “The tremendous love springing up from God within you displays its radiance not in the fact that you allow poor Lazarus to quiet his hunger with the crumbs that fall from your overburdened table. All such charity is more like an insult to the manly heart that beats in the bosom of the poor man. Rather, the love within you displays its radiance in this: Just as rich and poor sit down with each other at the communion table, so also you feel for the poor man as for a member of the body, which is all that you are as well. To the poor man, a loyal handshake is often sweeter than a bountiful largess. A friendly word, not spoken haughtily, is the gentlest balm for one who weeps over his wounds. Divine compassion, sympathy, and suffering with us and for us–that was the mystery of Golgotha. You, too, must suffer with your suffering brothers. Only then will the holy music of consolation vibrate in your speech. Then, driven by this sympathy of compassion, you will naturally conform your action to your speech. For deeds of love are indispensable” (77). See also 1 Corinthians 11:17-34.
  • Is state welfare an adequate substitute for Christian charity? Never: “The holy art of ‘giving for Jesus’ sake’ ought to be much more strongly developed among us Christians. Never forget that all state relief for the poor is a blot on the honor of your Savior” (78).

Next week: Walter Rauschenbusch, Christianity and the Social Crisis.

Just say “No!” to corporate welfare. That’s a pretty good motto, I think.

And it seems that one form of corporate welfare, the vast system of farm subsidies, is getting some increased critical mainstream coverage. In today’s WaPo appears a story with this headline: “Federal Subsidies Turn Farms Into Big Business.”

I’ve seen quite a few stories in this vein over the past few months, exploding the mythical image of the down home family farmer. Here are some unintended consequences of the subsidies: “The very policies touted by Congress as a way to save small family farms are instead helping to accelerate their demise, economists, analysts and farmers say. That’s because owners of large farms receive the largest share of government subsidies.”

And here’s what farmer John Phipps has to say about the subsidies: “It’s embarrassing,” Phipps said. “My government is basically saying I am incompetent and need help.”

Phipps got $120,000 in subsidies despite the fact that he “harvested nearly 170,000 bushels of corn and soybeans last year on two square miles of fertile soil. He grossed nearly $500,000, putting his farm in the nation’s top 3 percent.”

These subsidies are big money, as “last year the government paid out about $15 billion in income support or price guarantees.”

Why does somebody like Phipps take the money even though it’s not a necessity? Because not taking it would put him at a great competitive disadvantage: “I’m not proud of it,” he said. “I would like to have the moral courage and financial clout not to take them. But if I don’t, I won’t be able to compete when it comes time to bid for land.”

Our own Kevin Schmiesing has some good things to say about agriculture and subsidies. Kevin says that in policy debates, “Our focus should be not so much on the preservation of the farm as on the preservation of the dignity and self-respect of the farmer. That federal subsidies will further that goal is a questionable proposition indeed.”

And for other cases of egregious corporate welfare, look no further than the construction of sports stadiums.