Chapter 7- The Role of Government (1)

8/3/2019 Chapter 7- The Role of Government (1)

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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 farmprograms over time, and possibleexplanations for the growth of

government in the United States.


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Government Roots in AG

The United States Department of Agriculture is aUnited States Federal Executive Department . Itspurpose is to develop and execute policy on farming,agriculture, and food. It aims to meet the needs offarmers and ranchers, promote agricultural trade andproduction, work to assure food safety, protect

natural resources, foster rural communities and endhunger, in America and abroad.
http://en.wikipedia.org/wiki/United_States_Federal_Executive_Departmenthttp://en.wikipedia.org/wiki/Farminghttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Foodhttp://en.wikipedia.org/wiki/Farmerhttp://en.wikipedia.org/wiki/Rancherhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Food_safetyhttp://en.wikipedia.org/wiki/Natural_resourcehttp://en.wikipedia.org/wiki/Ruralhttp://en.wikipedia.org/wiki/Hungerhttp://en.wikipedia.org/wiki/Hungerhttp://en.wikipedia.org/wiki/Ruralhttp://en.wikipedia.org/wiki/Natural_resourcehttp://en.wikipedia.org/wiki/Food_safetyhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Rancherhttp://en.wikipedia.org/wiki/Farmerhttp://en.wikipedia.org/wiki/Foodhttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Farminghttp://en.wikipedia.org/wiki/United_States_Federal_Executive_Department


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Roots of Current Farm Programs

Governmental efforts were made to interveneextensively in agriculture for most of the twentiethcentury. Many aspects aspects of current farmprograms are firmly rooted in legislation enactedduring 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 injointly marketing their products.

Other business firms were legally prohibited from such collusiveactivity by antitrust laws.

What would the Agricultural market be like today withoutcooperatives?


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Federal Farm Board

Created 1929 by President Herbert Hover, who foresaw thefarm problem as temporary overproduction and low prices.

The basic idea was to raise prices of wheat, cotton, and othersurplus products through government purchases and storage.

The board attempted to support farm prices through agovernment-sponsored grain-storage program, no shortfallsoccurred, and the boards budget soon was exhausted.

The program failed and President Roosevelt eliminated theFederal Farm Board in 1933.


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The Agricultural Adjustment Act

(AAA)

The Agricultural Adjustment Act (AAA) of 1933established 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 ingovernment 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 pricesfell from $1.85 to $0.41 per bushel; wheat prices fell from $2.58to $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 monetarypolicies, 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 theUnited States led to retaliations by foreign trading partners. U.S. farmproducts, 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 policymakerswantedto bring about economic stagnation or to prevent economicrecovery.


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New Deal Measures in Agriculture

A broad range of New Deal programs was instituted to deal withthe 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 GDPincrease from 2.5 % in 1929 toaround 22 % in 1995 ?

Economist say there are fourunderlying factors


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ONE: Modern Industrial Economy

The modern industrial economy has an

expanding government sector to deal withthe following

Public health: food supply, food safety, andmarket.

Environment: to protect and conserve theland and natural recourses.


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Two: Public Goods

This is yet one more justification of thegrowth of government.

Economist argue that that governmentcoercion is required to over the come free-rider problem.

(free-riders)-are actors who consume morethan their fair share of a resource, orshoulder less than a fair share of the costs ofits 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 limitedone.

Up to the new deal the governments role wasa protective one only.


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Fourth: Emergency or economic crisis

In the past there has only been two forms of

crisis Warand 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 stateand local government the power to actaccordingly.


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Summary

Most government programs in agriculture today have roots in pre-1933 farmprograms and proposals such as the Capper-Volstead Act, and the FederalFarm 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 wasnecessary to stabilize agriculture and the rest of the economy.

Evidence, however, demonstrates that government policies of hightariffs, 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 theappropriate role of the state, may also be important in the growth ofgovernment in agriculture.


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Talk Time with Travis &Jordan

Question: Should the government intervene in agriculture andother areas to regulate and stabilize the economy?

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Chapter 7- The Role of Government (1)