Wednesday, January 16, 2013

Farm subsidies, disaster relief, and broken incentives

From the "Discarding the Environment Desk Will Actually Improve Our Coverage" NYTimes:
WASHINGTON — The worst drought in 50 years could leave taxpayers with a record bill of nearly $16 billion in crop insurance costs because of poor yields.
The staggering cost of the program has drawn renewed attention, as the Obama administration and Congressional Republicans wrangle over ways to cut the deficit. Last month, Treasury Secretary Timothy F. Geithner said that reducing farm subsidies was one way that the administration could cut government spending. But Congress has resisted.
The Agriculture Department, which runs the program, said that the total losses from crops harvested last year would not be known for weeks, but that costs from the program were estimated to be $15.8 billion, up from $9.4 billion in 2011.
Separately, a record $11.4 billion in indemnities for crop losses has been paid out to farmers, and officials say that number could balloon to as much as $20 billion. In 2011, a then-record $10.8 billion was paid out in indemnities.
 In other news, the House passed an additional $50.7 billion in hurricane Sandy relief. And to be clear, I believe in social insurance. I believe in communal obligations. But numbers like this make me worry: how is the public ever going to see or feel the costs of climate change if they are scattered, unheralded, across dozens of bills? How are we ever going to see the rational adaptation to climate change economists assume if we distort market pressures to the tune of tens of billions of dollars at the drop of a hat?

Worldwide, governments spend $280 billion per year on agricultural subsidies. Remember that number the next time someone tells you low-carbon electricity is "uneconomic." But it's not just the direct cost: it's the distortion. Farmers should be the first to respond to changes in rainfall, in temperature, in the length of the growing season, in the odds of destructive storms. And in suffering with those changes, we would expect they would be a voice for stronger action on climate change, as indeed some of them are.

The same can be said of the tens of millions of Americans living on the coastline, or on floodplains. Countries that can afford it tend to generously help the victims of natural disasters. But what happens then to the incentive of the people most vulnerable to climate change to accept -- to demand -- effective action to mitigate the threat and adapt to the remaining damaging changes?