Common Cents

Financing an underground railroad

Ralph Murphy

(7/2019) Subsidy aid or external payments to producers or consumers of marketable goods or services are contentious allocations which distort conventional supply and demand signals to targeted beneficiaries. While common especially to commodity sectors they can take many forms from transportation programs, academic research groups or media support which can be directly tied to those usually tax redirected funds. At issue now are the program recipients integrity as gross abuses are cited to non scrutinized accounts especially to farming where agribusiness reaps the largest benefit and the subsidies are clearest to Congressional legislative statutory control. Mandatory price setting, falsified payroll recipients and oversupply are among the program criticisms.

A five year rotating evaluation last year by Congress of a farm subsidy program dating to the 1930s New Deal legislation was summarily passed last fall and signed by the President in December. The Farm Bill or Agricultural Improvement Act of 2018 unfreezes access to potentially 897 billion dollars in a variety of areas some marginally linked to actual subsidy payments as transfer outlays, energy programs, and varied research initiatives which were also afforded program benefit.

The subsidy link wasn’t always articulated in the text, but the lengthy document did define exact price requirements for numerous farm products to include top expenditures for wheat, soybeans and corn which dominated over 70% of the program interest. Program problems which did surface included the market prices which are locked into arbitrary levels. The subsidy payments routinely were over half the products market value and if allowed to simply "float’ as with any other market the supply and demand would settle at a level that reflects the value to the consumer That. without also having to support it through taxes or other equity. The bottom line is the program isn’t needed, actual beneficiaries are far from the small farmers its framers sought to help and many are bemoaning an opportunity lost to drop it as it is now law for the next five years barring review. Exact cost determinants are difficult but direct subsidies are well over 12 billion dollars and lost alternative or opportunity cost immeasurably higher.

Commodity tied program subsidies are again the most commonly found and easily traced as policy makers admit the cartel pricing and alleged support of farmers. While routinely added to the payment issue there is also a far less common program found here and in Britain where the farmers are paid not to produce. The rationale being the fallow land will drive up the price which seems poorly scrutinized as it is cartel controlled. UK"s is administered through a rural dispersal department linked to the European Union's Common Agricultural Fund and that to its once strong central bank so the program there might just fall to attrition for lost fund access. Market resolve would then better reflect demand.

It is also important to differentiate between legal subsidy payments and those that serve the same purpose such as pooled fund access of banks that negate market signals if permitted by host Treasury or banking officials. That grey area was a real issue and problem through last years repeal of key components to the 2010 Dodd Frank legislation. It had consolidated bank funds to large investment banks but also provided for a new Financial Stability Oversight Council which would set ad hoc stop gap payments. It combined regulatory aid to banks, insurance companies and corporate finance divisions deemed "Systemically Important Financial Institutions" that included the larger multi national corporations operating here and abroad.

Deferred cost to transportation programs also were buoyed by block grants that didn’t reflect or even often approximate market value for the service. They included regional mass transit of buses, light rail or subways and are more common here to the United States for passenger use than freight though that wasn’t always the case. It’s not clear where they’d settle if not subsidized but like any market would reflect consumer demand in a conventional market if allowed to float and not externally enhanced. The total social cost would be lower as not a tax issue set by arbitrary planners and plans. Abroad as to Europe if you travel there the transport costs are surprisingly higher than here and the subsidy payments as well to poorly scrutinized billing.

Some declared subsidized sales seem more a call for help with the Japanese taking the economic if not political lead in that phenomena. Certain well regarded but ostensibly private sector industries such as fishing linked to the Ministry of Agriculture, Forestry and Fishing control the harvesting, distribution and sales of their members while almost bragging of the overcharge handed out by the government A 890 pound bluefin tuna sold last year for 330,000 dollars in the uncontrolled project as one of many available at their local docks. In Europe and America as with CAP and the New Deal programs the scams are more established and costs less obvious to the consumer as demand.

MNCs also routinely operated at a financial loss though managed to achieve varied political objectives in what almost amounted to a hidden foreign aid program. Large companies as those listed in the Dow Jones Industrial Average for example were indirectly subsidized industry at home given bank access and fund dispersal. The same holds for their foreign operations and that link has to be severed or the losses could prove terminally threatening to the whole business strata. The groups sponsored school, security, or domestic civil projects but these had almost nothing to do with the output itself and couldn’t have passed cost benefit review of their likely profit return for investors. That left the unwitting general public paying the project money and those are seldom cost effective or undertaken in altruism. With post Dodd Frank repeal the project money is harder to get without proven or likely competence for return on venture capital.

When the Dodd Frank Act of 2010 was partially repealed last year the FOSC remained active as a legislated policy option for the large firms for bailouts if needed. Fund access was guaranteed and the hosts became dangerously expectant of the money for themselves and their constituents. That group would have been mostly linked to bank fund access rather than tax issue which up until the partial repeal last year was better hidden from public scrutiny. Posted earnings reports or asset access of large corporations and banks are dramatically lower since last year though sales have improved. That seems to mean supplemental payments were afforded and now in control of the tax payer instead of an impersonal government planner and optimal return would follow. The FSOC was so closely tied to the repealed Dodd Frank section it should follow and the whole bill declared a historic malady that almost destroyed the banking system as we know it

Another issue linked to the subsidy programs involve market support for an industry which probably doesn’t need it. The combined alternate fund access or legal restrictions amount to nationalizing a viable private sector producer. That is clearly the case in aviation to include the space travel markets but also more down to earth and common media programs that are linked to the New Deal era Federal Communications Control for news and entertainment. The 1934 legislation that established the federal body cited the emerging industry as useful for "national defense and the safety of life and property." It was not envisioned as an entertainment free service but other stipulation did support projected viewer payment requirement as "reasonable charges" were demanded by the new regulatory body.. The current system offers the free serviced or paid ones, but amounts to propaganda projects of the former tied to erstwhile policy commitments. The framers would have likely adhered to the market implications of reasonable charges The audiences remain quite large and vulnerable especially to television and radio programming.

Subsidy programs which become customary practice to much of the west are avoidable overcharge for suspect project interests given the lack of control requirement to the markets involved. If there is any money changing hands and a provider includes the government as a broker role it becomes arbitrary billing and receipts are hard to track. There really isn’t a good subsidy program beyond an emergency relief measure with the assurance factors can change to a marketable product type and the dependence ends at that point. From over to undersupply, costly redirects and official immunity that type intervention can only misguide the market and should be reviewed as flawed from the start.