This government program is a surefire vote-winner: Take $1.9 billion away from a large group of voters, then give just over $1 billion to a much smaller group of voters, then throw away the rest. Would you vote for it? It turns out that Americans do just that, time after time.
Of course, the program is generally presented in a different light, as a defense of American jobs in the sugar industry against unfair foreign competition. Smug European readers, please note: European sugar producers enjoy a similar deal.
Anyone who understands a bit about how the economy works will tell you that trade barriers on sugar are a terrible idea. They raise costs for American producers who use sugar in their products, such as candy manufacturers and refiners of biofuels. They raise costs for American consumers. They reduce demand for American products abroad, because the dollars that foreign sugar producers would have received had they not been shut out would have eventually been spent buying American products. (This chapter is about politics, not trade barriers, so I'll not try to explain the reasoning here. If you're doubtful you might look at chapter 9 of my book The Undercover Economist.)
Of course, trade barriers do benefit U.S. sugar producers: Cane growers make about $300 million from these trade restrictions, and sugar beet growers about $650 million. There are only about fifty thousand workers employed by the industry, and if they shared evenly in the benefits, then they would each be making about $20,000 from the trade restrictions. In fact, the benefits are yet more concentrated than that. A U.S. government report found that more than a third of the benefits of the sugar support program in 1991 went to just thirty-three sugarcane farms; if the pattern holds for more-recent sugar support efforts, that would be about $10 million per big farm. All this costs each U.S. citizen about six dollars, of which about three are wasted and about three go to agribusiness...
The few are exploiting the many. Three hundred million people are losing from the protection of the sugar industry, and fifty thousand are gaining, with most of the gains going to a very small elite.
That seems an extraordinary and irrational outcome for a democratic society to produce, but the apparent paradox should not be quite so confusing. As we've seen in earlier chapters, individually rational behavior does not necessarily lead to a socially rational outcome. As a voter, you can be excused for being rationally ignorant of how you're being hosed by the sugar industry: Why bother making the effort to understand the issue and find out which candidates at the next election are opposed to sugar subsidies? You might be seething with righteous indignation, but your vote would likely have no effect whatsoever. Even if it did penetrate your rational ignorance that sugar tariffs are costing you six dollars a year in higher grocery bills, how much do you care? Would you change your vote as a result? Remember the split-the-check problem back in chapter 4, where small shareholders had no rational incentive to discipline greedy managers. In that sense voters are a little like small shareholders in a country.
There are millions of voters who lose from tariffs protecting the sugar industry, but not one of them will rationally expend any effort trying to do something about that.
On the other hand, if you're one of the fifty thousand sugar workers whose livelihood heavily depends on the sugar tariffs, you'd certainly care. Carol Campbell, a widow from Belle Glade, in south Florida, loses sleep every time Congress discusses allowing foreign sugar imports --- as well she might, since she has worked in the sugar industry for more than thirty-five years. Remember, Bush's margin of victory was 537 votes. There are nearly ten thousand people like Carol Campbell in Florida and you can bet that they'll be voting for the candidate who promises to protect their jobs. We can rationally disregard the chance that one vote will sway the election, but having ten thousand votes in the bag becomes a bit more interesting. And protectionist politicians don't just want the guaranteed votes from sugar industry workers, either. They also want the cash from the sugar lobby, which contributes about three million dollars to politicians every time there's an election.
There are about three hundred million people in America who consume some sugar. If they each sent one cent to a counter-lobbying effort, they could match the sugar lobby's spending dollar for dollar --- and with a much larger potential voter base to mobilize, they would surely succeed in having the subsidies abolished and saving themselves six dollars a year. They never will do this, however, because it wouldn't be rational.--- From The Logic of Life
The Rational Economics of
an Irrational World
©2008 Random House