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Wednesday, September 1, 2004

Traitor or Trader?

Russell Roberts is a professor of economics at George Mason University and the J. Fish and Lillian F. Smith Distinguished Scholar at the Mercatus Center. He is the author of The Invisible Heart: An Economic Romance.

Daniel Sumner is in trouble. Sumner, an agricultural economist at UC Davis, has been accused of betraying his country. What has Sumner done? Given the charge, you might assume that he has aided terrorists or leaked nuclear secrets. Or perhaps shared some sophisticated technology with America’s enemies.

Not quite. Sumner’s treasonous activity came in support of Brazil, a country not usually considered a rogue state or an enemy of America. And Sumner’s action didn’t exactly involve advanced technology, but economic analysis.

What Sumner did was to study the effect of American cotton subsidies on the world price of cotton. Not surprisingly, Sumner found that those subsidies lowered the world price of cotton. Subsidies encourage supply. Increased supply lowers price. End of story, or so you’d think. Could there be anything more mundane?

Sumner’s finding came during consulting work on behalf of Brazil in a World Trade Organization (WTO) case. Brazil was accusing the United States of an unfair trade practice. The claim was that the U.S. cotton subsidy punishes Brazilian cotton farmers.

When the WTO ruled in favor of Brazil, howls came from the California Cotton Growers Association. Sumner had helped Brazil at the expense of America! What a traitor! And the pain for the cotton growers was all the greater given that their association had been a significant donor to UC Davis. They threatened to send future money elsewhere. They also encouraged the citizens of California to let the university know what they thought of a man in the employ of the state working against what seemed to be its interests.

Even the dean of the College of Agricultural and Environmental Sciences at UC Davis weighed in. True, there was academic freedom at the school, and Sumner was free to say what he wanted. But there was something unseemly about Sumner’s helping the Brazilians, said the dean. It showed bad judgment. A bit of biting the hand that feeds you. Or in this case, smashing the loom that clothes you, or something like that.

So here’s a university administrator who supports taking money from a local industry, then complains that one of his faculty takes scholarly positions that are not in the interest of that industry. One might ask whether it’s appropriate at all for a university to take money from what is essentially a lobbying group. Especially if it creates an expectation that the scholars there will only do research that supports the cause of the cotton growers. Maybe instead of talking about whether Sumner has betrayed his country, we ought to talk about whether the dean has betrayed his university and the taxpayers who pay him.

But let’s focus on Sumner and the accusations that have been leveled against him. Is he a traitor? Did he betray his country by working for the opposition in a WTO case? Not in the literal sense. Even the cotton growers, in making the accusation, admitted it wasn’t a perfect analogy. They said that if this had been a government or military matter, it would have been treason and grounds for a trial. But it’s not just an imperfect analogy. It’s not just a case of Sumner’s activities being less harmful than someone who gives away nuclear secrets or reveals some secret code. The analogy doesn’t hold at all.

The economic interests of the United States are nothing like the military or security interests of the United States. In the case of the military, our interests as Americans are monolithic. Every American citizen has the same goals of safety and security. When America has enemies, we all want those enemies defeated.

But in the case of economics, our interests are not monolithic. Policies that help one group often come at the expense of another. What helps business may harm consumers. What helps consumers may harm business. And sometimes, helping business or consumers means harming taxpayers.

Take cotton subsidies as an example. To argue that Sumner is a traitor, or even that he harmed his country, you’d have to argue that cotton subsidies are good for America. Yes, they’re good for the members of the California Cotton Growers Association. But alas, there is no free lunch. The benefits of that cotton subsidy come from somewhere. They come from taxpayers, you and me. So cotton subsidies benefit U.S. cotton growers and punish American taxpayers. Along the way, they hurt cotton growers outside the United States and benefit clothes-wearers around the world.

Strange Welfare

There are worse programs. But when you sit back and examine the whole effect of cotton subsidies, it’s a strange sort of welfare program. The main beneficiaries are rich American cotton farmers and everyone who wears clothes made from cotton, rich and poor, around the world. The losers are taxpayers and poor farmers outside the United States. And the amounts gained by the winners don’t equal the amounts lost by the losers. It is almost always the case with subsidies that their net effect is negative—all the extra resources that get devoted to farming exceed the benefits of the extra cotton that gets grown. Subsidies make us poorer as a nation. They persist because of the political power of the cotton growers.

Given these effects, how should we assess Sumner’s contribution? I haven’t actually seen his study, but my guess is that it’s some version of truth-telling. The precise magnitudes of his findings may be high or low, but the fundamentals are probably right—U.S. subsidies hurt poor farmers outside the United States.

American taxpayers might want to give Sumner a medal rather than insult him if his findings hamper U.S. farm subsidies. Lower farm subsidies mean a richer United States. If this be treason, we ought to make the most of it.

  • Russell Roberts the host of the weekly podcast, EconTalk and co-creator of the Keynes-Hayek rap videos. His latest book is How Adam Smith Can Change Your Life. He is also a John and Jean De Nault Research Fellow at Stanford University"s Hoover institution.