With Congressional Republicans and Democrats locked in partisan battle over raising the country’s $14 Trillion debt ceiling, it’s worth taking a few moments to look at federal ag spending. Is USDA part of the problem? Can ag spending be trimmed? Or are the USDA and ag programs in general so vital to the national interest that they should be inviolable?
The debt ceiling isn’t causing the present economic crisis, it’s merely a symptom. The cause is Federal spending, which far exceeds Federal income, or revenue. Federal spending for 2011 will exceed $6 trillion. Federal revenue for 2011 will be $4.5 trillion. This leaves a $1.5 trillion deficit to be made good.
There are only two ways to make the deficit good – by cutting spending or by borrowing the money. In the past, Congress has almost always chosen to borrow. Though China and a few other countries have previously bought U.S. debt, there are few overseas takers these days for U.S. bonds. Today, in a complicated accounting scheme which would be unlawful for any but the Federal Government, the U.S. is borrowing from – itself.
The argument over raising the debt ceiling is actually an argument whether the government can write more I.O.U.’s to itself. This scheme is hardly sustainable, though most Republicans and Democrats favor it. At the bottom line, the only difference between the “plans” of each side is whether to make entirely cosmetic and temporary spending cuts.
Regardless of the outcome of this round of “crisis negotiations,” at some point the U.S. is going to have to quit spending more than it takes in in revenue. At that point, spending cuts will have to be made. Where the cuts will come from and the details of how the cuts will be managed are impossible to know at this time, however, the deeper the crisis is allowed to go before spending corrections are made, the more likely it becomes that the cuts will be imposed with little real planning. In such a situation, those affected by the cuts will be in for a rough ride.
In thinking about the best way to make spending cuts, let’s look at how the 2011 budget is being spent. These numbers aren’t precise, because no formal budget has been passed or implemented in two-and-a-half years. However, they are the best numbers available and are probably very close.
Of the $6 trillion spent in 2011, 16 percent went to defense, 14 percent to education, 18 percent to health care (primarily Medicare), 16 percent to pensions (primarily Social Security retirement), 11 percent to welfare, 5 percent to protection (Homeland Security, TSA, etc.), 5 percent to interest on the debt, 4 percent to transportation, and 2 percent to general government (which includes USDA).
The obvious question is where to do the cutting. I have my own ideas, but it might be better to begin with general ideas rather than specific examples.
When we look at any part of the budget, we need to keep in mind that it took time to get to the numbers we see today, and ideally, it should take time to roll the spending numbers back. The idea of “slashing” spending is attractive – massive across-the-board cuts would quickly solve the problem on the balance sheet. Immediate and drastic cuts would be hard on the people who have come to depend on government spending, though. And the list of those who would be adversely affected includes most Americans. Though not everyone receives welfare, nearly everyone depends on the government for things like defense, transportation infrastructure, police services, etc. Over the years we’ve all increasingly come to rely on government spending for the local education of our children and for supplemental retirement income and health care.
A good example of the complexity of cutting spending can be found in Federal agriculture spending, a topic of great interest to most who read The Business Farmer, but of little interest to the 99 percent of Americans who aren’t involved in agriculture.
The USDA budget is far less than one percent of the entire federal budget, at about $32.8 billion. Of this, only about 22 percent goes to farmers and ranchers as direct payments or crop insurance payments. A further 9 percent goes to conservation, with direct payments to many farmers and ranchers through various conservation programs. Yet 68 percent of the USDA budget goes to food welfare programs. So farmers and ranchers receive at most 31 cents of every Federal ag dollar, while “poor” people receive 68 cents of that dollar, which is less than 1 percent of Federal spending.
Unfortunately, a great many farmers and ranchers have come to depend on the USDA for survival. Without crop subsidies, insurance, and other Federal income, many farmers and ranchers would be unable to survive. If Federal ag spending were “slashed,” many farmers and ranchers would be out of business in short order. However, almost all farmers and ranchers would be able to adapt to cuts phased in over a number of years.
Farmers and ranchers make up about 1 percent of the U.S. population, yet they essentially provide all of the food consumed by the entire population. Therefore, an unintended consequence of precipitous cuts in Federal ag spending would very likely be food shortages – a crisis for which no one is prepared and which would probably be the biggest crisis ever faced by America.
The problem of reigning in Federal spending is complex, but the stakes are very high.