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September 27, 2004

Comments

Sarpy Sam

I have to disagree with your assessment of the numbers you presented. You present Personal income by major components as the source of your "little more than one percent of Montana's personal income." A careful analysis of the table will reveal that the category of farm earnings is not farm income, it is the total paid to employees of farms and ranches, i.e. personal income from farm earnings not the output of the agricultural sector of our economy.

I will point out that from the total economic output of agriculture farmers and ranchers for example buy insurance and use the banking industry, which will supply some of the jobs and personal income that make up part of the finance and insurance section, buy clothes and goods which provide jobs and personal income that make up part of the retail trade, use electricity, phones and natural gas which provide jobs and personal income that make up part of the utilities category and these are just a few examples of how agricultural output affects almost all categories listed in the table.

A better idea of the effect might come from this report which if you dig into it far enough lists the total agricultural sector output for Montana at 2,107,238,000. Just over 2 billion dollars. As for net farm income, you can see in the table that it varies widely from year to year but for the years listed would average $276,141,500. Almost 300 million dollars. If half of this is farm subsidies that is $150 million. This would make a 20% cut in subsidies a $30 million cut to the farmers and ranchers of Montana. Now admittedly this might not seem like a whole lot of money when taken across the whole state but you have to factor in the economic multiplier effects and consider there is no way of knowing how many operations might go out of business because of this. Also you have to consider that almost 21% of Montanans are employed in farm and farm related jobs and a lot of these jobs and their personal income will be affected too.

The point of my discussion on my blog was not to argue for farm subsides, which I do not like, but more had to do with the fact that the state of Montana has the worst wages in the country and their would be upcoming negative impacts to this if these subsidies cuts come through. The agriculture economy in Montana is like your in-laws, whether you like it or not, they are going to affect your life and you have to learn to deal with it.

Anthony

Thanks for the correction and perspective, Sam. I guess that's the problem with trying to spit out economic analysis before I've finished my coffee. (I know that probably doesn't make for much of an excuse to a guy who regularly posts before sunrise!)

Just so we're talking apples to apples, Montana's gross state product in 2001 was 22.6 billion, which puts the farming component closer to 10 percent (though as we both point out the multiplier effects are difficult to measure).

Monjo

It would be better for the economy of US (and EU, where I live in the UK) to agree to abolish farm subsidies and let farming/food fully embrace a free global market.

Some things like very fresh milk would probably go up in price, but people would be able to get cheap imported milk too. US and EU farmers *would* struggle in terms of prices but could then compete in other areas: organic, fresh produce in local stores.

A lot of farmers would go out of business but the economic impact is negligible and probably beneficial to the overall economy.

The reasons for this are slightly complicated in terms of raw economics but firstly, agriculture accounts for barely 1% of the net GDPs of US and EU. Secondly, increasing the wealth of other countries, increases markets for other goods - which the US and EU do manufacture.

It isn't only agriculture where the US has been stupid to subsidise the state industry, but also steel. Steel subsidies punish the majority of US people twice over (except stel workers!):
1 - all goods with steel in them are more expensive as they use more expensive US steel than foreign steel.
2 - you are subsidising every steel worker for $000s a year.
One estimate I saw put it at $27,000 a year per worker. Average farm worker subsidies are almost as high.

Inefficiencies in the economy, even in job protectionism - which seems contradictory to 'Free Trade' and 'Capitalism', ideals the US wishes to promote in other countries BUT doesn't follow at home - downgrade the economy, both the local one, as well as the wider one (national and international).

It has been suggested breaking down all trade restrictions will increase the global economy by 2trillion a year (more than the economy of China!). It will help to eliminate world debt and poverty.

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