3.7. Avoid Subsidies Not Based on Economic Logic

1. Put your phone in your bag!

PUT YOUR
PHONE IN
YOUR BAG!
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

2. “If you want to steal, wear a suit and create a law.”

“IF YOU WANT TO
STEAL, WEAR A SUIT
AND CREATE A LAW.”
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

3. “A corporation is the most efficient way to commit crime legally.”

“A CORPORATION IS THE
MOST EFFICIENT WAY TO
COMMIT CRIME
LEGALLY.”
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

4.

subsidy
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

5. Mind-Blowing Facts About U.S. Agriculture

MIND-BLOWING FACTS
ABOUT U.S.
AGRICULTURE
Under 2% of Americans farm, yet they
feed the whole nation and export huge
surpluses.
One farmer feeds 160+ people, thanks
to technology and scale.
Top global food exporter, supported by
large farm subsidies.
Farming is ~1% of GDP, but the wider
food system is trillions.
Few states feed the world: Midwest
dominates corn/soy; California dominates
fruits/vegetables.
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

6. U.S. Agricultural Subsidies: Top Beneficiaries

U.S. AGRICULTURAL SUBSIDIES:TOP BENEFICIARIES
Rank Beneficiary
Sector/Type
Total Subsidies
1
Riceland Foods Inc
Rice cooperative
~$554 million
2
Farm Services Agency
Federal intermediary programs
~$396 million
3
Producers Rice Mill Inc
Rice processing
~$314 million
4
Agrifund LLC
Agricultural finance
~$244 million
5
Farmers Rice Coop
Rice cooperative
~$146 million
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

7. U.S. Agricultural Subsidies: Top Beneficiaries

U.S. AGRICULTURAL SUBSIDIES:TOP BENEFICIARIES
Total Subsidies (USD Million)
Total Subsidies (USD Million)
Farmers Rice Coop
Agrifund LLC
Producers Rice Mill Inc
Farm Services Agency
Riceland Foods Inc
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS
$146
$244
$314
$396
$554

8.

subsidy
Can
be related to crime
rate in developing countries?
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

9.

US Agricultural Subsidies: The Impact Chain
Channel
Key Numbers
Sources: IFPRI, World Bank, Carnegie Endowment, ScienceOpen
Who is Hurt / How
Region
Evidence
Global
Strong
Sub-Saharan Africa
Strong
Subsidy scale
$33B/yr (US)
$600B/yr globally
Median US farm income 30% above national avg —
subsidies enrich wealthy, not poor farmers
Price depression
–$250M/yr cotton revenue (West
Africa)
African farmers often more efficient, yet lose market share
to subsidized US/Chinese exports
Income loss & food
dependence
$24B lost income/yr; $40B displaced
exports (IFPRI)
Haiti: 60% of food now imported; rice self-sufficiency
destroyed by cheap US subsidized rice
Haiti / LDCs
Strong
Rural displacement
NAFTA: migration +108% in 7 yrs; US
subsidy 29× Mexico's ($20,803 vs
$720/farmer)
Millions of small corn/bean farmers lost livelihoods;
forced urban migration and emigration
Mexico / C. America
Moderate
Crime recruitment
Poppy cultivation: 5,000 ha (1995) →
32,000 ha (2016)
Collapsed rural incomes fueled cartel recruitment; NAFTA
gutted communities, cartels filled vacuums
Mexico
Indirect
Direct subsidy→crime link
No clean cross-country econometric
study yet
Chain is real but mediated:
subsidies→poverty→displacement→crime; Africa shows
emigration, Mexico shows crime (diff. institutions)
Global
Weak

10.

Week #1: Foundations: Incentives & Trade-offs
Week #2: Margins & Gains from Trade
Week #3: Exchange & Transaction Costs
Week #4: Firms, Profits & Income
Week #5:Value, Wealth & Sources of Progress
Week #6: Market Forces & Unintended Effects
TOPIC OF THE WEEK:
Week #7: Institutions that Support Progress
Week #8: Midterm
Week #9: Macro Stability & Policy
Week #10: Trade & Part 3
Week #11: Government’s Basic Roles
Week #12: Political Economy & Rules
Week #13: Government Support Programs
Week #14: Planning & Competition
Week #15: Final Exam

11. Avoid Subsidies Not Based on Economic Logic

AVOID SUBSIDIES NOT
BASED ON ECONOMIC
LOGIC
ELEMENT 3.7

12. Review

REVIEW
DR. TURAKULOV VALIJON | INTRODUCTION TO ECONOMICS

13. Shortsightedness Effect

Politicians favor immediate benefits
SHORTSIGHTEDNESS
EFFECT
Costs pushed to the future via
borrowing
Taxes are unpopular, debt is easier

14. The Common-Pool Problem

THE COMMON-POOL PROBLEM
Budget is a shared pool
Each politician pushes for local benefits
No strong incentive to restrain spending

15. Tools to Limit Overspending

TOOLS TO LIMIT OVERSPENDING
Balanced
budget rules
Spending caps
Line-item veto
• Government
must match
spending with
revenue each
year,
preventing
routine
deficits
• Limits on how
much total
expenditure
can grow, for
example “no
more than 5%
increase per
year”
• Executive can
remove
specific
wasteful items
from a budget
without
rejecting the
entire bill
Transparency
requirements
• All spending
items must be
publicly visible,
making it harder
to hide favors or
unnecessary
projects

16. Avoid Subsidies Not Based on Economic Logic

AVOID SUBSIDIES NOT
BASED ON ECONOMIC
LOGIC
ELEMENT 3.7

17. Uzbekistan case

UZBEKISTAN CASE
Sector
Scale
Main Beneficiaries
Energy ⚡
~50–60 trln UZS, ~4% GDP
UzGasTrade, Uzbekneftegaz
Agriculture