IN THE SHADOW OF THE DEBT “CRISIS” OF 2011:

WRITING A NEW FARM BILL

Centra UpdateLarry D. SandersNovember 2011

Oklahoma State University

The Economy, Politics and Perception

2http://zfacts.com/p/461.htmlhttp://www.economagic.com/em-cgi/daychart.exe/form

Debt Crisis Deal Shifts Budget Cuts/Reform into “high gear”

Budget Control Act requires cuts or triggers automatic cuts

Tight timeline between now and end of 2011

No time for problem framing, debate or public input

Little time for most of Congress to provide meaningful input

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The Debt “Crisis” Deal Averted US Federal debt default on $14 trillion debt

1 Aug 11 $2.1 trillion in cuts over 10 yrs (CBO est.) President can raise debt ceiling $2.1-2.4 tril. until

2013 The cuts

$917 billion w/caps on discretionary spending back-end loaded $741 b. outlay cuts ($21 b. in 2012 growing to $112 b. in

2021—decided by Appropriations Committees) $156 b. interest costs on debt $20 b. education loan cuts, reducing fraud/waste/abuse, etc.

$1.2 trillion minimum in “deficit reduction” by “super committee” of 12 3 Sen. D’s, 3 Sen. R’s, 3 House D’s, 3 House R’s Trigger incentive—Automatic cuts across board if no deal

The Congressional “Supercommittee” Senate Dems

Patty Murray (WA)—co-chair John Kerry (MA) Max Baucus (MT)

Senate Repubs John Kyl (AZ) Rob Portman (OH) Pat Toomey (PA)

House Repubs Jeb Hensarling (TX)—co-chair Dave Camp (MI) Fred Upton (MI)

House Dems James Clyburn (SC) Xavier Becerra (CA) Chris Van Hollen (MD)

Photo: Co;urtesy AP from Washington Post, 11 Aug 11; http://www.washingtonpost.com/

Legislative Timeline 14 Oct—deadline for regular committees to submit

recommendations 7-10 Nov—House recess 11 Nov—House & Senate recess 21 Nov (or earlier)—CBO scores to supercommittee 21-28 Nov—House recess 23 Nov—supercommittee reports package of cuts 9-30 Dec—House recess 23 Dec—deadline for Congress to vote on cuts 24 Dec: Congressional recess 2 Jan—deadline for enactment of minimum cuts; 3 Jan—if no minimum cuts, automatic cuts kick in to

start 15 Jan 2013, (SNAP, CRP, social programs off the table)

What’s “on” & “off” the table in supercommittee process…

Congressional committees may recommend cuts to any program & revenue increases/reforms

Supercommittee may recommend: Discretionary program cuts Entitlement program cuts Revenue increases Revenue reform

Automatic cuts: 50/50 between defense & non-

defense Key mandatory safety net programs

exempt; includes Medicaid, Social Security, SNAP, CRP, CCDBG, TANF, EITC, CTC Medicare cuts capped & limited to providers

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US Agriculture Fallout from Federal Programs Current programs likely unaffected in short

term Second round will cut spending at levels tbd On the chopping block—perhaps $30 billion

over 10 yrs Direct payments Conservation programs SNAP Ethanol subsidies Crop insurance

Whatever the decision, participating producers can expect less from Federal programs in future years

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US Agriculture Fallout from Markets Farm prices are up for now Recall what determines the level of general economic

health: Consumer Spending (currently down) Business Investment (currently sluggish) Government Spending (currently down, esp. state/local)

US and global markets suggest consumers and business are jittery and pulling back, but cheap $ will slow loss

More cuts in federal spending likely Signals suggest demand for food/fiber will be

down (at least globally) and prices will decline in next 12-24 months

The result: risk management essential to survival & profits

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US economic activity, GDP, 1980-2011

http://www.economagic.com/em-cgi/charter.exe/var/rgdp-qtrchg

Update Supercmte can’t agree on a baseline, & this

relates to how to count the Bush tax cuts & their possible demise. 

17 Oct: jointly-signed letter to supercommittee from Stabenow/Roberts/Lucas/Peterson for $23 bil. in cuts to farm bill spending

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Political Incentive: Do Nothing; Blame Others S&P rating downgrade increases importance of

managing federal debt situation Many Congressional reps will find it difficult to

resist political expedience with 2012 election cycle

Dems will have less incentive to compromise on deliberated cuts in second round if no tax reform/revenue in the deal

Repubs will have less incentive to compromise on cuts if their base thinks Obama will be blamed

Obama’s veto power unlikely to be overturned if that scenario plays out, suggesting no balanced budget deal, no substantive cuts in Social Security, no extension of Bush tax cuts

US Agricultural Trade Balance, 1991-20111F

($mil/FY; agricultural product only)

020000400006000080000100000120000140000160000

IMPORTS EXPORTS

WTO

NAFTA

*NOTE: If fish & forest product added to ag, trade balance would be $15.2 b. for fy10.

FAIR96

FSRIA02

$108.66 b.Exp.

$78.95 b.Imp.

$29.71 b.surplus

FCEA08

Perceptions: How can farmers be doing so bad if Ag Sector doing so well? Net Farm Income & Direct Government Payments (1991-

2011p)

020406080

100120

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

net farm income

govt payments

NFI-G

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$ Billion

FSRIA 2002

$103.6 b.

$10.2 b.

$93.4 b.

FCEA 2008FAIR

1996

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Final thoughts… Debate on severity of debt not

inconsequential, but generally overlooks the impact of growing economy domestically and globally

1990s Clinton deal w/Repub Congress successful in ending deficit and beginning to pay down debt

The importance of Compromise in success and stability of Democracy cannot be over-stated

Voters may decide that there are other values more important than Democracy, but that decision needs to be made consciously and deliberately

“The thing about democracy, beloveds, is that it is not neat, orderly, or quiet. It requires a certain relish for confusion.”

--Molly Ivins

Continuing hangover from 2008 economic

meltdown… Uncertainty and

fear about weak market & jobs

Wealth base hasn’t recovered

Long-term growth trend lowered

Credit tightened

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Thanks for your attention! larry.sanders@okstate.edu 405-744-9834