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Wednesday, February 29, 2012

Dr. Anthony B. Bradley, in his article "Corn Subsidies at the Root of U.S.-Mexico Immigration Problems" (Available at http://www.acton.org/pub/commentary/2012/02/29/corn-subsidies-root-us-mexico-immigration-problems), makes the claim that many of the problems associated with immigration are associated with the subsides that our government grants to farms. Bradley references a study my Dr. Seth M. Holmes that compares the US national minimum wage of $7.25 to Mexico's minimum wage of the equivalent of $4.60, and that 95% of US agricultural workers are Mexican immigrants, and that 52% of that number are undocumented.

Obviously, those percentages show that there are heavy incentives for Mexican laborers to immigrate--legally on not--to attain jobs in the US, especially when you consider other information presented in the article: this group of people suffers from increased rates of illness, chronic conditions, malnutrition, and other health problems. What would incentivize a worker to incur these risks, as well as the risk of deportation, the dangers inherent in crossing the border illegally (dehydration, detention, being shot outright), as well as the loss of community and connection their families?

The $22.7 Billion in remittances that Mexico's central bank recently announced likely have something to do with it. The Mexican government claims that NAFTA, and specifically, the massive subsides that the US government hands out to domestic corn farmers are a large part of that problem.

Now let's examine the effect that those subsides would have on international trade:

First, they would stimulate the production of more corn than the undisturbed market would. This overproduction of corn would result in a surplus in the domestic market, driving down the prices of both domestic and exported corn.

Second, when translated into an international market, the low price of American corn results in a price floor in the Mexican market, effectively leading to a shortage of production there when Mexican corn farmers (most of Mexico's agricultural sector) are unable to produce corn at the prices that are effectively set by American imports.  It seems obvious, when viewed economically, that Mexican farm laborers, put out of a job by artificially strong production, without other skills or the means to attain them, would decide that it was worth the hazards of crossing the border illegally, suffering more ailments, working as a part of a social system that they don't belong to, in poor conditions, in order to send money to their family so that they can afford to buy cheap American corn.

It seems as though the US government paid nearly $20B in direct subsidies to farmers last year, and, by so doing, hemorrhaged $22.7B out of our economy. As these subsidies were designed to shield US crop producers from the effects of bad years and competition with foreign markets, I believe that they are improperly designed and implemented. Rather than helping the market allocate labor resources effectively or produce efficient quantities of corn, they have spurred further inefficiency on a global scale, as more corn is produced in areas that are not well suited to it, and more health and risk expenses are moved onto laborers, and on a national scale, a significant portion of the money earned in the local economy is remitted to foreign consumers.

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