Economists and the 2002 Farm Bill: What Is the Value-Added of Policy Analysis?

Article excerpt

The 2002 Farm Act is used as a case study of three problematic considerations related to economists' role in policy issues: priority on economic efficiency versus income distribution, the role of benefitcost analysis, and appropriate policies given market power of agribusiness. The results of the 2002 Act relevant to each of these issues have been widely criticized, raising questions about the effectiveness of economists' involvement. However, given the uncertainties about many key program effects, criticisms of the Act are themselves in question. In this context, the role of economists is seen analytically as generating information for Bayesian decision makers, and practically as gaining attention for that information in the political process.

Key Words: benefit-cost analysis, farm bill, policy analysis

The Farm Security and Rural Investment Act of 2002-the Farm Bill-is popular politically. It passed in the House of Representatives by a vote of 280 to 141, and in the Senate by 64 to 35, and was signed by President Bush in May 2002 without a discouraging word. Yet, after passage, the Act has received little but criticism from economists, the national media, and commentators of all stripes.1

This situation raises questions that are highly relevant to the topic of the public-service role of economists. Are the critics correct? To what extent did economists influence the Act? How were economic issues integrated with the politics of the Act?

I will focus on three topics in the huge set of legislative provisions where the outcome has been particularly contentious: (1) the level of spending, (2) the allocation of spending between commodity program payments and conservation/environmental programs, and (3) restrictions on meatpacker ownership of livestock. After addressing these issues, the paper turns to a discussion of how economists' contributions may be evaluated.

Issues in the Farm Act

Level of Spending

The main budget news about the 2002 Act is the projection that new provisions of the Act will cost $80 billion over the 10 fiscal years 2002-2011 (Congressional Budget Office, 2002). Of this amount, $45 billion are for fixed direct payments and the new "countercyclical payments" (basically a reinstitution of pre-1996 deficiency payments but without setaside requirements). These amounts are in addition to the direct payments of about $4 billion per year which were already in the baseline budget.2 The result is total commodity program spending of about $20 billion per year over the next five years. This is a lot, but as figure 1 shows, it is about $4 billion per year less than the federal government has been spending over the last three years. The reason for the decline is that the market loss assistance and disaster assistance outlays of those years, which ran to $8.5 billion per year, are not in the baseline and are not completely replaced by the new countercyclical payments.

So the new 2002 farm bill is not quite the unprecedented bonanza for farmers it has been portrayed as being. But it is shockingly high-cost compared to the $10 to $12 billion average annual cost of 1988-- 1997, or the baseline for 2002-2005 which was on the books before the 2002 bill was enacted (shown in figure 1). Economists have good arguments to show the gains from these payments accrue almost entirely to landowners. Moreover, from the U.S. Department of Agriculture's (USDA's) data (and from the Farm Subsidy database on the Environmental Working Group's website), we know that the payments go predominantly to wealthy people with large farms and, despite payment limitations, a lot of these payments are well into the hundreds of thousands of dollars annually.

Commodity Payments vs. Conservation Programs

Proposals were on the table, primarily in the Senate, which would have moved substantial sums of money away from direct payments and toward conservation, risk management, and rural development programs. …