What You Should Be Reading: February 2024

Welcome back to “What You Should Be Reading,” a creatively-titled monthly blog series highlighting works of policy research that you should be reading.

February 2024’s edition includes reports on how government involvement is ruining agriculture, a doltish electricity tax, and the latest in the Securities and Exchange Commission’s (SEC) overreach and surveillance. This month also has the debut of a new feature, called “Amici in Brief,” which will condense notable “Friend of the Court” filings.

So, without further ado…

“The Unbridled Potential of the Future Farm Economy”

R Street Institute

There is an old wives’ tale that farmers cannot do without the federal government’s byzantine and copious subsidization regime. Not so, writes the R Street Institute’s Nan Swift. Conversely, Swift argues, “the current farm economy has the stability to support reform and explains how current farm policies are hindering the innovation needed to better support tomorrow’s farm economy.”

Although they goose farmers’ incomes, subsidies fleece taxpayers, contributing significantly to debt and deficits. “Estimates predict that more than $12.6 billion in farm subsidies will be paid out in 2023 alone,” Swift writes. Moreover, such payouts incentivize farmers to continue environmentally unfriendly practices and to slow adoption of innovative new technologies.

The agriculture industry enjoys robust incomes, low bankruptcy rates, and favorable balance sheets, Swift reports. Therefore, the current web of subsidization (which includes provisions for guaranteed income, sweet-heart insurance deals, and overly generous disaster aid) has little market-based justification – particularly since most subsidies go disproportionately to the largest (and least at-risk) farmers.

Also, Swift notes that reform would remove perverse business incentives. For example:

Commodity programs provide a safety net for select crops, incentivizing farmers and the financial institutions that back them to stick to the prescribed, Congress-backed choices, regardless of growing conditions or market demands. This can motivate farmers to plant on lands with questionable agricultural value and ignore best practices such as crop rotation or planting cover crops. In turn, this can lead to soil degradation and the overuse of costly fertilizers, both of which can have harmful downstream effects. Indeed, experts have found that taxpayer-funded crop insurance can encourage farmers to take environmentally unsound risks and avoid taking steps to adapt to climate change.

Predictably, Washington’s meddling protects the large and well-established against innovative upstarts. “Federal agriculture subsidies are not merely serving to support the status quo of large farms,” Swift argues. “They are holding back the enormous economic potential and environmental benefits that could be generated from a more competitive, more innovative U.S. farm industry.” As an addendum, she surveys two promisingly innovative models, one an indoor farming company located in Maryland and the other a Pennsylvania dairy farm.

“It is time for members of Congress to have an open debate about what farmers truly need and what taxpayers can afford,” Swift writes.

Read the full piece here.

“Don’t Depower Crypto”

Competitive Enterprise Institute

A trio of scholars (James Broughel, John Berlau, and Ari Patinkin) lacerate on a proposed Biden administration tax on cryptocurrency in a new paper from the Competitive Enterprise Institute. As the authors explains, the proposal “would phase in a 30 percent tax over three years on the cost of the electricity used in crypto mining,” which the Biden administration estimates “would raise $3.5 billion in revenue over 10 years.”

The public’s poor understanding of these technologies (along with crypto’s high-profile scandals and struggles) puts the industry at risk of ill-conceived regulatory proposals. One common misconception concerns crypto’s admittedly prodigious energy consumption. “If we compare Bitcoin to other industry sectors [that consume significant amounts of energy]” – such as banking, manufacturing, and mineral production – “Bitcoin’s energy use is nothing out of the ordinary,” the CEI authors write.

Biden’s proposal implicates many nascent and innovative industries — and beyond. The authors argue persuasively that the crypto industry’s relative novelty makes it a politically convenient target for environmentalists looking for incremental means to de-energize the American economy. Squeezing the crypto industry’s energy consumption presents comparatively insignificant political difficulties.

 “[T]axing the electricity use of a single industry sets a terrible precedent that suggests politicians should be free to make scapegoats of politically-disfavored [sic] industries,” the authors write. In sum, they argue, “[t]his tax appears to just be a backdoor carbon tax that can start with one industry and then spread across the economy and society, from factories to homes.”

Read the full piece here.

Amici in Brief: SEC Overreach

Many may not realize that the Securities and Exchange Commission (SEC) is working to surveil Americans’ activities surrounding exchange-traded equities. This program, called the Consolidated Audit Trail (CAT), requires financial players to collect extensive data – with vanishingly little concern for privacy or other civil-rights issues. The Cato Institute and the Investor Choice Advocates Network’s filed a brief in American Securities Association v. SEC, a challenge before the 11th Circuit U.S. Court of Appeals.

“It is the SEC’s longstanding policy that the agency will assist and share information with criminal prosecutors, 15 so it is reasonable to expect that CAT system records will be used in criminal prosecutions of investors and brokers,” the organizations write. “The information that brokers and the industry must collect include investors’ names, addresses, and birth years.” Further, officials have said openly that CAT-based searches require no reasonable suspicion.

So much for the Fourth Amendment’s guarantee of securities in one’s papers and effects.

Nor did Congress provide adequate statutorily authorization for the CAT. “The Final Rule contains no analysis about the nature and extent of the SEC’s authority and lacks a single mention of the Fourth Amendment search and Fifth Amendment,” the brief notes.

Administrative agencies persistently chafe at statutory, constitutional, and prudential limitations on their authority. Congress, so often unwilling to hold rogue bureaucrats accountable, has largely left it to the judiciary to remind agencies of these necessary barriers to their would-be arbitrary rule.

This case is definitely one to follow.

Read the brief in full here.

Note: TPA highlights research projects that contribute meaningfully to important public-policy discussions. TPA does not necessarily endorse the policy recommendations the featured authors make.