On this week’s edition of Radio Free Acton, Burt and Anita Folsom discuss their latest book, Uncle Sam Can’t Count. We examine whether the government has a good track record in subsidizing industry and innovation, and look at some of the unforeseen consequences of subsidies in society. You can listen via the audio player below, and then be sure to check out the video of Burt’s Acton Lecture Series address as well.
In the following clip from the PovertyCure series, Doug Seebeck explains how U.S. agricultural subsidies have significant negative consequences both at home and abroad — misaligning human action, distorting market signals, and diminishing opportunities for the least of these.
Haiti used to be self-sufficient in rice. Now they get all their rice from the U.S. This is what we do to Africa. We subsidize our agriculture. We overproduce. Then we ship it as aid with a handshake, and we put them out of business. We disempower them. But you’re also putting the U.S. small farmer out of business. And it gets bigger and bigger and you’re squeezing out free enterprise….
How do I best love my neighbor in this rapidly integrating world…so that everybody has the ability to have what I have? It doesn’t mean we give it away. It means allowing them to succeed.
I recently pondered what might come of the global economy if we were to to put God at the forefront of our motives and decision-making. The question came as a reaction to Tim Keller, whose recent book calls on Christians to challenge their views about work. By re-orienting our work to be a “servant” instead of a “lord,” Keller argues, we will actually find more fulfillment in the work that we do.
Keller’s main point in the video I discussed was to caution against our human preferences for idol carving. Although this is a valuable word of warning, it’s also worth noting that in a more basic sense, our work is already service.
The extent to which this is practically true will depend on a variety of factors — the type of work we’re doing, the type of economic system we’re engaged in, the levels of cronyism, artificiality, and misinformation in the economic environment that surrounds us — but by and large, our work is concentrated on actually fulfilling the particular needs of particular persons. As Lester DeKoster writes in Work: The Meaning of Your Life: “Work is the form in which we make ourselves useful to others.”
Through this understanding, perhaps a clearer way of expressing things is that work is less about whether we’re serving and more about who we’re serving. At the core, this simply rehashes Keller’s original point, prodding us to ask ourselves whether we’re serving God or something else (i.e. anything else). But beyond this, in those rougher, hazier areas of human discernment, it also empowers us to ask some other productive questions.
For example, in examining the ways in which trade and exchange impact human relationships across broader society, DeKoster contrasts life in the African bush with life in Western civilization, noting that the primary difference lies in work: “The bush people have to do everything for themselves. Civilization is sharing in the work of others.”
As DeKoster goes on to explain:
Our working puts us in the service of others; the civilization that work creates puts others in the service of ourselves. Thus, work restores the broken family of humankind… Through work that serves others, we also serve God, and he in exchange weaves the work of others into a culture that makes our work easier and more rewarding…As seed multiplies into a harvest under the wings of the Holy Spirit, so work multiplies into a civilization under the intricate hand of the same Spirit. (more…)
From Reason.com’s blog comes this story about the company Capital Bikeshare, a business which rents bikes to people throughout the D.C. metropolitan area. Sounds like a cool idea, but why is it getting taxpayer support?
Capital Bikeshare, which rents bikes at more than 165 outdoor stations in the Washington D.C. area, serves highly educated and affluent whites.There’s nothing wrong with that, of course, except that the program has received $16 million in government subsidies, including over $1 million specifically earmarked to “address the unique transportation challenges faced by welfare recipients and low-income persons seeking to obtain and maintain employment.”
Well, helping the poor sounds nice. I bet it’s really helped them out, let’s see if that’s the case.
Capital Bikeshare’s latest user survey finds that 95 percent of its regular patrons have college degrees, 53 percent have a Masters or Ph.D., and 80 percent are white. Fully 0 percent have only a high school diploma and just 7 percent make less than $25,000 a year. More than 90 percent were employed and 14 percent reported they were college students, suggesting that very few welfare recipients are using the service.
Well, at least legislators can feel good I guess, even if they haven’t really done any good. This episode points out that government efforts are often poorly targeted in their attempts to help the poor. There’s nothing wrong with running a bike service, but the rationale that such enterprises should receive tax payer support because they help the poor is wrong. This applies to many topics in attempted government aid, many government policies that are ostensibly meant to help the poor are actually very poorly targeted. As Ismael Hernandez said last week during a lecture given at Acton University, we must use not just our hearts and our muscles, but also our minds.
A lecture from Ismael Hernandez on “Subsidiarity and Helping the Poor” and other lectures from Acton University can be found here.
In an article appearing on EWTN News, Acton Director of Research, Samuel Gregg, is interviewed on rising food prices and the effect on the developing world. In this article, Dr. Gregg contributed to a broad discussion on the many factors contributing to the rising food prices.
He advocates for a free market economy in agriculture by discussing the effects agricultural subsides in Europe and the United State, and how these market distortions contribute to stifling the growth of agriculture in the developing world. Furthermore, the effects of the oil industry on food prices is also discussed along with Pope Benedict’s call for the need to address the problems of food insecurity in Caritas in Veritate.
Developing world’s food crisis seen as a ripple effect of over-regulation
By Benjamin Mann
The dramatic rise in global food prices was high on the agenda of the 2011 World Economic Forum on Africa, held from May 4–6 in Cape Town, South Africa. According to a leading Catholic economist, excessive government regulations are to blame for the rise in prices.
A complex combination of factors – including natural disasters and higher oil prices, as well as a rising standard of living in countries like China, India and Brazil – have made food less affordable in recent months.
The United Nations’ Food and Agricultural Organization has warned that the “food price shock” could have devastating effects upon the world’s poorest people.
At meetings in Cape Town, South Africa this week, African leaders discussed a “road map” to help the continent cope with rising prices through market-based approaches that would encourage local agriculture.
Some factors behind higher food prices, such as natural disasters, cannot be controlled. But Dr. Samuel Gregg, an economist at Michigan-based Acton Institute for the Study of Religion and Liberty, said other factors – especially agricultural subsidies and the manipulation of oil supplies – were preventing poorer countries from bringing their productive capacities to bear in the global market.
The result, he told EWTN News on May 6, is an under-supply of food, and higher prices.
“All the subsidies that go into agriculture – through things like import taxes and tariffs, as well as direct subsidies – have the paradoxical effect of reducing the incentive for investment in agriculture in developing countries,” Gregg observed.
Without the ability to sell their products at competitive prices on the global market, these countries end up producing less food, and attracting fewer investors.
“They end up saying, ‘We can’t compete because of subsidies in the European Union and the United States.’ Consequently, the supply of food starts to be reduced, because there isn’t the incentive for agricultural investment.”
“This effort to protect American and European farmers has the unintended consequence of reducing the supply of agricultural products from other people.”
He said farm subsidies, going mainly to large corporations rather than individual growers, were a “very good example” of how “a government program can have a completely unintended negative effect” on a critical area of the world economy.
If the barriers to competition were lifted, Gregg said, developing countries could attract more investment and increase their own productive capacities, to cope with global demand and bring food prices down.
But agricultural subsidies have the backing of powerful interest groups, and are often perceived as vital to the national interest.
Gregg also holds oil-exporting nations of OPEC responsible for high fuel prices that translate into more expensive food.
“The energy sector of the economy is not a free market – it’s a cartel,” he stated. “That’s something to keep in mind with all discussion about energy prices. This is why we worry about what OPEC is going to set as the price for gas, or for the production of barrels of oil.”
“It’s not the market that is controlling the price, for the most part. Generally speaking, it’s a cartel – which means that OPEC and other oil-producing countries introduce a whole range of price-distortions into the energy sector, resulting in higher prices.”
Oil prices, he said, “don’t reflect the true state of supply and demand.” Rather, Gregg said, they tend to reflect the will of countries exporting oil, and the inefficiency of frequently nationalized oil production.
Elsewhere, government regulations surrounding the refinement of oil into gas also play a role in raising prices, when refining capacity fails to keep pace with crude oil supply.
“There’s plenty of oil,” Gregg stated. “The problem is, there’s a disparity between supply and demand.” Meanwhile, this imbalance in the oil market has a ripple effect. “Just as energy prices go up,” he explained, “so do food costs.”
Another obstacle to meeting rising demand for food may come from ideological opposition to genetically-modified crops.
“There are all sorts of restrictions in place around the world, upon the development of genetically modified food,” Gregg noted. Genetic modification is highly controversial, and skeptics worry such crops could harm local ecosystems or human health.
But Gregg said that these concerns had to be weighed against the world’s urgent food needs, given that genetic modification could enable crops to be grown “in conditions where they might not otherwise be able to be produced.”
Many of these crops are also designed to resist natural occurrences – such as droughts, floods, and disease – that destabilize food prices.
“There’s no question that if more countries were enabled by law to engage in genetically modified agriculture, the supply of food would go up, and prices would come down,” he observed.
Gregg’s advocacy of what he called a “true free market in agriculture,” geared toward attracting investment in the developing world, reflects priorities that Pope Benedict XVI outlined in his 2008 encyclical “Caritas in Veritate.”
In that encyclical, the Pope said that “the problem of food insecurity” had to be addressed by “eliminating the structural causes that give rise to it, and promoting the agricultural development of poorer countries.”
“This can be done,” the Pope wrote, “by investing in rural infrastructures, irrigation systems, transport, organization of markets, and in the development and dissemination of agricultural technology.”
Pope Benedict stated said the developing world’s most urgent need in this area was “a network of economic institutions capable of guaranteeing regular access to sufficient food.”
Gregg believes a general draw-down of government involvement in agriculture, as well as energy, would allow these kinds of economic institutions to develop locally and compete globally.
The result would be a boost in developing countries’ food production capacity, and more affordable food for the world.
“Obviously you need some kind of regulatory framework,” Gregg said. “But if it were a less onerous regulatory framework, and different groups weren’t trying to influence the process for political and ideological reasons, I think you’d find that the price of food – and the price of energy – would fall.”
The blame game in Washington is heating up on skyrocketing gas prices. Republicans are criticized as being in the back pocket of the oil industry and partaking in crony capitalism. The Democrat Congressional Campaign Committee is even cashing in by hosting a fundraiser that is based on what has been the House Republicans “decade long relationship of protecting Big Oil taxpayer giveaways, speculations and price gouging…” However blame is also placed on Democrats, with accusations of placing barriers to prohibit domestic drilling. The debate has also centered around how we can be better environmental stewards. We may find ourselves asking questions such as whether green energy promotes environmental stewardship, and if oil drilling results in a dramatic harm to the environment?
An article published by the Washington Examiner contains disturbing numbers that will not be received very positively. Oil production in the Gulf was lower than predicated by the Energy Information Administration (EIA); however, imports were up:
While oil production in the Gulf is down more than 10% from April 2010 estimates, net crude oil imports are up 5%. At $83 dollars a barrel (the approximate average price of oil in the fourth quarter of 2010) that means Obama’s oil drilling permatorium increased American dependence on foreign oil by about $1.8 billion dollars in the fourth quarter of last year alone. The numbers only get worse as Obama’s permitorium further cuts into production. A Wood Mackenzie study predicts that for all of 2011 the permitorium will result in the loss this year of about 375,000 barrels of oil a day.
More imported oil also means higher prices at the pumps. The EIA explains: “Retail gasoline prices tend to be higher the farther it is sold from the source of supply.” It costs more money to transport oil to your gas station from the Persian Gulf than from the Gulf of Mexico.
On April 26th, President Obama wrote a letter to Congress calling for “immediate action to eliminate unwarranted tax breaks for the oil and gas industry, and to use those dollars to invest in clean energy to reduce our dependence on foreign oil.” The tax breaks President Obama is asking to be removed are worth $4 billion per year. This isn’t the president’s first call to action. His 2012 budget proposal also calls for the removal of the “subsidies.” But some have pointed out that the oil industry does not receive direct subsidy payments in the way that some farmers do. The president’s proposal specifically states:
Eliminates Inefficient Fossil Fuel Subsidies. Consistent with the Administration’s Government-wide effort to identify areas for savings, the Budget eliminates inefficient fossil fuel subsidies that impede investment in clean energy sources and undermine efforts to address the threat of climate change. Approximately $4 billion per year in tax subsidies to oil, gas, and other fossil fuel producers are proposed for repeal.
Here at the Acton Institute we have spoken in opposition to true subsidies, such as subsidized farming (articles can be found here, here, and here) and health care policy (a related article can be found here). In the past we have articulate the problems with subsidization. The language in President Obama’s budget proposal appears to be vague and does not specify where the oil industry will no longer be, in his words, subsidized. Is it in drilling? Does it affect gas prices? Ray Nothstine notes in his commentary, “High Gas Prices are Devastating to Poor” our moral obligation to the vulnerable and how the high gas prices are affecting them. With gas prices continuing to climb precautions should be taken to prevent even higher prices.
Brian Johnson, the American Petroleum Institute’s senior tax policy advisor, provides insight on the proposal in the president’s 2012 budget. Johnson explains that the president is proposing to remove the intangible drilling cost provision, which is the oil industry’s ability to deduct drilling “costs associated with labor, architecture, design and engineering; basically the building of an oil rig, a platform or any structure that allows the industry to get into the ground and find oil or natural gas.” Johnson claims this process helps in planning for the next stage of development and construction. Furthermore, Johnson claims the oil industry is already paying its fair share in taxes with an income tax rate at 48 percent. Whereas other S&P Industrials average a 24 percent effective tax rate. Stephen Comstock, also from API, responded to President Obama’s State of the Union Address in January, articulating problems with the president’s call to end subsidies for the oil industry.
While the call to end the oil subsidies is being criticized by some, others are supporting such an action. Bill Becker, a Senior Associate with Third Generation Environmentalism and an energy and climate specialist at Natural Capitalism Solutions, argues the subsidies place the United States at a competitive disadvantage to China and India in the competition to champion alternative energy:
If we are looking for ways to chip away at the budget deficit, to keep America competitive and to use market-based mechanisms to build a competitive clean energy economy, then subsidy reform should be near the top of the list.
Think of it this way: Imagine an Olympic marathon in which the U.S. team has to run on a steep and continuous uphill slope, while the teams from China and India run on a level track. That’s what “winning the future” will be like for the United States if we keep our perverse energy policies. Direct and indirect taxpayer support for fossil energy, which far exceeds government support for emerging green energy technologies, almost certainly makes winning the future a futile race.
Becker also cites a report by the Government Accountability Office that claims “taxpayers are losing tens of billions of dollars in royalty payments in part because the Department of Interior doesn’t have sufficient capacity to monitor oil and gas production on public lands.”
In his letter address to Congress, the president calls to reinvest the $4 billion per year that the oil companies receive in subsidies into clean energy. The problem with current alternative energies is they are inefficient, not cost effective, and cause many unintended consequences (related articles on the inefficiency and unintended consequences of various alternative energies can be found here, here, here, and here).
Yes, we will need to develop good alternatives to oil over the long haul, but spending money on energy sources that are not effective is not a wise investment or a sign of being good financial stewards. If the tax provision and subsidies for the oil companies are to be cut, and taking into account the budget crisis the United States is currently facing, it may better serve the country to not reinvest the money and cut it out of the budget completely.
The most basic lesson of all of the various efforts, by both state and federal governments, to provide incentives for films to be made is that with government money comes government oversight.
Once you go down the road of filing for tax credits or government subsidy in various forms, and you depend on them to get your project made, you open yourself up to a host of regulatory, bureaucratic, and censorship issues. It shouldn’t be a surprise, for instance, that states might only want to reimburse those films that project an image of their state in a complimentary light.
The Michigan film bureaucracy has become infamous, selective, and capricious; you hear stories of corruption, by both government departments and those seeking the credits.
Why not just have a free market for films? To do otherwise is to court government censorship or propaganda, neither of which should be an attractive option for filmmakers.
If you want to retain creative control and avoid the insidious influence of government oversight, then don’t take money from the government to make your “art.”
This is perhaps at its most compelling when you have Christians who are trying to genuinely trying to integrate an authentic sense of faith into their films.
Should the government be given a say, either directly or indirectly, in what such filmmaking looks like?