OVERSEAS TRADE: by Patrick J. ByrneNews Weekly
US farm bill buries talk of free trade in agriculture
, June 7, 2008
Why is it economically sound for the US to bail out financially embarrassed banks, but wrong for the US to help struggling farmers?The world's central bankers have been applauded for handing out unprecedented subsidies to the financial markets after the sub-prime collapse, but subsidies to US, EU and Japanese farmers are being roundly condemned.
As the sub-prime mortgage market collapse progressed, US Federal Reserve chairman, Ben Bernanke, and his fellow central bankers around the world slashed interest rates (except in Australia) and pumped somewhere between $US700 billion and $US1 trillion into the financial markets to stave off a systemic collapse of the credit system. This was just the latest crisis requiring bailouts.
Many financial institutions suffered huge losses. Some were bailed out by sovereign wealth funds taking a part share in the companies. Some were taken over by other financial institutions, with the backing of reserve banks. But the bulk of the bailout was undertaken by the central banks.Unprecedented bailout
Ultimately, the cost of this unprecedented bailout will be carried by the taxpayers and those paying higher bank interest and charges.
The fantastic profits of the international financial markets over the past decade have helped create what US economist Paul Krugman describes as an elite whose wealth far surpasses that of the gilded age of the 1920s.
But when the downturn comes, the losses are repeatedly government-subsidised. As Harpers Magazine
was wont to recently comment, on a rising financial market we are all supporters of the free market; but on a falling market we are all Keynesians supporting major market intervention.
Nobody disputes the necessary function of central banks in bailing out capitalism's unstable financial system.
However, compare the benevolent praise given to central banks for bailing out the financial markets with the howls of protest over the recently passed US farm bill, which will hand out $US307 billion to US farmers over the next five years.The Economist
magazine described how "shockingly" some aspects of the farm bill were constructed, how "farmers of all kinds get a slice of the action", and how the bill "lavished cash on wealthy farm households".
No doubt, the bill deserves criticism in its construction. However, as a whole, it pales into insignificance when compared with the hundreds of billions lavished on the financial sector.
The US farm bill will provide subsidies of around $US61 billion annually. EU subsidies are about $US68 billion annually, and Japanese subsidies are worth about $US49 billion per year.
If the financial markets received $US1 trillion in subsidies in about nine months, that would be enough to subsidise US farmers for 16 years.
The determination of the US, EU and Japan to continue their farm subsidies stands in contrast to the repeated promises made to Australian farmers over the past 25 years that free trade in agriculture was just around the corner. Going all the way back to the 1980s, Australian farmers were told that the General Agreement on Tariffs and Trade (GATT) was being pressured to introduce free trade in agricultural goods.
Instead, the 1994 Uruguay round of trade negotiations confirmed the agricultural trade arrangements in the 1947 GATT, with some amendments. The current World Trade Organization (WTO) Doha round of talks on agricultural trade are years behind schedule, and the passing of the US farm bill indicates that there is no hope of the repeatedly promised "break though" on agricultural free trade.
The European Union has been built around farm subsidies for its member states. It has been the means of uniting Europe after 600 years of ongoing warfare, culminating in two world wars and mass starvation in Europe.
Australians have never faced starvation. Europeans have. It is burnt into their consciousness. Europe's first priority is to feed its population and then export the surplus, regardless.
Japan subsidises its farmers for the very same reason. Theoretical arguments about the benefits of free trade in agriculture are easily outweighed by fears of ever facing starvation again.
Even though US President George W. Bush tried to veto the recent farm bill, arguing that it was excessive, the fact remains that when he proposed the last farm bill in 2003, he declared farm subsidies were necessary because US agriculture is a strategic industry.
The current bill was finally passed by Congress, where both sides of politics combined to have the numbers sufficient to override President Bush's veto of the farm bill.
If The Economist
can finish off its attack on the US farm bill saying "The fat cats of agribusiness can rest easy for now", it begs the question: what language should be used to describe the "fat cats of the financial sector" after the recent massive bailout following the sub-prime mortgage collapse?— Patrick J. Byrne