Crop Insurance Spending Myopia

In the last couple of weeks there's been a lot of focus inside the beltway on crop insurance. First, a 2-year budget deal between Republicans and Democrats planned to cut $3 billion from the crop insurance program. The deal would boost total spending by $80 billion (not including off-budget items) over 2 years. The $3 billion has since been restored to crop insurance in this bill.

More recently another bill called the "Assisting Family Farmers through Insurance Reform (AFFIRM) Act," has been proposed in both the Senate and House. The bill would cut $24.4 billion over 10 years from the crop insurance program by 1) capping RMA's premium share at $40,000, 2) eliminating RMA's share of the premium for all farmers with adjusted gross income over $250,000, 3) retaining the $3 billion cut to insurance providers, 4) reducing the commission paid to insurance salespeople, and 5) eliminating the Harvest Price Option.

The AFFIRM Act is, of course, being sold as a fiscally-conservative measure, but numbers can be deceiving. "Billion" is a big word, but context is important. 

I want to be clear here that I'm not advocating any cuts to or expansions of federal spending, I just want to bring some data to bear on the conversation.

Ideology, Evidence, or Approach: What Drives Economists Beliefs?

Mark Thoma's recent Fiscal Times column presents two possible explanations for the beliefs of economists: ideology and evidence. While these may be important for an individual economist, I think an important third factor is the approach we take or what Arnold Kling calls "interpretive framework." The approach you take to a question might be related to your ideology (causing some to confuse the two) and it certainly affects the way you interpret evidence. All of the facts we observe are interpreted. The approach we take in economics determines, at least to some degree, how we interpret facts.

Conveniently, Thoma's article provides some opportunities to juxtapose the influences of approach, ideology, and evidence on our beliefs. In the first paragraph of Thoma's piece he says:

Potpourri

Ag Regulation

Pointing to recent studies, Jayson Lusk discusses the cost of animal welfare regulation.

In a classic Independence Institute article, ag economist E.C. Pasour Jr. looks at the history of meat inspection regulation.

Meat & Cancer Risk Studies

Matt Bogard and Jayson Lusk both discuss a recent study of the relationship between red meat consumption and cancer risk. There's a great lesson on statistical inference in this episode!

The Importance of (Good) Economics

Don Boudreaux discusses the value of Econ 101.

Alex Teytelboym reports on an unlikely collaboration between Chicago economists and the country's largest food bank.

Arnold Kling brings some realism to the theory of financial markets.

Parisomony in Academic Writing

Victoria Clayton discusses "The Needless Complexity of Academic Writing."

How Progressive is the Tax Code?

The federal tax code has been a big topic of discussion this election cycle. A lot of this discussion has been driven by the increased focus on income inequality. Whatever your views on this subject, I think it's useful to look at the way the tax burden is distributed across income groups. In this post, I'll present data from the Congressional Budget Office (CBO), which you can download here.

The charts below were created using three data series: market income, transfers, and federal taxes. Each series runs from 1979 to 2011 (unfortunately, 2011 is the most recent year for which this data is available) and is broken down into quintiles by market income. The top 1% is also split out into its own category. Every data point is a household average for the group. The data set linked above breaks the top quintile into a few more groups if you're interested in that.

Major Environmental Legislation and EPA Regulations

In my last post on EPA regulation of agriculture, I looked at the majority party in the House, Senate, and the party of the President from 1974 to 2014. Some of it lined up with what I think most people, including me, would assume (i.e. Democrat control means more regulation), but much of it didn't. I suspect part of this is a function of our short memories but a good portion of it could be the relative independence with which regulators operate. They don't necessarily need legislative mandates to change the regulatory environment. One other thing to keep in mind: the regulations in this index can apply to any aspect of agriculture. Regulatory restrictions on forestry, crop farming, ranching, concentrated animal feeding operations, and aquaculture are all included in this index.

In this post I want to show some major legislation and regulatory actions laid over the same 1974-2014 regulatory restrictions data. I don't know if the events I identify on the chart are the causes of subsequent increases in regulation. I picked most of these events off the EPA History website, so the agency itself believes they're significant. If and when I dig into the RegData data for a research project, I'll be able to tell a more interesting story.

The graph shows EPA regulatory restrictions on agriculture. Data were taken from the RegData Database at the Mercatus Center at George Mason University. The data are counts of restrictive words in the Code of Federal Regulations such as "cannot," "must," "shall," etc weighted by the probability that the particular Title and Part apply to agriculture. This time I converted the restrictions count into an index (something the Center recommends) in part to make it easier to see just how much regulatory growth the ag industry has experienced. In 2014, there was 492% more regulation on agriculture than there was in 1974.

Potpourri

Brent Gloy and David Widmar at Agricultural Economic Insights revisit the issue of declining farmland values and come to roughly the same conclusion they did earlier this year.

Farmland values and cash rents in the Corn belt continue to come under downward pressure. When current cash rents are compared to current farmland values, the outcome is a capitalization rate of around 3%. This value is reasonable given current longer term interest rates. However, the bigger question is whether cash rents can be sustained at current levels in this economic environment. 

When one considers the returns that would be generated by a farmland owner-operator relative to current farmland values the rate of return is very low. This means that farmland values and cash rents are likely too high to be justified given the current economics of crop production. This low rate of return can be addressed through farmland values and cash rental rates falling and/or the row crop income situation improving.

Jayson Lusk points to an interesting article that he says should be filed under "Unintended Consequences."

Researchers find that a ban on bottled water on the University of Vermont campus (presumably to cut down on waste) led to more plastic bottles being shipped to campus and to more soda consumption. 

Marian Tupy and Chelsea German at HumanProgress.org tackle Akerloff and Shiller's recent op-ed in the Washington post on the effects of markets on our well-being.

Arnold Kling provides some wisdom on proper critiques of economics. My favorite bit:

A bias toward “engineers” rather than “ecologists.” That distinction comes from Greg Ip’s new book, Foolproof. The engineer is like Adam Smith’s man of system, who ignores evolution, both as a factor that may permit markets to over come their own failures and as a factor that may cause government “solutions” to become obsolete.

Continuing this theme, Steve Forbes provides a critique of economic theory. I enjoyed reading the first page, but lost interest on the second.

Don Boudreaux points to Gene Epstein's response to some of Bill Gates' comments in an interview.

The Foreign Subsidies Database

If you've ever wanted information about agricultural subsidies in other countries, the Foreign Subsidies Database at Texas Tech is a great resource.

The page has several interactive features. One feature is the Subsidy Tables which are laid out in table form and includes information from Argentina, Australia, Brazil, Canada, China, Egypt, the 27 countries of the EU, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, Russia, South Africa, South Korea, Thailand, Turkey, Uzbekistan, Vietnam, and the West African countries.

The tables include information on direct support (price supports, direct payments, import quotas and tariffs, subsidies and export taxes), indirect support (state trading and ownership, investment assistance, and credit and transport subsidies), and statistics on the production, consumption, export, and import market share by country. Commodities listed in the database include corn, cotton, rice, sorghum, soybeans, sugar, and wheat.

The site also includes more detailed information in narrative form on the commodity support in the countries/areas listed above in the Searchable Database. Some of the data goes back several decades. For instance, here's a graph of Australian cotton production, consumption, imports, and exports:

If you're interested in the way other countries subsidize their ag industries, I suggest you check out this site.