Farming Your Insurance And Growing A Bumper Crop Of Subsidies
Farmers are famous for whining, complaining and doomsaying. When I was a kid in NoDak, a popular joke went like this: What's the definition of a farmer? The only guy who can lose everything he has 12 times a year. Admittedly, this joke was told mainly by town people, but even though I was a farm kid, I found it funny because it was so true. One of my friends in high school frequently joked about how his dad found a farmer's long hours so hard and stressful that he had to take a couple hours off each day to go sit in the cafe in town, drink coffee and complain about farming.
This Washington Post story on the farm crop insurance program, which has become increasingly subsidized until more than 60 percent of premiums today are paid by taxpayers, is a prime example of where nonstop complaining can get you. Complaining, and having two U.S. senators despite living in a state with a tiny population.
Just 16 niche insurers populate the market. Do they make any money? Well, this excerpt gives you a flavor for what crop insurance is all about:
Last year, the companies made $927 million in profit, a record. They received an additional $829 million from the government in administrative fees to help run the program. On top of that, taxpayers kicked in $2.3 billion to subsidize premium payments for farmers.
All of that to pay farmers $752 million for losses from bad weather.
"We would probably be better off just giving the farmers the money directly," said Bruce A. Babcock, an agricultural economist at Iowa State University who recently published his own study of the program. "That way we would save on all of the fees going to the private insurers."
There is no competition on price, and as the story shows, anyone who favors introducing price competition is going to have U.S. senators on him like sheep on a bucket of spilled oats, like a flock of ducks on a windrow of wheat, like chickens on grasshoppers, like pigs on . . . OK, you get the idea.
I could tell you some anecdotes from personal knowledge about how this program is abused, but if I did, I might find a couple dozen club cab pickups with NoDak plates parked in front of my house tomorrow. Private, non-subsidized insurance is available, of course, but only for specific perils like hail or fire. Here's more information about crop insurance generally.
Before we complete this post, let's take this brief moment to figuratively sit in the cafe, drink about six cups of coffee and complain about insurance subsidies. In the real world, you have insurance, and the premiums you pay represent an actuarially based transfer. The transfer is from the you that exists right now to a future you who has suffered some loss. The insurance company is the vehicle for the transfer, and in return for this service, it takes about 30 percent above what the future you might collect. Therefore, present you transfers 70 percent to future you, minus 30 percent paid to the insurer for transferring the risk and as a cost of doing business. With subsidized crop insurance, in contrast, the insurer is directly subsidized by the taxpayer, so the farmer's cost of transfer is not 30 percent, it is zero percent. Not only that, the farmer then gets a 60 percent premium subsidy on top of that. For anyone who cares to look into the economics of it all, this link is your huckleberry.
Incidentally, the Washington Post story I linked to above is part of an outstanding series on farm insurance and other subsidies that has been going on for months in the Post. Here is a link to the stories in the series, and here is a link to one of the best, and shortest, stories, "Farming Your Insurance."
How do I get a piece of that action - my little 1/3 acre lawn and garden probably won;t cut it...