in the shadow of the Debt “crisis” of 2011: Writing a new farm bill

1. in the shadow of the Debt “crisis” of 2011:Writing a new farm bill Centra Update Larry D. Sanders November 2011 Oklahoma State University

2. The Economy, Politics and Perception http://www.economagic.com/em-cgi/daychart.exe/form http://zfacts.com/p/461.html

3. 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

4. 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

5. 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/

6. 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)

7. 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

8. 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

9. 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

10. US economic activity, GDP, 1980-2011 http://www.economagic.com/em-cgi/charter.exe/var/rgdp-qtrchg

11. 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

12. 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

13. US Agricultural Trade Balance, 1991-20111F ($mil/FY; agricultural product only) WTO F S R I A 0 2 F C E A 0 8 F A I R 9 6 $108.66 b. Exp. NAFTA $29.71 b. surplus $78.95 b. Imp. *NOTE: If fish & forest product added to ag, trade balance would be $15.2 b. for fy10.

14. Perceptions: How can farmers be doing so bad if Ag Sector doing so well? Net Farm Income & Direct Government Payments (1991-2011p) FCEA 2008 FSRIA 2002 FAIR 1996 $ Billion $103.6 b. $93.4 b. $10.2 b.

16. 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

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

18. 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

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