Make Subsidies Work

I was impressed with Sen. John McCain a couple of weeks ago when, in front of a crowd from the farm belt, he said he didn’t support farm subsidies. That got me thinking about the topic of subsidies in general. I find it hard to wrap my head around what the real intention is.

Since it was farm subsidies in particular that got me started, let’s stay with them. You would think that the first subsidies were meant to help the small independent farms protect themselves from large corporations, and even if that was the case then, it isn’t now. These days, subsidies artificially depress prices to make U.S. produce competitive with that from foreign nations. Which, in order to remain competitive, keeps those same nations from actually developing and growing in prosperity (I won’t take time to discuss all the ramifications, but think about those areas of the world with the most civil unrest).

Now, if the subsidies are keeping prices artificially low, they are not going towards improved farming methods or other innovations, which would go much farther in the long run.

Hmmm, and where does the money come from to pay for these subsidies? Why, our taxes, of course! (Sorry for the cynical tone.) But that means that we are paying for that same produce one way or another. It also means that the government, perhaps rightly so, that given the choice we would choose the less expensive produce. So they force the issue.

And the price is nothing to sneeze at. The current farm bill moving through Congress is priced at $307 billion. Which comes to about $1,000 per person. Makes that $300 economic stimulus check seem downright silly, doesn’t it?

I am all for subsidies that work to improve how we work. When they only support prices, however, we gain nothing.

Make subsidies do something.

For further reading, check out these sites:

• http://www.cato.org/pub_display.php?pub_id=5233
• http://en.wikipedia.org/wiki/Agricultural_subsidy
• http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html
• http://www.commondreams.org/views02/0506-09.htm

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Activism Struggles with the Other Side of the Issue

Activism usually comes about because someone doesn’t believe enough, or the right, people are paying attention to a particular issue. In general, though, activists seek only to push their view of the agenda without sitting on the other side of the table, seeking to understand the other view. Without taking the time to gain that true understanding or acknowledging the viability of the counter arguments, other problems develop.

You can find one such example in my post from last week. But there are others. For instance, in the late-1990s and early-2000s activists in Europe worked incredibly hard to ban genetically modified foods or foods that contained genetically modified organisms (GMOs). Now that there is a global food shortage, particularly affecting poorer nations, those same activists are reconsidering their stance. Producing GMO food, which can withstand blight and other diseases better, would go a long way to feeding millions. Are there potentially negative consequences to using GMO food? Absolutely. Without other viable solutions, however, in the midst of this crisis, it is the best opportunity so far.

Another example is less obvious. Globalization has greatly benefited developed and developing nations alike. We can acquire certain commodities and goods at lower prices because poorer nations are now able to produce and ship them overseas. That includes food, even those that are out of season. Last week, though, famed chef and TV personality Gordon Ramsay announced that he had approached UK Prime Minister Gordon Brown about fining restaurants that didn’t source their produce locally and in season. I am a bit of a fan of the fiery chef (pardon the pun), and I can sympathize with his intent. In fact, I applaud the sentiment.

At the same time, spurning global production for strictly locally-grown produce goes flies in the face of the same forces that have helped him to become an international star. And it could cause a severe blow to those developing nations.

I like local produce because it tends to be fresher. And I like food in season because it just seems natural and right. But if we have a bad growing season, and I am looking for something that I can get from somewhere else, I’ll probably get it. In 2008, that’s the way it should be.

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Unintended Consequences or Lack of Forethought?

Usually, when decisions that we make have a profound impact on other things or people, we say that there were unintended consequences. At times, I will agree. Most of the time, in fact, that is probably true. We may not have intended those consequences, but they happened anyway. In reality, we hoped those bad things weren’t going to happen.

The problem isn’t that the outcomes were completely unforeseen. It’s just that we didn’t think them through enough to understand what the impact would be.

I’ll give an example. Congress decides to offer substantial farm subsidies, greater than normal, for corn grown for ethanol. It is a politically expedient choice to make as it signals to Americans they are finding ways to reduce our dependence on foreign oil. Perhaps on all oil for that matter.

So farmers throughout the Midwest start dedicating their acreage to corn grown for ethanol. They enjoy higher subsidies. We get cheaper blended gas (not available everywhere). Everyone is happy.

Everyone except people who like to eat. With less corn being grown for feed, it gets more expensive to feed cattle, pigs and chickens. It leads to higher prices for meat, milk and anything that contains high fructose corn syrup (check your pantry, and you’ll find that ingredient in most non-organically produced products).

Oh yeah, and the potential costs of using corn-based ethanol as our primary fuel source far outweighs any benefit. Certainly, there are other options, such as sugar or nearly any other starch producing product. Many of the same issues, however, are likely to appear.

Additionally, once we figure out the best option, we will have to wait several years for widespread access while automakers design, build and sell the cars that will run on the fuel. Other countries have a bit of a headstart on us, but they don’t consume nearly the amount of fuel that we do in America, so it’s not a fair comparison.

For the record, let me state that I am an enormous proponent of reducing our dependence on all oil, both foreign and domestic. But with the world having more mouths to feed every day and less land for farming at nearly the same rate, Earth-bound, plant-based fuels is not the way to go.

I don’t have the solution, so, in reality, I should keep my mouth shut on this (one of my mantras is that you have no right to criticize unless you have an alternative to offer).

No. As a matter of fact, I do have some solutions. Many of which would be easy to implement and in some cases are already there.

• Business tax credits for telecommuting—the technology is available for most businesses
• Time shifts to reduce energy usage and traffic buildups
• Investments in light rail
• Greater emphasis on fuel-efficient commuter vehicles (save the SUVs for weekend family excursions)

And we’d still be able to eat.

Check out this Wikipedia entry about ethanol for a pretty good look at the issue from all sides.

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I Take Sides on Two Feel-Good Proposals

I wrote last week about the unenforceability about a number of our laws, regulations and policies. Generally, it comes in the form of feel-good propositions that don’t address the underlying issues and only punish those who behave badly. If they get caught.

Since then, two additional feel-good proposals have surfaced, one that really won’t benefit us and one that just might.

The first is Sen. John McCain’s recommendation that Congress do away with the Federal tax on gas from Memorial Day through Labor Day, the peak of the vacation season. It is a great idea, with several problems. First, is the potential cost. Not to us, directly, but to the government. As it is, we are financing nearly everything—the war in Iraq, the so-called “economic stimulus package” (I’ll probably use mine to pay some bills)—through other nations, mostly China, and private investors from the Middle East. We’ll simply be adding to that enormous debt.

Second, is the fact that the oil companies are more likely to pocket that money themselves. Sure, call me a cynic. But think about it. Do you know how much that tax is per gallon? I don’t either. I wouldn’t know if the price I paid at the pump reflected it or not. There seems to be little rhyme or reason to how the prices are set now. And based on past congressional hearings, it seems there would be little difficulty in the CEOs defending their pricing practices.

It sounds good, but won’t do much good.

The other proposal is for a credit consumers bill of rights. This actually might do a lot of good, if it can get passed. As it stands now, the banks own the relationships with consumers. They dictate the rates, they make unilateral changes to the “agreements” (which is the wrong word since they are terms of use), and they punish consumers for the bad, greed-driven decisions they, the banks, make. Banks argue that instituting these types of protections for consumers will lead to higher interest rates and fewer people with access to credit.

Um. OK. Predatory lending has led, in large part, to the economic situation we are facing today. It is what has driven the mortgage crisis. As a nation, we are net spenders. In other words, we spend more than we create. It might be…no, it would be…good for the economy as a whole for more people to live within their means. That will lead to greater financial stability as a whole and put us on the road to real recovery.

Another feel-good idea that might actually work. And it’s enforceable!

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Lack of Enforceability

There’s been some debate in the Louisiana State Legislature lately about a ban on automatic weapons. Gun-rights advocates view the move as an infringement. Those favoring gun control applaud the move. But as several people have mentioned, even if the law passes, enforcing it will be near impossible.

That got me thinking about all of the other laws, rules, regulations and policies we face on a daily basis. The majority of them are only enforceable after someone has committed the crime.

I suppose it should be that way, making us all accountable for our own actions. For many of the laws, that seems to work well enough. There are others, though, that are noble in their purpose—like a ban on automatic weapons—but seem ridiculous once signed into law. It’s a feel-good measure that comes with a hefty price tag, and, because there are no measures that actually prevent ownership in the first place, law enforcement officers and the general public are no better off than before.

Consider this: possession of illicit drugs is illegal. Yet, we have an enormous drug problem in this country. And the costs of fighting it are astronomical, when you consider all of the costs involved in loss of life, drug treatment, prosecutions and incarceration. Anti-drug campaigns have had some good effect, but they are underfunded and only have a beneficial effect on a percentage of the population that can participate.

We need more proactive funding to support these protective laws, not reactive enforcement once the bad deed’s been done.

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AT&T Wants All That and a Box of Chocolate

Last week, AT&T’s CEO lamented his company’s inability to find enough skilled workers to fill the 5,000 jobs he promised to repatriate from India. The chief executive, Randall Stephenson, reportedly said he “is especially distressed that in some U.S. communities and among certain groups, the high school dropout rate is as high as 50 percent.”

He then attempts to validate his concern saying, “If I had a business that half the product we turned out was defective or you couldn’t put into the marketplace, I would shut that business down.”

Hmmmm. High school dropouts are defective products? That’s a bold, bordering on ridiculous, statement, given the number of millionaire and billionaire entrepreneurs that dropped out of school.

What’s worse is that he is blurring the contexts. His comments about the issues of dropout rates in the U.S. are real concerns. The underlying causes are cultural and political in nature. Often these rates contribute to or stem from our high rates of illiteracy, immaturity, teenage drug abuse and general lack of self-accountability necessary for developing a successful career.

That is not the problem AT&T is facing.

Stephenson wants to pay high-school graduate wages to college-educated engineers (not technicians, but engineers). Like he can do with workers in India.

Yes, our education system is a problem for many in our country. I’ve written about that problem before a couple of times recently. But don’t even try to equate that problem with the fact that someone wants highly-educated employees to work for wages far below what’s fair.

Sure, outsourcing to India has been a huge cost-saving measure for many companies. For the long-term, though, that’s not going to be good for business. Someone at AT&T apparently recognized that fact, since they promised to repatriate 5,000 jobs. Whining about the fact that comparably educated people here earn more isn’t going to help the cause.

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The Cost of Education

At the end of the school year, we are packing up and moving to Phoenix. My wife, the reason we are going, is heading out sooner to start a new job.

Last week, I was talking to our accountant about the move, and he asked about the education out there. Public education in Phoenix is actually pretty good. Something we’re not used to here in South Louisiana.

About 40 years ago, there was a major shift toward private and parochial schools away from public. I’m sure it had started before that, but the change was evident. Since then, standardized testing scores of those students have become some of the worst in the nation, the schools themselves aren’t safe and there is an enormous amount of waste.

Many might want to argue that the problems are because we don’t place a high enough priority on education, so we must not invest enough. Sadly that assumption isn’t true. The State of Louisiana spends $12,000 annually per child for public education. That is about the same as some of the private schools in the New Orleans area and about double a parochial high school tuition.

So I wonder why the cost is so high with so little benefit to the students. I’m sure some of it goes to security, including metal detectors and guards. And of course we have to pay for administrators, teachers and building maintenance. Oh yeah, the state superintendent of schools received a $50,000 raise this year, making him the highest paid in the Gulf Region—by more than double. The results still aren’t there. Maybe it’s an efficiency problem. How much waste is in the system? What changes can are possible to really put those dollars to work for the students?

Maybe it’s a scale problem. Perhaps there is so much overhead relative to the number of students that the cost per child is inflated. But without great results, that is unlikely to change. Parents that can afford to send their kids to other schools that demonstrate better outcomes are going to.

That’s not to say that all public school students are poor performers. Quite the contrary. We have a number of bright kids in those schools. But those kids are thriving in spite of the system, not because of it.

There are a few groups trying to make a difference. Hurricane Katrina was a bit of a blessing for the New Orleans public schools. Because of the damage and apathy on the part of the school board, charter schools were able to come in and rework a number of schools. Some of them are showing improvements. At the same time, though, the state board has just lowered the standard for the LEAP tests, the tests that measure the performance of fourth and eighth graders and allows them to advance.

I have my own crazy ideas for fixing education. People will mock most of them, I’m sure, which is fine if you have something better to offer. Here are some of my thoughts:

• Longer school days (9 – 5), with time set aside during the day for completing homework through mandated study hall
• Year-round schooling, giving students 2 – 3 weeks off about 4 times per year
• Subjects covered in relation to each other (what were the mathematical concepts that led to scientific discoveries and how did those affect history, literature, thoughts about religion, etc.)
• Coordinated education programs such that all states are required to meet the same benchmarks

This would be an enormous investment. Absolutely. But the payoff will be even bigger (see my earlier posts The Purpose of Education and Needed Wake-up Call?).

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Needed Wake-up Call?

After The Air Force’s decision last week to go with a Northrop Grumman-Airbus tanker, sparks are flying. Maybe this is a much needed wake-up call.

Some key points about the situation:

• The Air Force followed the rules for awarding contracts as dictated through the Buy American Act
• Congress granted exceptions to France, Spain, Germany and other European nations for the Buy American Act, which essentially considers those countries as American
• Boeing lost the contract because, according to the Air Force, they were outperformed on 9 critical measures
• Some members of Congress believe the Air Force should have considered the number of American jobs involved before awarding a significant portion of the contract to Europe’s Airbus, which is not allowed in the Buy American Act

In addition, some have complained that Europe subsidizes Airbus’s operations too much, and that should have been considered. There are two things wrong with that stance.

First, assuming they are being honest in their assessment, the Air Force based the decision on performance measures not price.

Second, if the U.S. government were to subsidize government contractors, they would be paying those corporations to lower their costs for government contracts. It’s like me going to the grocery and paying them $10 so that I can pay $10 less at checkout. It is a ridiculous concept. Also, Boeing lost to the partnership led by Northrop Grumman, a U.S. company. So, there would have been little if any benefit to any subsidizing scheme.

Besides, with the current value of the dollar, I’d be surprised if Boeing weren’t less expensive.

Some things we can do:

• Invest more in education, making us more competitive
• Invest in developing new technologies, even if that means raiding the world’s best and brightest and bringing them here
• Avoid re-writing the Buy American Act such that we are no longer able to acquire the very best; if we want the very best to be made in America, then see the two bullet points above
• Instead of fighting what appears to be a fair process, try negotiating with Airbus to manufacture more, if not all, of the tanker here, not just the assembly

I am all for more American jobs. Just read some of my other posts. But I don’t believe we should put ourselves in the position of potentially making inferior products simply so we can say it was made here. We have to be smart about how we go about making it happen.

And if we don’t have the expertise here (which I doubt), then let’s go get it and make it our own.

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Finally Calling People Out

Yesterday, while answering questions from the Senate Judiciary Committee, FBI Director Robert Mueller did the unthinkable—he called out the people he had asked privately for additional funding in a public forum. You can hear NPR’s report here.

His frustration comes from the fact that violent crime is on the rise, yet makes it only to number 8 on the FBI priority list. He is forced to do more with less, based on counter-terrorism mandates from the Bush administration.

Say what you will about Mueller, I’m certainly not one of his biggest fans, but he finally did the right thing by calling people out. No there is no money available. He’s asked for it and been told no. Domestic crime problems cannot be a top priority.

Earlier this week, this story came out about the Urban Institute’s assertion that the proliferation of iPods has led to the increase in crime. While there may be some truth to that, I would argue that the problem stems from underfunded law enforcement focusing on protecting U.S. citizens from each other.

I’ll agree that the threat of terrorism requires certain protections. As does the threat of devastating hurricanes. As does the threat of gang violence, drug lords and white collar crime.

Maybe, just maybe, the problem is that we have made some unwise moves over the last eight years or so, leading to the largest deficits this nation has ever seen, an ever-weakening dollar and skyrocketing oil prices. All resulting in our collective inability to protect ourselves, sadly, from ourselves.

So here are some of my ideas, though making them work may not be so easy or popular:

• Implement a monetary policy to strengthen the U.S. dollar
• Allow Bush’s tax plan to expire and design one that actually supports the majority of the U.S. population
• Cut much of the waste currently in the defense budget, estimated at nearly $8 billion (in fairness, Congress has, except from the wrong places and replacing those cuts with pork)
• Give more funding law enforcement funding for domestic initiatives without diminishing counter-terrorism

And this only addresses one major issue. There’s more to come. I’m on a bit of a roll.

What say you?

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Our Own Fault

As a follow up to my post here earlier this week, this just came out from the AP. Key statement from the article:

“OPEC President Chakib Khelil told reporters the global market is being affected by what he called ‘the mismanagement of the U.S. economy,’ and that America’s problems were a key factor in the cartel’s decision to hold off on any action.”

It looks like we are our own worst enemy, when it comes to the economy. Let’s see who else we try to blame before finally looking in the mirror.

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