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Archive for the ‘Subsidies’ Category

Remember the financial crisis and market meltdown from late last decade? That wasn’t a fun time, and we’re still dealing with some of the fallout.

Let’s specifically look at Fannie Mae and Freddie Mac, the two privately owned but government-created housing finance institutions (also known as government-sponsored enterprises, or GSEs). Fannie and Freddie received giant bailouts during the crisis, but they weren’t shut down. Instead, they have continued to operate, continued to benefit from implicit government subsidies, and continued to dominate housing finance because of their government-protected status.

Under the conditions of the bailouts, however, the excess cash generated by this government-subsidized duopoly have gone to the Treasury rather than to shareholders (incidentally, I wrote “excess cash” rather than “profit” because I think of the latter as money that is fairly earned in a competitive marketplace, whereas the earnings of the GSE’s are the result of an artificial, subsidized, and protected system).

In any event, the bailout will have been repaid at some point in the near future, so the government has to decide the next step. Should Fannie and Freddie be allowed to simply go back to their old model?

As you might expect, Cato’s expert on the issue, Mark Calabria, has a lot to say about the issue. In a column co-authored with Alex Pollock of the American Enterprise Institute, he proposes a set of reforms.

Nobody wants the old Fannie and Freddie back; nobody wants them to stay on indefinitely in conservatorship. What is required are practical steps forward.

Mark and Alex identify specific requirements that should be met before allowing Fannie and Freddie off the leash, starting with basic capital requirements and other reforms so the GSEs are less likely to create instability and excessive risk.

Take away Fannie and Freddie’s capital arbitrage and set their equity capital requirements in line with other financial institutions of similar size. Equity of at least 5 percent of total assets should be their required leverage capital ratio. …Given their undiversified business, something more might be prudent. In any case, the hyper-leverage which allowed Fannie and Freddie to put the whole financial system at risk needs to be permanently ended. …Designate them as the Systemically Important Financial Institutions (SIFIs) they indubitably are. Fannie and Freddie…have conclusively demonstrated their ability to generate huge systemic risk.

They also say Fannie and Freddie should no longer have special privileges. If these GSEs want to act like private companies, the should be subjected to all the laws and rules that apply to private companies.

End all their securities law exemptions. …End all their preferences in banking law and regulation. …End their exemption from state and local income taxes. …End all their exemptions from consumer protection rules. …Open up their charters to competition just like banking charters.

In a column for the Wall Street Journal, the former heads of the FDIC and Wells Fargo, William Isaac and Richard Kovacevich, point out that President-Elect Trump wants to do the right thing and shrink the risky role of government.

…the president-elect want[s] to privatize the home-mortgage market and “will get it done reasonably fast.” That’s good news for American homeowners, the economy and taxpayers who were forced to foot the bill after the 2008 subprime mortgage meltdown. …this is not a radical proposal. The private sector provides mortgages in most major countries, and there is little difference in the share of homeownership between the U.S. and other developed countries. No other country has the equivalent of the private-public model of Fannie Mae and Freddie Mac—crony capitalism at its best.

Isaac and Kovacevich explain why the old approach is unacceptable.

…many politicians and industry participants believe that housing cannot prosper without government support. We disagree. The U.S. cannot afford to go through another financial crisis, which started with subprime mortgages and would never have been so large if the residential mortgage industry had been market-based. Subprime mortgages have existed for decades. But they were a small percentage of the mortgage market until Fannie and Freddie reduced credit standards to increase their market share and meet low-income homeownership targets mandated by Congress. By 2007 nearly 50% of mortgages originated in the U.S. were subprime and “alt-A” types with government agencies guaranteeing about 70% of those… Without these government guarantees, the subprime bubble and financial crisis would have never happened. Bank regulators and industry experts warned Congress for decades about Fannie and Freddie and their increasingly large and risky portfolios, but Congress failed to act.

They then point out how we can move to a system based instead on market, and that any subsidies and handouts should be limited and transparent.

The solution is straightforward: The public-private hybrid of Fannie and Freddie—“government-sponsored entities”—should be abolished, their existing business sold or liquidated, and the mortgage market privatized. …The current $686,000 cap on new mortgages guaranteed by Fannie and Freddie should be reduced by $100,000 a year. This would put the companies out of originating new mortgages within seven years. …if the government still wants to subsidize mortgages for low-income families and minorities, the cost should be on budget and transparent. The Federal Housing Administration already does this.

By the way, a private system wouldn’t mean an end to conventional mortgages.

Others speculate that, without Fannie and Freddie, mortgage rates would skyrocket and the 30-year, fixed-rate mortgage would vanish. We disagree. Nonconventional or “jumbo” 30-year mortgages not guaranteed by Fannie and Freddie have existed for decades. In the decade preceding the financial crisis, the interest rate on these jumbo mortgages averaged only about 0.25% higher than similar guaranteed mortgages, a difference of a little over $40 a month on a $200,000 mortgage. Shouldn’t Americans, like homeowners throughout the world, pay a tax-deductible $40 extra a month so taxpayers aren’t on the hook for hundreds of billions to bail out Fannie and Freddie?

Amen. Fannie and Freddie never should have been created in the first place.

And today, with the memory of their disastrous impact still fresh in our minds, we should do everything possible to shut down these corrupt GSEs. I’ve argued for this position over and over and over again.

Sadly (but not surprisingly), there are many people who want to move policy in the wrong direction. The Obama Administration has pushed for more risky housing handouts, often aided and abetted by Republicans who care more about pleasing lobbyists rather than protecting taxpayers.

And it goes without saying that Fannie and Freddie are proposing more handouts in order to create a bigger constituency that will advocate for their preservation.

Kevin Williamson of National Review looks at a crazy idea to create more risk from Fannie Mae.

…government-sponsored mortgage giant Fannie Mae roll[ed] out a daft new mortgage proposal that would allow borrowers without enough income to qualify for a mortgage to count income that isn’t theirs on their mortgage application. …Claiming that the money you are using for a down payment is yours when it has been lent to you by a family member or a friend was a crime… Fannie Mae, the organized-crime syndicate masquerading as a quasi-governmental entity, has other ideas. Under its new and cynically misnamed “HomeReady” program, borrowers with subprime credit don’t need to show that they have enough income to qualify for the mortgage they’re after — they simply have to show that all the people residing in their household put together have enough income to qualify for that mortgage. We’re not talking just about husbands and wives here, but any group of people who happen to share a roof and a mailing address. …That would be one thing if all these people were applying for a mortgage together, and were jointly on the hook for the mortgage payments. But that isn’t the case. HomeReady will permit borrowers to claim other people’s income for the purpose for qualifying for a mortgage, but will not give mortgage lenders any actual claim against that additional income. This is madness.

Madness is certainly an accurate description. If you want to be more circumspect, economic illiteracy is another option.

The bottom line is that government-subsidized risk is not a good idea.

And also keep in mind that shutting down Fannie and Freddie is just part of the solution. So long as deposit insurance exists, we’re going to have some instability in the financial system. And so long as government wants to subsidize housing for people with poor credit, taxpayers will be on the hook for losses. And so long as there are biases in the tax code for debt over equity and residential real estate over business investment, the economy won’t grow as fast.

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I’ve argued before that the Department of Housing and Urban Development (HUD) should be the top target of those seeking to shut down useless and counterproductive parts of the federal government.

And if President-Elect Trump’s choice for HUD Secretary, Ben Carson, is as sound on housing issues as he is on tax issues, presumably he will work to close down the bureaucracy that he’ll soon be overseeing.

But I just read a Wall Street Journal column about agriculture subsidies that has me so agitated, that I may change my mind and make the Department of Agriculture my top target for elimination. Here’s some of what Jim Bovard wrote.

President-elect Donald Trump’s vow to “drain the swamp” in Washington could begin with the Agriculture Department. …Farmers will receive twice as much of their income from handouts (25%) this year as they did in 2013, according to the USDA. …big farmers snare the vast majority of federal handouts. According to a report released this year by the Environmental Working Group, …“the top 1 percent of farm subsidy recipients received 26 percent of subsidy payments between 1995 and 2014.” The group’s analysis of government farm-subsidy data also found that the “top 20 percent of subsidy recipients received 91 percent of all subsidy payments.” Fifty members of the Forbes 400 list of wealthiest Americans have received farm subsidies, according to the group, including David Rockefeller Sr. and Charles Schwab.

Indeed, agriculture subsidies are basically a huge transfer of wealth from the poor to the rich.

…in 2015 the median farm household had a net worth of $827,307. That includes a great many residential, gentlemen and hobby farmers. The largest class of farmers—those who produce most farm products and harvest the largest share of the subsidies—have a median net worth of $2,586,000. By contrast, the median net worth for American households in 2013 was $81,200, according to the Federal Reserve.

In his column, Jim also explains some of the bizarre consequences of various specific handout programs, including the fact that American taxpayers have forked over $750 million to Brazil in order to continue huge (and impermissible, according to our trade commitments) subsidies to American cotton producers.

But the sugar subsidies are probably the most economically insane.

The U.S. maintains a regime of import quotas and price supports that drive U.S. sugar prices to double or triple the world price. Since 1997 Washington’s sugar policy has zapped more than 120,000 U.S. jobs in food manufacturing, according to a 2013 study by Agralytica. More than 10 jobs have been lost in manufacturing for every remaining sugar grower in the U.S.

Let’s look at some more evidence, this time dealing with dairy subsidies.

Charles Lane of the Washington Post wrote earlier this year about America’s government-caused cheese problem.

…as of March 31, 1.19 billion pounds had accumulated in commercial cold-storage freezers across the United States, the largest stockpile ever. …each American would have to eat an extra 3 pounds of cheese this year, on top of the 36 pounds we already consume per capita, to eliminate the big yellow mountain.

Why is there something as silly as a giant stockpile of cheese?

If you’re guessing it’s the result of a foolish government policy, you’d be right.

… the U.S. government has a long-standing pro-cheese-eating policy, which grew out of the need to do something with the subsidized excess of milk products generated by federal pro-production dairy policy… Two decades ago, in fact, the Clinton administration’s Agriculture Department helped form a promotional organization, Dairy Management Inc., funded by a congressionally authorized, federally collected dues requirement for dairy producers. Its $140 million annual budget has helped develop such fast-food items as Pizza Hut’s cheese-topped crust and Taco Bell’s double steak quesadillas, as well as cheesy pizzas for the federal school lunch program. …dairy farms are protected by a subsidized insurance program in the 2014 Farm Bill.

What’s the answer to this mess?

Well, even an editorial writer for the leftist Washington Post recognizes that markets, rather than subsidies, should determine cheese production.

In the long run, everyone — consumers, producers, middlemen, grocers — would probably be better off if governments just left the dairy market to its own devices. And a lot of other markets, too.

By the way, since we’re on the topic of subsidies to the dairy industry, a Bloomberg column exposes some of the perverse consequences of government intervention.

…some farmers tried to limit the supply of milk by killing off their own cows. No, you read that correctly. This mysterious state of affairs was revealed in a nationwide class-action lawsuit against dairy cooperatives, groups of farmers who pool their supplies but, as a whole, serve as middlemen between the farmers and dairy processors. …The “herd retirement program,” as it was called, was led by Cooperatives Working Together, run by the lobbying group National Milk Producers Federation, and supported by farms producing almost 70 percent of America’s milk. …The path that leads to killing perfectly good dairy cows begins with a 1922 law, the Capper-Volstead Act. The statute was designed to protect both dairy farmers and consumers from profiteering middlemen.

This story actually is a perfect storm of government stupidity. The federal government has programs that subsidize the dairy industry. That then leads to overproduction. Producers respond to overproduction with a plan to kill cows, which somehow triggers antitrust intervention by the government.

Heaven forbid we actually get the government out of the business and simply allow markets to work!

And if antitrust laws and agriculture subsidies are a bad combination, then you won’t be surprised to learn that foreign aid and agriculture subsidies are another bad combination. In other words, two negatives don’t make a positive, as explained by Jim Bovard earlier this year in another column for the Wall Street Journal.

The Obama administration’s plan to dump a million pounds of surplus peanuts into Haiti at no cost has sparked a firestorm from humanitarian groups… Haiti has about 150,000 peanut farmers. The industry is “a huge source of livelihood” for up to 500,000 people, Claire Gilbert of Grassroots International told NPR, “especially women, if you include the supply chains that process the peanuts.” …the Peasant Movement of Papaye, denounced the peanut donation as “a plan of death” for the country’s farmers. …American aid has a sordid record. In 1979 a development consultant told a congressional committee: “Farmers in Haiti are known to not even bring their crops to market the week that [food aid] is distributed since they are unable to get a fair price while whole bags of U.S. food are being sold.” …After the 2010 earthquake, Haiti’s president, René Préval, pleaded with the U.S. to “stop sending food aid so that our economy can recover and create jobs.” Former President Bill Clintonpublicly apologized the same year for the devastating impact of subsidized U.S. rice imports: “I have to live every day with the consequences of the lost capacity to produce a rice crop in Haiti to feed those people, because of what I did.”

The peanut program may be even more inanely destructive than the sugar program.

The real culprit here are federal peanut programs with an almost 80-year record as one of Washington’s most flagrant boondoggles. Subsidies have encouraged farmers to overproduce and then dump surplus peanuts on the USDA, which winds up stuck with hundreds of millions of pounds. That food has to go somewhere, and the department sees Haiti as the ticket. Food-aid policies have long been driven not by altruism, but by bureaucratic desperation to dispose of the evidence of failed farm policies. …The cost of peanut subsidies is predicted to rise 10-fold between 2015 and next year, reaching $870 million—which approaches the total farm value of the whole U.S. peanut crop itself. The USDA expects to spend up to $50 million a year to store and handle surplus peanuts, and industry experts are warning that federally-licensed warehouses might not have enough space to hold the next crop.

Though this humorous image reminds me that ethanol handouts also may be the most counterproductive and wasteful agriculture subsidy.

Agriculture subsidies are bad for taxpayer and bad for consumers. They are a corrupt transfer of unearned wealth to special interest groups.

P.J. O’Rourke came up with the only appropriate solution to this mess.

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When I wrote last year about “Hillary Clinton’s Plan to Increase the Cost of College,” I explained that colleges and universities boost tuition when the government hands out more subsidies to students, so the main effect is to make higher education even more expensive.

Today, let’s look at Donald Trump’s plan to increase the cost of childcare. And this is a very easy column to write because the economic consequences of Trump’s plan to make childcare expenses deductible are the same as Hillary’s misguided plan to subsidize tuition.

Let’s start with a caveat. We don’t know a lot about Trump’s new scheme. All we know is that he said in his big speech to the Economic Club of Detroit earlier today that “My plan will also help reduce the cost of childcare by allowing parents to fully deduct the average cost of childcare spending from their taxes.”

From an economic perspective, Trump’s statement doesn’t make sense. At best, creating a big deduction for childcare expenses simply creates the illusion of lower cost because of the tax loophole.

But that’s the best-case scenario. The actual result will be to increase costs and make the tax code even more convoluted.

When income is shielded from taxation, either based on how it is earned or how it is spent, that creates an incentive for taxpayers to make economically irrational decisions solely to benefit from the special tax preference. And just as the healthcare exclusion has led to ever-higher prices and ever-greater levels of bureaucracy and inefficiency in the health sector, a deduction for childcare expenses will have similar effects in that sector of the economy. Providers will boost prices to capture much of the benefit (much as colleges have jacked up tuition to capture the value of government-provided loans and grants).

Creating a new distortion in the tax code also will have a discriminatory impact. The tax loophole will only have value for parents who use outside care for their kids. Parents who care for their own kids get nothing. Moreover, the new loophole also won’t have any value for the millions of people who don’t earn enough to have any tax liability. Yet these people will be hurt when childcare providers increase their prices to capture the value of the deduction for parents with higher levels of income.

And that will probably lead politicians to make the tax loophole “refundable,” which is a wonky way of saying that people with low levels of income will get handouts from the government (in other words, “refundable” tax breaks are actually government spending laundered through the tax code, just like much of the EITC).

So we’d almost certainly be looking at a typical example of Mitchell’s Law, where one bad policy leads to another bad policy.

And when the dust settles, government is bigger, the tax code is more convoluted, and the visible foot of government crowds out another slice of the invisible hand of the market.

Remember, bigger government and more intervention is a mistake when Republicans do it, and it’s a mistake when Democrats do it.

I want fewer favors in the tax code, not more. I want rationality to guide economic decisions, not distorting tax preferences. Most of all, I don’t want politicians to have more power over the economy. I wish Trump listened to Ben Carson when putting together a tax plan.

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When I accuse my left-wing friends of deciding policy on the basis of feelings, intentions, and ideology, that’s not because I think those are bad motives.

After all, I’m also guided by many of these factors. I have empathy for others, especially the disadvantaged. My goals are to have a more peaceful and prosperous society. And I’m guided by the libertarian non-aggression principle.

What makes libertarians different is that we also think evidence matters. For instance, I like lower taxes and believe that the right kind of tax cuts produce revenue feedback, but I openly admit that the vast majority of tax cuts nonetheless lose revenue.

And I’m even willing to admit that some types of government spending may be associated with better economic performance.

Leftists, by contrast, seem very dogmatic. Government is good, they reflexively think, so more government is always better. And because they’re so committed to bigger government, they are prone to cross the line from fact to exaggeration and then from exaggeration to untruth.

For instance, when an article in the New York Times asserted that “public schools are starved of funding” back in 2012, I couldn’t help but point out that this was utter, complete, and ridiculous nonsense.

Leftists also think that higher education is starved of funding, which is perversely ironic since they created all the subsidies and handouts that have given colleges and universities carte blanche to dramatically increase tuition and fees.

As you might expect, any effort to restrain government spending on higher education is treated like the end of the world. Paul Krugman, for instance, claims that there’s not enough money being diverted to finance the school where he teaches.

Here’s some of what he recently wrote in the New York Times.

Governor Cuomo’s sudden proposal, seemingly out the blue, to cut half a billion dollars in state funding for CUNY and shift the burden to the city…would be a terrible idea. …CUNY as an institution is doing such obvious good, especially in an era of growing inequality and hardening class lines, that it’s hard to understand why anyone who isn’t the hardest of hard-line conservatives would want to undermine it. …If you look at the student body today, you see a portrait of the American dream in action: hundreds of thousands of students, roughly 40 percent of whom are their family’s first generation in college, come from households with income less than $20,000, or both, all getting an affordable education that leaves them far less burdened by debt than all too many of their contemporaries.

But it’s absurd to argue that politicians have been stingy with taxpayer funding of higher education. There have been large increases in recent decades.

Indeed, politicians have created a third-party-payer-fueled explosion in college costs because of all the subsidies and handouts.

Here are the federal numbers, as calculated by the College Board. And keep in mind these are inflation-adjusted numbers.

And here are the state numbers, also in real dollars.

To be fair, Krugman’s specific complaint is about the amount of money being spent on CUNY, so it’s possible that this institution is the exception that proves the rule.

But I would be utterly shocked if the long-run numbers showed that CUNY was being weaned off the dole. Indeed, if anybody can show a reduction (even using inflation-adjusted numbers) in the amount of government-provided handouts to CUNY over the past 10 or 20 years, I’ll commit to doing something utterly disgusting and unpleasant, such as posting a picture of myself wearing a Florida Gators cap.

It’s not just that statists are wrong about the amount of spending on education. They also appear to be remarkably unconcerned about the quality of such expenditures. For all intents and purposes, they fixate on inputs and are oblivious to outputs.

For instance, we know that a big chunk of the additional money that’s been funneled to colleges and universities has been used for bureaucratic empire building rather than classroom instruction.

One would think that this would upset folks like Krugman, at least if he’s serious about what he wrote about places such as CUNY being a “portrait of the American dream in action.”

But good luck finding a column where he criticizes a bureaucracy for squandering money. That would not be consistent with a polemical career based on feelings, intentions, and ideology.

By the way, this isn’t the first time that Krugman has pushed an agenda that’s inconsistent with real-world evidence.

  • Earlier this year, Krugman asserted that America was outperforming Europe because our fiscal policy was more Keynesian, yet the data showed that the United States had bigger spending reductions and less red ink.
  • Last year, he asserted that a supposed “California comeback” in jobs somehow proved my analysis of a tax hike was wrong, yet only four states at the time had a higher unemployment rate than California.
  • And here’s my favorite: In 2012, Krugman engaged in the policy version of time travel by blaming Estonia’s 2008 recession on spending cuts that took place in 2009.

And if you enjoyed those examples, you can find more of the same by clicking here,here, here, here, here, here, here, and here.

P.S. For what it’s worth, I think libertarians are very intellectually honest. Most of us think that government should be providing national defense and legal protection, for instance, but that doesn’t stop us from pointing out that the Pentagon wastes money or that local police forces can be inefficient or unjust.

Unlike leftists, we go out of our way to demand accountability and performance from government, especially for programs we think are necessary.

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Because I don’t like their plans for a value-added tax, some people seem to think that I am politically opposed to Rand Paul and Ted Cruz.

That’s not true. Both Senators are generally strong proponents of free markets and limited government, so the fact that they have one bad policy position shouldn’t a disqualifying characteristic.

But since I’m a policy wonk (and because I work at a non-profit think tank), it’s not my role to tell people how to vote anyhow. Instead, my niche in life is to analyze policy proposals. And if that means I say something nice about a politician who is normally bad, or something critical of a politician who is normally good, so be it.

In other words, nothing I write is because I want readers to vote for or vote against particular candidates. I write to educate and inform.

With all those caveats out of the way, let’s look at the federal government’s odious handouts for the ethanol industry, a very important issue where Rand Paul and Ted Cruz unambiguously are on the side of the angels.

My colleague Doug Bandow summarizes the issue nicely in a column for Newsweek.

Senator Ted Cruz has broken ranks to criticize farmers’ welfare. …Senator Rand Paul also rejects the conventional wisdom…the Renewable Fuel Standard, which requires blending ethanol with gasoline, operates as a huge industry subsidy. Robert Bryce of the Manhattan Institute figured the requirement cost drivers more than $10 billion since 2007. …Ethanol has only about two-thirds of the energy content of gasoline. Given the energy necessary to produce ethanol—fuel tractors, make fertilizer and distill alcohol, for instance—ethanol actually may consume more in fossil fuels than the energy it yields. The ethanol lobby claims using this inferior fuel nevertheless promotes “energy independence.” However, …the price of this energy “insurance” is wildly excessive. …”By creating an artificial energy demand for corn—40 percent of the existing supply goes for ethanol—Uncle Sam also is raising food prices. This obviously makes it harder for poor people to feed themselves, and raises costs for those seeking to help them.” Nor does ethanol welfare yield an environmental benefit, as claimed. In fact, ethanol is bad for the planet. …Ethanol is a bad deal by any standard. Whomever Iowans support for president, King Ethanol deserves a bout of regicide.

Here’s some of the Wall Street Journal’s editorial on the topic.

Mr. Cruz does deserve support in Iowa for…his…lonely opposition to the renewable fuel standard that mandates ethanol use and enriches producers in the Hawkeye State. The Senator refused to bow before King Ethanol last year, and he’s mostly held fast even though Iowa is where anti-subsidy Republicans typically go to repent. …the Texan is right that ethanol is one of America’s worst corporate-welfare cases. The mandate flows in higher profits to a handful of ethanol producers and keeps the price of corn artificially high, all other demand being equal. This raises the price of food. Al Gore and the greens once supported ethanol but gave up on it when studies showed it did nothing for the environment because of the energy expended in its production. So for those of you keeping track of this outsider feud on your establishment scorecards, mark ethanol as one for Mr. Cruz. In this case he’s standing on principle.

Not only does it raise the price of food, Washington’s mandate for ethanol use (the “renewable fuels standard”) means higher prices for motorists.

Here are the key findings on the topic from the Congressional Budget Office.

While Senators Cruz and Paul are fighting on the right side, Donald Trump is cravenly bowing to the special interests that want continued ethanol handouts. Jillian Kay Melchior explains for National Review.

One of the most destructive environmental subsidies in the United States has found an enthusiastic supporter in Donald Trump. “The EPA should ensure that biofuel . . . blend levels match the statutory level set by Congress,” he said yesterday in Iowa, adding that he was “there with you 100 percent” on continuing federal support for ethanol. …federal support for ethanol is a bum deal for Americans. Under the 2007 Independence and Security Act, Congress mandated that the United States use 36 billion gallons of biofuels, including corn ethanol and cellulosic biofuel, by 2022. And the federal government not only requires the use of ethanol; it also subsides it. Tax credits between 1978 and 2012 cost the Treasury as much as $40 billion. Moreover, numerous other federal programs, spanning multiple agencies, allot billions of dollars to ethanol in the form of grants, loan guarantees, tax credits, and other subsidies. …Ethanol-intensive fuel blends can wreak havoc on car, lawnmower, and boat engines. In fact, many vehicle manufacturers will no longer offer warranties when ethanol comprises 10 percent or more of fuel; engine erosion simply becomes too common. …perhaps it’s not surprising that Trump likes federal support of ethanol. After all, the real-estate mogul’s business model has historically hinged on using tax abatements and other subsidies to make his building projects profitable. …Trump’s support for ethanol belies his populist Main Street rhetoric. In reality, he’s just another rich, East Coast politician who would prop up special interests at the expense of the taxpayer.

The bottom line is that ethanol handouts are one of the most notoriously corrupt subsidies that are dispensed by Washington.

They also violate my Bleeding-Heart Rule by imposing costs on lower- and middle-income people to reward politically connected fat cats with deep pockets.

Policy makers who oppose ethanol deserve praise, especially when they are willing to say and do the right thing in a state (like Iowa) that has a lot of recipients of this execrable form of corporate welfare.

P.S. I will get really excited if a candidate goes to Iowa and explains that we should get rid of the entire Department of Agriculture.

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Let’s dig into the issue of whether the United States should become more like France.

In a 2014 study for the National Bureau of Economic Research, Stanford University’s Robert Hall wrote about America’s sub-par economic performance. His opening line was basically a preemptive refutation of Obama’s claim – made during the State-of-the-Union Address – that the economy is strong.

The years since 2007 have been a macroeconomic disaster for the United States of a magnitude unprecedented since the Great Depression.

I don’t know that I would use “disaster” to describe the economy. That word would be much more appropriate for failed welfare states such as Italy and Greece.

But Professor Hall was definitely correct that the U.S. economy has been sputtering, as illustrated by comparative business-cycle data from the Minneapolis Federal Reserve.

So what accounts for America’s anemic economy? Hall has about 50 pages of analysis, but since brevity is a virtue, let’s look at some of what he wrote in his final paragraph.

Labor-force participation fell substantially after the crisis, contributing 2.5 percentage points to the shortfall in output. The decline showed no sign of reverting as of 2013. …an important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries. The bulge in program dependence…may impede output and employment growth for some years into the future.

In other words, he pointed out that a large number of people have left the labor force, which obviously isn’t good since our economy’s ability to generate output (and boost living standards) is a function of the degree to which labor and capital are being productively utilized.

And his work suggests that redistribution programs are a big reason for this drop in labor-force participation.

Now let’s look at another study from NBER, this one from 2015 that was authored by economists from the University of Pennsylvania, University of Oslo, and Stockholm University.

They examine the specific impact of unemployment insurance.

We measure the effect of unemployment benefit duration on employment. …Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. …we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

Wow, that’s a huge impact.

To be sure, I’ll be the first to admit that empirical work is imprecise. Ask five economists for an estimate and you’ll get nine answers, as the old joke goes.

Professor Hall, for instance, found a smaller impact of unemployment insurance on joblessness in his study.

But even if the actual number of people cajoled back into employment is only 500,000 rather than 1 million, that would still be profound.

Though at some point we have to ask whether it really matters whether people are being lured out of the labor force by food stamps, disability payments, unemployment insurance, Obamacare, or any of the many other redistribution programs in Washington.

What does matter is that we have a malignant welfare state that is eroding the social capital of the country. The entire apparatus should be dismantled and turned over to the states.

But not everyone agrees. You probably won’t be surprised to learn that the White House is impervious to data and evidence. Indeed, notwithstanding the evidence that the left was wildly wrong about the impact of ending extended unemployment benefits, the White House is proposing to expand the program.

Here’s some of what’s being reported by The Hill.

The president’s three-pronged plan includes wage insurance of up to $10,000 over two years, expanded unemployment insurance coverage… The plan comes on the heels of Obama’s final State of the Union address on Tuesday, in which he committed to fighting for expanded out-of-work benefits during his last year in office. …The plan would also extend benefits to part-time, low-income and intermittent workers who can’t already take advantage of the out-of-work programs. And it would mandate states provide at least 26 weeks of coverage for those looking for work.

The part about mandating that all states provide extended coverage is particularly galling.

It’s almost as if he wants to make sure that no states are allowed to adopt good policy since that would show why the President’s overall approach is wrong.

I joked in 2012 about a potential Obama campaign slogan, and I suggested an official motto for Washington back in 2014.

Perhaps we should augment those examples of satire with a version of the Gospel according to Obama: Always wrong, never in doubt.

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I may have to change my mind. When asked a few years ago to pick which department in Washington most deserved to be eliminated, I chose the Department of Housing and Urban Development.

And HUD unquestionably is a cesspool of waste, so it certainly should be shuttered.

But the more I read about the bizarre handouts and subsidies showered on big agribusiness producers by the Department of Agriculture, the more I think there’s a very compelling argument that it should be at top of my list.

Indeed, these giveaways are so disgusting and corrupt that not only should the department be abolished, but the headquarters should be razed and then the ground should be covered by a foot of salt to make sure nothing ever springs back to life.

That’s a bit of hyperbole, I realize, but you’ll hopefully feel the same way after today. That’s because we’re going to look at a few examples of the bad results caused by government intervention.

To get an idea of the Soviet-style nonsense of American agricultural programs, a Reuters report on the peanut programs reveals how subsidies and intervention are bad news for taxpayers and consumers. Here’s the big picture.

A mountain of peanuts is piling up in the U.S. south, threatening to hand American taxpayers a near $2-billion bailout bill over the next three years, and leaving the government with a big chunk of the crop on its books. …experts say it is the unintended consequence of recent changes in farm policies that create incentives for farmers to keep adding to excess supply.

And here’s a description of the perverse and contradictory interventions that have been created in Washington.

First, the U.S. Department of Agriculture (USDA) is paying farmers most of the difference between the “reference price” of $535 per ton (26.75 cents per lb) and market prices, now below $400 per ton. A Nov. 18 report to Congress estimates such payments this year for peanuts exceed those for corn and soybeans by more than $100 per acre. Secondly, government loan guarantees mean once prices fall below levels used to value their crops as collateral, farmers have an incentive to default on the loans and hand over the peanuts to the USDA rather than sell them to make the payments.

Gee, what a nice scam. Uncle Sam tells these farmers welfare recipients that they can take out loans and then not pay back the money if peanut prices aren’t at some arbitrary level decided by the commissars politicians and bureaucrats in Washington.

In other words, assuming the peanut lobbyists have cleverly worked the system (and unfortunately they have), it’s a license to steal money from the general population by over-producing peanuts. And we’re talking a lot of peanuts.

Through forfeitures, the USDA amassed 145,000 tons of peanuts from last year’s crop, its largest stockpile in at least nine years, according to data compiled by Reuters. …That stockpile is enough to satisfy the average annual consumption of over 20 million Americans – more than the population of Florida – and puts the administration in a bind. …As peanut carryover inventories are forecast to hit a record of 1.4 million tons by end-July 2016 and as loans begin to come due next summer, farmers are expected to fork over more peanuts to the USDA.

Moreover, because the perverse interaction of the various handouts, there’s no solution (other than…gasp!…allowing a free market to operate).

Storing the peanuts in shellers’ and growers’ warehouses comes at a cost. Selling them could depress the market further and in turn would add to the price subsidy bill.

Now let’s shift gears and look at another sleazy and corrupt example of agricultural welfare.

The Des Moines Register is reporting that corn growers and other beneficiaries of the ethanol program are working to cement their place at the public trough.

Iowa’s billion-dollar ethanol industry is turning up the heat… America’s Renewable Future, a bipartisan political group backed by top Iowa elected officials and people in agriculture and the ethanol industry, is in the midst of a million-dollar ad campaign to exert pressure on candidates ahead of the Iowa caucuses, supporting candidates who back the Renewable Fuel Standard and criticizing those who denounce it.

Ethanol is a particularly evil handout, encompassing regulatory mandates, special tax preferences, trade barriers, and other forms of subsidies.

All this is necessary because it makes no economic sense to turn corn into fuel. But with the right amount of goodies from Washington, dumb things suddenly become “profitable.”

And to maintain the flow of undeserved loot, the moochers are applying pressure.

Patty Judge, co-chair of America’s Renewable Future and a former Iowa agriculture secretary, said the group has signed up 45,000 people who have pledged to look closely at how the candidates stand on the Renewable Fuel Standard when they vote in the Iowa caucuses. …Iowa is the nation’s largest ethanol producer, churning out 3.9 billion gallons in 2014.

While the stories about peanuts and ethanol make for grim reading, now it’s time to get really depressed.

That’s because we’re going to take a look at a New York Times story on how Washington is dealing with ag subsidies.

In April, Republicans newly in control of Congress celebrated their agreement on a plan to save $5 trillion — that’s trillion, with a “T” — and balance the budget in a decade. …Yet as the year closes, Congress instead is planning to repeal one of the few spending cuts it has passed into law since approving that budget resolution: $3 billion over a decade from subsidies for crop insurers. …Republican leaders agreed to hold a vote next month to delete the savings after lawmakers from agricultural states complained…the agriculture committees, like most others, had no intention of turning budget-balancing numbers into policy reality by voting for cuts that would anger constituents, contributors and influential interest groups — not the $20 billion that the budget resolution recommended, nor even the $3 billion reduction from crop insurers, a cut that administration officials and Republican leaders tucked into the bipartisan budget deal Congress passed in October.

By the way, to get further depressed, this means that the terrible agreement to bust the spending caps just became even worse.

So now you’ll understand why the Department of Agriculture deserves to be eliminated.

P.S. You probably won’t be surprised to learn that the disgraced and convicted former House Speaker, Denny Hastert, had his filthy hands in the ethanol business.

P.P.S. And don’t forget that the wasteful food stamp program is part of the Department of Agriculture, largely to create an unholy alliance of rural moochers and urban moochers.

P.P.P.S. Last but not least, the clowns in Washington not only muck up how food is produced, they also can’t resist interfering in how food is consumed.

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