The Role of Government in U.S. Agriculture

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The Role of Government in U.S. Agriculture

• Travis Crisp
• Jordan Smith

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Introduction

• This chapter examines the roots of current farm
  programs, growth in farm programs over time, and
  possible explanations for the growth of
  government in the United States.

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Government Roots in AG

• The United States Department of Agriculture is a
  United States Federal Executive Department . Its
  purpose is to develop and execute policy on
  farming, agriculture, and food. It aims to meet
  the needs of farmers and ranchers, promote
  agricultural trade and production, work to assure
  food safety, protect natural resources, foster
  rural communities and end hunger, in America and
  abroad.

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Roots of Current Farm Programs

• Governmental efforts were made to intervene
  extensively in agriculture for most of the
  twentieth century. Many aspects aspects of
  current farm programs are firmly rooted in
  legislation enacted during the Great Depression
  or the New Deal era, the basic approach can be
  traced to earlier years.

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Co-ops

• The Capper-Volstead Act of 1922, developed modern
  day cooperatives.
• This act gave producers the legal right to work
  together in jointly marketing their products.
• Other business firms were legally prohibited from
  such collusive activity by antitrust laws.
• What would the Agricultural market be like today
  without cooperatives?

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Federal Farm Board

• Created 1929 by President Herbert Hover, who
  foresaw the farm problem as temporary
  overproduction and low prices.
• The basic idea was to raise prices of wheat,
  cotton, and other surplus products through
  government purchases and storage.
• The board attempted to support farm prices
  through a government-sponsored grain-storage
  program, no shortfalls occurred, and the boards
  budget soon was exhausted.
• The program failed and President Roosevelt
  eliminated the Federal Farm Board in 1933.

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The Agricultural Adjustment Act(AAA)

• The Agricultural Adjustment Act (AAA) of 1933
  established the goals of parity prices and
  incomes in agriculture to raise product prices
  above the free-market level.
• The 1933 AAA signaled a huge increase in
  government involvement in agriculture in the
  United States, during the depths of the Great
  Depression.

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Prosperity to Poverty

• 1910 to 1920 was a period of relative prosperity
  for U.S agriculture. The war in Europe during the
  second half of the decade, increased the demand
  for U.S. products.
• 1920 and 1921, U.S. farm prices plummeted as
  European production recovered more quickly than
  expected. Corn prices fell from 1.85 to 0.41
  per bushel wheat prices fell from 2.58 to 0.92
  per bushel hog prices fell from 0.19 to 0.065
  per pound.
• Then came the Great Depression, which held the
  economy in economic chaos from 1929 to 1939.

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Causes of the Great Depression

• Government intervention in the form of high
  tariffs, restricted monetary policies, and
  policies to maintain wages and prices either
  caused or greatly worsened the economic chaos at
  that time.
• The Smoot-Hawley Tariff Act of 1930, raised
  import tariffs to the highest levels in the
  twentieth century. Restrictions on imports by
  the United States led to retaliations by foreign
  trading partners. U.S. farm products, dropped
  immensely following the passage of the tariff
  bill.
• In summery, the government policies during the
  Great Depression probably could not have been
  better designed had policymakers wanted to bring
  about economic stagnation or to prevent economic
  recovery.

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New Deal Measures in Agriculture

• A broad range of New Deal programs was instituted
  to deal with the farm problem.
• Production controls and price supports
• Subsidized food distribution
• Export subsidies
• Subsidized farm credit
• Conservation of land and water resources
• Crop insurances and disaster payments
• Expanded agricultural research and extension
  services
• Programs in all these area are still in effect,
  although many
• changes have been made since the program began.

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Growth of Government Farm Programs

• Why did aggregate federal expenditures as a share
  of GDP increase from 2.5 in 1929 to around 22
  in 1995 ?
• Economist say there are four underlying factors

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ONE Modern Industrial Economy

• The modern industrial economy has an expanding
  government sector to deal with the following
• Public health food supply, food safety, and
  market.
• Environment to protect and conserve the land and
  natural recourses.

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Two Public Goods

• This is yet one more justification of the growth
  of government.
• Economist argue that that government coercion is
  required to over the come free-rider problem.
• (free-riders)-are actors who consume more than
  their fair share of a resource, or shoulder less
  than a fair share of the costs of its production.
  

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Third Change in Ideology

• Over time the publics perception of the
  appropriate role of government.
• Before the new deal era it was thought that the
  role of government should be a limited one.
• Up to the new deal the governments role was a
  protective one only.

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Fourth Emergency or economic crisis

• In the past there has only been two forms of
  crisis War and Business depression.
• The new deal was the best example of this
  expansion of government.
• Many of the new deal legislation act were
  attached with emergency to give the state and
  local government the power to act accordingly.

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Summary

• Most government programs in agriculture today
  have roots in pre-1933 farm programs and
  proposals such as the Capper-Volstead Act, and
  the Federal Farm Board, almost all current farm
  programs have a direct link to the New Deal era.
• The conventional wisdom has been that the Great
  Depression resulted from a failure of the market
  process and that massive government intervention
  was necessary to stabilize agriculture and the
  rest of the economy.
• Evidence, however, demonstrates that government
  policies of high tariffs, high taxes and monetary
  mismanagement and prices either caused or greatly
  exacerbated the chaotic economic conditions of
  that era.
• Consumer groups and the general public recognize
  that income redistribution is a major force
  behind U.S. farm programs. A change in public
  opinion as to the appropriate role of the state,
  may also be important in the growth of government
  in agriculture.

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Talk Time with Travis Jordan

• Question Should the government intervene in
  agriculture and other areas to regulate and
  stabilize the economy?