How Capitalism Will Save Us (51 page)

Kumar says NAFTA has also helped encourage other overseas trade. He cites his own state of Texas, where “NAFTA also helped raise …exports to Asia, Europe and Latin America, making a strong case for net trade creation.”
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By bringing down costs and pushing businesses to be more competitive, NAFTA has encouraged companies like J. H. Rose Logistics, a forty-six-million-dollar-a-year shipping logistics company in El Paso, to expand its trading horizons. President Amy Noyes initially feared that the free-trade agreement would make her company more vulnerable to lower-cost Mexican competitors. But instead of trying to beat them, she partnered with them to move freight in Mexico. Noyes told
BusinessWeek
magazine that becoming more competitive through these partnerships helped increase her business, as well as her U.S. workforce. In 2006 she opened a warehouse in New Mexico.

The benefits of NAFTA are clear. The real issue, as John Steele Gordon and others have written, is whether the United States can afford to turn inward in a world economy that technology has made increasingly global. It’s impossible to withdraw from this world, Gordon believes, without “turning the United States into a modern version of pre-late-nineteenth-century Japan. So the real question is not whether we should continue with NAFTA and other free trade agreements. It is how we will manage the inevitable continuing creation of a single world economy.”
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I
f free trade is making people around the world richer, then why do we see all those demonstrations against globalization in India, Mexico, Thailand, and other nations? In 2008, hundreds of farmers on tractors converged on Mexico City protesting the North American Free Trade Agreement. The reason? NAFTA’s liberalized agricultural trade provisions resulted in cheap corn and grains flooding Mexico from the United States and Canada. Mexico’s poor farmers were unable to compete.

The farmers had a legitimate beef. But unfortunately—as with so many other trade protests—this was another case of mistaken identity. The problem wasn’t free trade or NAFTA but America’s long-standing government farm subsidies.

Started in the 1930s as a way of helping family farmers during the Great Depression, Herbert Hoover’s Farm Board fixed prices for wheat and cotton. If they dropped too low, the federal government would buy those crops and sell them later at a better price. Franklin Roosevelt later signed into law the Agricultural Adjustment Act, which paid farmers
not
to produce crops so that “oversupply” and overly low prices would be avoided.

Farm subsidies were supposed to be temporary. But they soon became permanent. Like other bad government policies, they have created a brutal imbalance in world agricultural markets: artificially cheap wheat and corn grown by government-subsidized U.S. producers are threatening the livelihoods of poor farmers who are priced out of the market. They’re also hurting the U.S. economy—and American taxpayers.

The Heritage Foundation estimates that the U.S. government spends about $25 billion annually on farm subsidies.
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Most of the money goes not to the small farmers championed by Depression-era policy makers but “to commercial farms with average incomes of $200,000 and net worths of nearly $2 million.”
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Farm subsidies are helping today’s politically powerful corporate farmers, while poor farmers abroad are suffering and U.S. citizens are paying higher taxes—and also higher food prices. Writing in
Reason
magazine in 2006, Daniel Griswold, Stephen Slivinski, and Christopher Preble calculated that the higher prices produced by agricultural subsidies resulted in a “food tax” of $146 per household.
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Particularly damaging are the subsidies going to U.S. corn farmers to encourage the production of corn for biofuel. According to journalist Robert Bryce, federal corn subsidies totaled $37.3 billion between 1995 and 2003, which he says is “more than twice the amount spent on wheat subsidies, three times the amount spent on soybeans, and 70 times the amount spent on tobacco.”
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Even those who believe in the need for alternative fuel have doubts about whether ethanol-related farm subsidies are worth this enormous cost. For one thing, producing ethanol is a wasteful process that expends far more energy than it saves in our gas tanks. However, the greater cost is to people in underdeveloped countries, who have seen the price of corn, as well as soybeans and other vital food staples, skyrocket because of consumption by the biofuel industry.

The increasing use of corn for ethanol was a key reason that the price of tortilla flour in Mexico doubled in 2006, helping to stoke a massive public outcry. Writing in the journal
Foreign Affairs
, University of Minnesota economics professors C. Ford Runge and Benjamin Senauer called the government-subsidized biofuels industry “a grave threat to the food security of the world’s poor.”
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Corn is now cheaper because of the recession. But its price remains inflated over what it would have been if not for corn-based ethanol. In addition, studies have raised environmental concerns about toxic runoff into the Mississippi River and the Gulf of Mexico resulting from the increased amounts of fertilizer used to grow ethanol corn.

Unlike private-sector businesses, which rise and fall based on their ability to serve their market, farm subsidies are an example of how failed government programs don’t go away. Even though they hurt millions more people than they help, farm subsidies continue—because the handful of people they help are the ones who most effectively wield political power.