Tuesday, July 22, 2014

The Myth of Rural 'Subsidies'

03/10/2011

The federal government provides “a raft of subsidies (devoted) to sustaining rural living." 

That’s what Ezra Klein wrote in The Washington Post in a blog post that has caused a minor uproar — especially after Ag Secretary Tom Vilsack blundered into the argument. But is that true?

Klein’s initial point was that cities are unique in the efficient way they create new wealth. He then said that we should capitalize on this unique attribute of urban life, but that we won’t because the structure of the Congress inevitably leads to programs and spending that subsidize rural life. 

USDA Secretary Tom Vilsack took Klein’s column as a “slam on rural America.” Vilsack called the Post writer and the two had a remarkably pointless conversation about the cultural values found in rural America. Klein was unimpressed with Vilsack’s argument, as were most others. You can read the exchange here. 

Our interest is Klein’s assertion that the federal government lays out some huge “subsidy” for those who live in rural America. Klein just assumes that “Rural living ends up costing a lot more than urban living on a variety of measures” and that this results in disproportionate spending in rural America.

So, is it true that the rural-dominated Congress spends more money on rural residents than on those who live in cities?

No. That’s not what happens at all. In fact, as you can see from the chart above, the total per capita federal spending in rural counties is regularly lower than per capita spending in urban counties.

The USDA’s Economic Research Service keeps track of federal spending in metro and non-metro counties. You can find the data here

Yes, there are federal crop subsidies and they go largely to rural counties. But federal crop subsidies are a drip in the bucket of federal spending. (Ag subsidies and natural resources spending is one percent of the national per capita spending that can be attributed to a county, four percent in rural counties.) In most program categories, per capita federal spending in rural America is far, far lower than for comparable programs in urban counties.

Klein contends that disproportionate representation in Congress (where each state gets two Senators, regardless of its population) leads to a rural bias in spending. If Klein is right and Congress regularly subsidizes rural areas, then we would expect that bias to show up in spending on community development. 

But, again, this isn’t the case at all. Spending on community resources in rural areas (for housing, community assistance, Native American programs, environmental protection, regional development and transportation) is far lower on a per capita basis in rural counties.

Klein says we ought to be subsidizing urban areas because cities are the foundation of economic growth. The figures tell us that this is already happening. There is simply no sign of a federal subsidy for rural life.

(We should also remember that rural development constitutes a decreasing share of non-profit spending, too. You can look all over for a disproportionate rural “subsidy” and not find it.)

The chart below shows the per capita spending on community resources in rural and urban counties. (Again, you can get the data and the definitions here.) 

The one area of federal spending where rural areas exceed urban ones is in the broad category of income security. This includes medical benefits, Social Security, disability, food and nutrition programs and education. 

In 2009, the per capita spending on income security in rural areas was $1,639 per capita higher than in urban counties. Income security amounted to 69% of total federal spending in rural areas, but only 51% in urban areas in 2009.

What’s the cause of this disparity? Rural people are, on average, poorer and older than those who live in the cities. As a result, almost all of the difference in spending on income security derives from spending on Social Security, disability and other direct payments, according to an analysis by the Rural Policy Research Institute.

Per capita spending is lower in rural areas than in urban counties in total — and the only reason the totals are even close is that rural people are, on average poorer and older than those who live in the cities. 

Klein might make a slight argument that rural people could make more money if they moved to the cities, where labor is more productive. (Rural people have been doing this in the United States for a century.) The powers of the city aren’t so great, however, that they would make these people younger or healthier.

So what is Klein talking about? Ag subsidies, of course. (We have no idea what Secretary Vilsack was talking about.) And here we get to the crux of the problem.

When people talk about rural policy, they talk about crop subsidies. But agriculture is just a tiny part of the rural economy. There are probably more full time artists living in rural America than full time farmers.

Chuck Fluharty, head of RUPRI, testified before Congress recently about the links between rural and urban America. Each needs the other. There is no bright line between rural and urban America. The two meld at the edges, and their economies are totally intertwined.

The Klein/Vilsack tussle is typical of how we talk about issues these days, and about fellow citizens. We begin with assumptions. We add our opinions and biases. We divide into “us” and “them.” We argue without resorting to a single fact (even though the facts are easily found). Then things get ugly (thanks here to the New Republic’s Jonathan Chait who wrote “The Idiocy of Rural Talking Points"). 

Nothing changes and nothing gets better, but everybody feels supremely righteous.

Bill Bishop is co-editor of The Daily Yonder.

Comments

Roads

Bill, it's great to see DY weigh in on this flap. I agree that Vilsack's intervention was both ill-advised and ineffectual. But what about Klein's argument about roads and transit? I would suspect that urban freeways (to say nothing of exurban boondoggles like Houston's proposed Grand Parkway) eat up tax dollars in equal proportion to highways through rural areas. Have you folks seen any good analysis on this?

roads

Transportation is included in the "community resources" category above. Highway funds aren't broken out specifically, but, as you can see, rural falls way behind in this more general category.

What was surprising to us was that Klein, who prides himself on basing his column on facts and analysis, felt like it was okay to make assumptions about rural America. And did it when the facts are found so easily, like right here.

What does the revenue side look like?

I would bet if you look at Federal Revenue per capita you'll see that the city dwellers (and particularly those in suburbs near cities) are contributing far more revenue than the poor rural folk. I think Ezra may have been unintentionally right - if everyone is getting roughly equal public spending but the non-rural people are paying in at a much higher rate, that's subsidizing people in rural areas.

Revenue

There is probably more revenue coming from cities per capita than from rural per capita. Income is lower in rural areas, so revenues are lower. But that's a function of income, not geography.

It certainly is not true that "non-rural people are paying in at a much higher rate." We're all paying at the same rate. But people who make more money pay more taxes. There is more tax revenue coming per person from San Francisco than from Detroit, for example. Is that a "subsidy" of "midwestern urban living"? 

Of course, this can all get pretty crazy. If we want to make things perfectly fair in this respect, there would be no taxes at all. Everybody would just keep what they earn. Anything else would be a "subsidy."

But, the question is whether there are subsidies in particular for rural living. And it doesn't appear that there are (outside of the specific ag subsidies). We don't spend more for roads, or development, or water or housing in rural areas, as Klein said we did.

What a load of rubbish

As alluded to by other commenters, this post totally misses that point that per capita spending is irrelevent: net dollar transfer is the figure in question, and by that metric, there's a giant sucking sound, and it's coming from rural America. This blog post gives the details in the case of Washington (see the graphic) and I'm sure it generalizes pretty well to the rest of the country:

http://www.thestranger.com/seattle/welfare-state/Content?oid=6686284

Now, being the big city liberal that I am, I vigorously support many programs like universal, government run healhcare and a better social safety net that would provide far more benefit to the rural population than to the cities because (as you note) the rural population is proportionally older and poorer. Guess what happens when the people we elect make any move in that direction? We're drowned by ignorant invective from rural areas about how the guvmint is taking over healthcare and they should "stay out of my Medicare."

These opinions emanate 80% from rural counties and 20% from the suburbs. And these opinions are so irrational that they demand explanation. You could chalk it up to ignorance or demographics. I prefer this explanation, again rather Seattle-centric but generalizable:

"Rural voters vote against the State out of spite; they'd rather see the entire enterprise fail than Seattle succeed. [...] A good chunk of the country, particularly the deep red parts, feels a genuine and deep despair about their role in the new world that is emerging around us. A good many of rural and suburban Washingtonians feel like the world is leaving them behind—with some accuracy in their assessment."

http://slog.thestranger.com/slog/archives/2011/02/15/they-would-rather-s...

I spent the first 13 years of my life in a rural area and then the next 13 trying to get to the city. I would consider being forced to life in rural America again a sort of death. I simply couldn't go back to living that way. Cities are where the cultural and intellectual energy is and the future is being made. If it's your deam to live in the middle of nowhere, go for it, but you can't demand my financial support or act surprised if your economic opportunities are drastially reduced. And if you get on your high horse how you're the "Real America" and all about rugged individualism -- while getting hand-outs -- you can expect nothing from me but contempt.

The Stranger

Fine, in this reader's perfect world, everybody would keep exactly what they make. That way, there's no "net dollar transfer" at all. 

No country, either.....

But that's fine with the editors of the oft-quoted (above) Stranger newspaper. This is The Stranger's idea of creating a nation, from November 2004: "Citizens of the Urban Archipelago reject heartland "values" like xenophobia, sexism, racism, and homophobia, as well as the more intolerant strains of Christianity that have taken root in this country. And we are the real Americans. They--rural, red-state voters, the denizens of the exurbs--are not real Americans. They are rubes, fools, and hate-mongers." http://www.thestranger.com/seattle/Content?oid=19813

 Nice....... 

 

Interesting stuff

I agree, the Secretary's comments were ineffective and poorly carried out.  However, its the continuing devolvement of this arguement to the "rural is better than the city" or "city people are smarter than rural people" that has me baffled.

All of these subsidies wether they go to rural people or urban people are just a drop in the bucket as far as the federal budget and they are under attach as all discressionary spending. 

These programs have great value to me because I believe helping the least among us is what makes a strong country and strong society.  Notice I didn't argue about were this money is spent.  Poor is poor.  The poor country mouse has it not better that the poor city mouse.

Military spending needs to be closely examined as the largest portion of our budget.  This must be reduced and we much change our national approach from biligerance to a more humble way of dealing with our world.

In addition we need to look at all of these programs which are ment to help the least amonst us but seem to get lost in the buracracy.

Finally, I think we must look at our farm subsidy programs honestly and begin to think about food and feeding our communities rather than focusing on commodities.

We will always have commodity production as there's great tracts of land that are perfect for growing these crops, but our policies have gotten out of ballance and must be brought back.

Once again, I'm not interested in squacking about how this small slice of pie is devided.  I want the pie pieces rearranged.

Thank you.

 

Who is really being subsidized?

Take away all the subsidies for rural living.  Go on, I dare you.  Now who works on your farms and makes your food? Wow, urban people are short-sighted.

 

And while I agree that it's puzzling that rural people disproportionately vote against their own economic interests, it's hardly universal (Hi, I'm a hick, and a registered Green Party member...).  And in the end, it doesn't matter--we have a duty to hold out a helping hand to our fellow citizens, and they have the right to refuse it if they so choose.  That's the meaning of choice. Freedom that only exists as long as you make the right choices isn't terribly free, is it?

Two things

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As noted earlier, per capita spending does not speak to whether or not a geographic group is being subsidized—it simply states how much spending is occurring per person in those areas. Ezra's post was true, rural Americans receive more money in federal benefits than they pay into the system via taxes.

For most of our history, that has been the case, and it should stay that way. Everyone benefits when we have a vibrant rural community. The problem is when taxes can't cover our spending. It is entirely hypocritical for rural Americans to continue being subsidized (ag. subsidies are a small piece of this pie, infrastructure like roads and basic services like schools and fire protection are more important here) while keeping us from raising taxes. If they insist on not raising taxes, rural America should be where we cut most of our federal funding. 

Living in the city, I love visiting the country and I try to buy local. I support what agricultural communities bring to me, but they have to realize that they benefit greatly from our tax structure. While the below data does not break down federal spending in a urban v. rural sense everywhere, it does break it down by states. More metropolitan states (generally the blue states) pay more taxes than they receive in benefits from the government. The states that get more than they pay tend to be republican leaning states.

 

 

http://www.visualeconomics.com/united-states-federal-tax-dollars/

"raft of subsidies"

Not being on first name basis with "Ezra," we don't know what he had in mind when he said that rural America gets a "raft of subsidies." He does not say there is an imbalance of payments between rural and urban. (Nor does the maps of states presented above show this either, though, given the fact that rural communities are poorer than urban, it wouldn't come as any great surprise.) He certainly does not say that he thinks people only ought to get back from government what they put in.

Klein's argument, as we understood it, was that special money was going to rural places because it cost more for the government to maintain those communities. That is not true. As we pointed out, the federal government spends LESS to support people living in rural areas than it does to support people in the suburbs or the cities.

Also a clarification

I just want to clarify (in case it wasn't clear) that I'm not trying to be antagonistic and I hope I don't come off as rude. I just don't see how the rural lifestyle, as it is today, isn't considered "subsidized" by those who live in it. As I mentioned, I think most subsidies that rural communities get (whether actual subsidies like telecom subsidies and agricultural subsidies from subsidy programs or effective subsidies like paved roads and postal service from disproportial spending as it relates to tax collection) are well worth it. I believe the context of the original post was firmly set in the debate about where we spend our tax money and what we should do when we are forced to spend less of it. That is where I am coming from.

Whose money

Isn't that missing the whole point? So what if the government spends less per person in rural areas? This isn't money coming out of thin air, it's tax money from all of us. If I put $70 in a pot and you put in $30, and then if we give me back $55 and you get $45, you are still being subsidized because you are getting a transfer of wealth from me to you via taxes and spending. It doesn't matter that our spending on you is less. in our example above, if all of a sudden I need an extra $5 to fix my roads we have two options: we can raise the amount of money we put into the pot (proportionally 70:30) or we can cut back. If you won't let us raise the money, we should cut our spending primarily on you, right? isn't that only fair? You could argue that I should pay from a different pot, but if you argued that, you'd have to explain to me why you aren't paying for everything from your pot. Why should we subsidize rural America? Why would we cut funding to poor urban families but not to rural families? Special money is the money rural people get but didn't pay for (and in many cases, don't realize they get it and aren't paying for it). The raft of subsidies is everything that government spends money on, but most people don't even notice--safe drinking water, police, roads, schools, electrical grids, for rural people-phone and Internet lines, the post office....