From 1929, when the Agricultural Marketing Act was enacted by President Hoover, through 2008, there was consistent need for agricultural relief. The industry was still receiving massive subsidies from the Federal Government, and the Food, Conservation and Energy Act of 2008 was similar in purpose and scope to its predecessor around 80 years earlier. The striking similarity between the two was the rampant subsidy abuse that farmers exploited and took advantage of on the brink of economic collapse in the United States.
In this Jimmy Marguiles cartoon, which appeared in New York Newsdayin 2008, there is a farmer awaking and yawning who says “5am…time to feed the chickens, slop the hogs, and milk the taxpayers”. Given the date of the cartoon, it must relate to the Food, Conservation and Energy Act of 2008 – known colloquially as “The 2008 Farm Bill”.
According to the National Agricultural Law Center, the Food, Conservation and Energy Act of 2008 was the sixteenth law in the United States that was referred to as a “farm bill” (Hyder). The 2008 bill, similar in intent to the Agricultural Marketing Act of 1929, was intended to subsidize farmers. The 2008 farm bill had an allocated amount of around $300 billion to cover agricultural related costs. This bill also was specific in that it covered a wide range of fruits and vegetables that had not been covered in previous versions of “Farm Bills” (Hyder).
The Farm Act of 2008 was also instrumental in creating the “Average Crop Revenue Election” program – also known as ACRE. This program provided better protection to farmers than previous programs. It gave the farmers more breathing room with subsidies as it paid out to farmers when they had a loss of revenue that could be directly attributed to crop failure, price fluctuations or other specific causes (Hyder).
Within the ACRE program, farmers may elect to receive revenue-based paments instead of price-based countercyclical payments. One of the other main benefits for those enrolled in ACRE – they had a 20% decrease in direct payments and a 30% decrease in marketing assistance loan rates (Cooper).
The bill had a big snafu in Congress. The bill had passed both houses of the Senate and was sent to President Bush to sign. Bush went ahead and vetoed the bill. However, the bill that Bush had vetoed was missing 30 pages from the Congressional version. As such, Congress had to revote on their bill which, again, passed. When the proper version of the bill reached President Bush’s desk, it was again vetoed. Bush’s veto was to the dismay of environmental and agricultural groups. Hundreds of groups sent formal requests to congress to override the veto, despite their own acknowledgement that the bill itself wasn’t “perfect”. The groups stated that the bill was a “carefully balanced and compromise of policy priorities that has broad support among organizations representing the nation’s agriculture, conservation, and nutrition interests” (Hyder). Eventually, Congress overrode Bush’s veto and the Farm Act of 2008 became law.
Since this bill, just like the Agricultural Marketing Act of 1929, subsided farmers, there were no shortage of critics. The European Union, for example, cited that the subsidies in the 2008 Farm Bill were a sign of growing American protectionism. They were seemingly in fear of a trade war after the 2007 food price crisis. Likewise, high tariff’s on imports such as sugar can-derived ethanol from Brazil was upsetting to trade partners who were being taxed heavily (Hyder).
The Duke Environmental Law & Policy Forum released a report about the 2008 Farm Bill. They specifically note the emergency nature of farm bills from the late 1920’s and early 1930’s to the current farm bills which are “monolithic legislation” of the current versions, including the 2008 Farm Bill. One of the issues that they cite with the 2008 Farm Bill is that it focused more on helping urban farmers for the local economy in those urban areas, especially the rust belt areas, rather than the rural farmers (Mersol-Barg 300).
Because the Farm Bill of 2008 did more to help urban farming, high operational costs in those areas can be considered part of the bills issues. Feasibility studies have shown that a 4.4-acre urban farm with $112,000 in revenue would still result in a loss (Mersol-Barg 287). That is where the government would step in – subsidizing the loss to result in the profit. This would benefit, mainly, only the local economy and not the U.S. economy.
Just as an economic disaster followed the 1929 Agricultural Marketing Act, one did with the 2008 Farm Bill as well. The Great Recession of 2008 occurred largely in part to subprime lending and bank failures. The Great Depression and “Black Tuesday” occurred within six months of the 1929 law being passed. The 2008 Farm Bill was passed just four months before the Lehman Brothers and other large banks begin to fall. Though both occurred just months before economic disasters, they were far from the main factor as to why the economy failed.
While a John Knott cartoon “And the Echo Answers: Where!” from 1930 had touched on the need for farm relief that had yet to arrive, this Marguiles cartoon touches on similar problems.
In the Knott cartoon, we see a drowning farmer with wheat and cotton being shown “flooded” by low prices. It is raining heavily, signaling the prices will seemingly decrease and the product demand will suffer even more. The farmer is asking where the relief for farms is because then-President Hoover, Congress and the Farm Board were largely unable to help them. In the 2008 cartoon, perhaps Bush helped them too much to the point of extreme comfort.
At the time that the Knott cartoon was published, the loophole in the Agricultural Marketing Act of 1929 had yet to be fully exploited. That loophole allowed farmers to grow as much as they wanted since the Government would purchase any of the excess crops.
In this 2008 Marguiles cartoon, it is obvious that the farmer subsidies were fully being exploited and therefore agricultural relief was still struggling because of the abuse. The humor in the Marguiles cartoon details the way that the farmers had grown comfortable with the bill. The cap for payment: $750,000. Any farmer making $749,999 or less was eligible to subsidy assistance. So, farmers found loopholes in the law that would allow them to still make a considerable amount of money even if they didn’t really need the money. So, by showing a farmer cozy in bed, it is the same as the farmer being cozy with government existence. They still made money off of their crops and the government stepped in to help fill the “void” in payment.
While nearly 80 years had passed between both laws, neither had worked out for very long. The two cartoons also show a similar pattern: Farm Relief has no easy solution. Throughout the 16 Farm Bills between 1929-2008, there is always need for a new bill to replace the old. The one constant theme, however, is that farmers are taking advantage of Government subsidies to build their wealth while not entirely delivering their end of the deal, though sometimes through no fault of their own.
Cooper, Joseph C. “Average Crop Revenue Election: A Revenue-Based Alternative to Price-Based Commodity Payment Programs.” American Journal of Agricultural Economics, vol. 92, no. 4, 2010, pp. 1214–1228. JSTOR, JSTOR, www.jstor.org/stable/40931076.
Marguiles , Jimmy. “Farming the Government .” Newsday, 2008.
Mersol-Barg, Amy E. “Urban Agriculture & the Modern Farm Bill: Cultivating Prosperity in America’s Rust Belt,” Duke Environmental Law & Policy Forum vol. 24, no. 1 (Fall 2013): p. 279-314.
Hyder, Joseph P. “Food, Conservation, and Energy Act of 2008.” Food: In Context, edited by Brenda Wilmoth Lerner and K. Lee Lerner, vol. 1, Gale, 2011, pp. 316-318. In Context Series. Science In Context, http://link.galegroup.com/apps/doc/CX1918600101/SCIC?u=txshracd2598&sid=SCIC&xid=380563ce. Accessed 15 Apr. 2018.
In the wake of dramatic financial deregulation (e.g. the repeal of the Glass-Steagall Act, see McDonald) that occurred in the late 20th century, questionable financial practices (e.g. over-the-counter derivatives, see Beers) and outright corruption (e.g. the Credit Rating Controversy, see CFR Staff), were abundant in many companies on Wall Street. Due to loose lending/borrowing practices, many credit rating companies that were in charge of analyzing bank’s credit and checking eligibility for loans, failed to oversee many banks on Wall Street. By the Fall of 2007, prices of homes in the US were at their highest, which enabled homeowners to use their property as equity to borrow more and more money. Due to prices of homes being so high, many homeowners applied for loans for homes that actually were out of their price range—a major step on the path towards the subprime loan crisis. A subprime loan is “a type of loan offered at a rate above prime to individuals who do not qualify for prime rate loans” (Investopedia). They were given to “borrowers with impaired credit records” because such borrowers were turned away from traditional lenders (CFPB). These loans had higher interest rates compared to the normal rate for conventional loans. Giving subprime loans was “intended to compensate the lender for accepting the greater risk in lending to such borrowers” (CFPB). As the use of subprime loans continued, an economic downturn began when bad accounting and poor management of investment banks and other institutions were revealed among many companies on Wall Street.
Known as the “Great Recession,” it was the most “severe, prolonged economic downturn” the US had experienced since the 1930’s (Rouse). Secretary of the Treasury, Henry Paulson (2006-2009), was called in to aid the failing financial system. Paulson, with the help of the Chairman of the Federal Reserve, Ben Bernanke (2006-2014), oversaw several forms of bailout, including the $700 billion Troubled Asset Relief Program (TARP). Contrary to his conservative economic philosophy, circumstances forced Paulson to implement capital injections into big banks, to bring America out of its financial crisis.
By early Spring of 2008, many homeowners had accrued so much debt that they were not able to pay their mortgages anymore. As mortgages became too high, many people were forced to foreclose their homes, which led big financial institutions to stop buying mortgages. Big institutions such as the banks, Bear Stearns, and Lehman Brothers, and the insurance company, American International Group, or AIG, were “too big to fail;” if they failed the rest of country was at major risk of an economic downfall.
Paulson dealt with many dilemmas, including “moral hazard,” “the idea that a party protected in some way from risk will act differently than if they didn’t have that protection” (Beattie). Institutions were held to the standard, that if they are bailed out, they were not going to be bailed out again. The bailed-out companies were expected to learn from their mistakes, rather than make that mistake again. Paulson was also in charge of the Troubled Asset Relief Program, or TARP, which purchased “troubled companies’ assets and equity” for $700 billion” (Investopedia). However, along with many other conservatives, the Secretary of Treasury could not have been any more against TARP. He was a firm believer in the government refraining from intervention, and TARP did just that. Along with the use of TARP, the highly debated capital injections were implemented. Again, although very against it, Henry Paulson infused capital injections into banks, which was “an investment of capital into a company,” in return, the government would own stock in their company (Investopedia).
Warnings about a possible recession were given many times before by Brooksley Born, Chairman of the Commodity Futures Trading Commission (1996-1999). Born knew that Wall Street’s lack of regulation and over-the-counter derivatives were causing a threat to the American public (Beers). Over-the-counter derivatives were “private contracts that [were] traded between two parties without going through an exchange,” therefore posing a credit risk for many companies due to the absence of a clearing corporation (Beers). Alan Greenspan, the former Chairman of the Federal Reserve (1987-2006), refused to believe what Born had brought to the table. Greenspan’s unwillingness to believe Born would be our country’s biggest mistake.
Before the stock market crashed in 2008, unemployment was at its highest, peaking at “10 percent,” which was just “15 percent less than that of the Great Depression” (Horton). In the housing sector, supply and demand was uneven, meaning more houses were on the market than there were buyers. This caused commercial and investment banks to suffer large from the loss of payments from their borrowers.
Goldman Sachs’ former CEO, Henry Paulson, was Secretary of Treasury, while Ben Bernanke, expert on the Great Depression, was Chairman of the Federal Reserve during the recession. Bernanke and Paulson were called in to combat the panic on Wall Street. They both knew that something needed to be done immediately, but how were they going to do it? Bear Stearns was their first item of business. On March 10, 2008, Bear Stearns, one of the smallest investment banks on Wall Street, could not open for business due to lack of financial capital (Inside the Meltdown). Bernanke and Paulson agreed that the Federal Reserve was not going to interfere with banks by aiding them with money, but money was what Bear Stearns needed desperately. Bernanke was able to find a way to provide the funds to assist Bear Stearns. He persuaded JP Morgan and the Federal Reserve Bank to give secure funding to Bear Stearns, which almost immediately backfired. Other banks did not like that Bear Stearns was given money and they weren’t. Despite the bailout, Bear Stearns was back to normal for just seven days before shutting down permanently.
After Bear Stearns shut down, came the ethical concerns associated with moral hazard and the rapid decline of the economic system. Moral hazard entailed, if the government bailed out a corporation, what incentive would they have to not make that mistake again? The administration of Bernanke and Paulson was “accused of allowing the creation of moral hazard risk from its bailout of Bear Stearns” thus “raising expectations that other firms facing failure would also be bailed out” (Markham). Therefore, Bernanke issued a warning to Wall Street that they were not to loan money to any other banks.
Almost a week later, on March 17, 2008, Lehman Brothers, the “fourth largest investment bank in the United States,” went into bankruptcy, this signaled the coming of the largest financial crisis since the Great Depression (Horton). Paulson, exhausted and under immense political pressure, was searching for a buyer for Lehman Brothers. The problem was that no banks wanted to lend to another bank for fear they would not get paid back. Bankruptcy was a certainty and the government wasn’t going to intervene any further. After Lehman Brothers went into bankruptcy, Wall Street froze, and the pressure to solve the economic decline returned (Kessler).
In September 2008, AIG, the largest insurance company on Wall Street, was next to call for Paulson and Bernanke’s help. AIG did not have enough money in the bank to honor the commitments they had made with their clients (Manning). Their crisis was so severe that members of Congress were brought in to help Bernanke and Paulson. They came to the decision to save AIG by bailing them out from the US government with over $183 billion (Manning). After the efforts given to save Wall Street’s largest corporations, many believed the government was reacting but not acting (Manning). With the criticism of the government’s lack of intervention, Bernanke then called in Paulson to explain that it was time for them to do something more direct; something that would hit all investment banks.
Bernanke and Paulson went to a congressional leadership meeting held at Capitol Hill to deliver the news. Paulson told Congress that, “Unless you act, the financial system of this country and the world will melt down in a matter of days” (Inside the Meltdown). Paulson brought the Emergency Economic Stabilization Act of 2008, to Congress that stated he needed $700 billion from taxpayer dollars “to be used to buy the kinds of toxic mortgage securities that were creating so many problems for the banks” (Inside the Meltdown). Moreover, those funds were needed in a matter of days. Capitol Hill was furious, “It was an unprecedented, unaffordable and unacceptable expansion of federal power” (Inside the Meltdown). Thus, when the House voted on the bill, it failed, leading to an immediate and dramatic drop in stock prices.
After the act failed, the idea of capital injections came into play. Capital injections entailed inserting “billions of dollars into ailing banks in order to boost confidence and unfreeze credit” (Inside the Meltdown). There were insiders in Congress who liked the idea and believed it was what they needed to save the banks. Authorization of capital injections was added into the Emergency Economic Stabilization Act of 2008, but Paulson could not have been any more against it. The bill passed, and Paulson reluctantly had to “step in directly with government capital” (Inside the Meltdown).
Due to the act passing, Bernanke and Paulson had to sit down with executives from the top banks on Wall Street at the time, such as Wells Fargo, Bank of America, and Goldman Sachs. Paulson told them he would be giving each bank tens of billions of dollars in return for the government being a major stockholder in their companies; “Paulson would spend $125 billion that day” (Inside the Meltdown). For Paulson and Bernanke, government intervention was not morally right, but it was their only option. Along with enforcing capital injections, the Troubled Asset Relief Program (TARP) was created to make up for lost capital in banks.
Against Paulson’s beliefs, he was assigned as head of TARP, which “stabilize[d] the country’s financial system, restore[d] economic growth, and mitigate[d] foreclosures” (Investopedia). It allowed the government to buy stake in banks, in return, companies would lose certain tax benefits, and have limits placed on executive compensation, in order to protect funds being spent. By 2010, Paulson would spend $350 billion to save the financial system.
During the time of the Great Recession, many cartoons were printed in newspapers regarding the 21st century’s worst economic crisis. For example, in Gary Varvel’s cartoon above, Paulson is depicted as a doctor giving a shot with the term “bailout” written on it. Varvel incorporated a humorous play on the word injection, by creating a parallel image between government intervention and a shot. Paulson is shown saying “this may hurt a little,” meaning not only the pain of a needle but portraying a poke at the government’s administrations ego and outlook. There is a play on words with capital injection, by the word “injection” being represented as a needle to symbolize companies getting a shot of capital “bailout,” as an immediate cure to the failing financial system.
The cartoon by Gary Varvel resonates with the 1930s’ era cartoon titled, “What This Congress Needs,” published in the Dallas Morning News (Knott). These cartoons depicted the main influencers during the time of the major financial crises: President Herbert Hoover and Secretary of the Treasury, Henry Paulson. Knott’s cartoon and the accompanying editorial, “Mr. Hoover Reproves,” discussed saving America’s economy and the efforts needed in order to end the financial crisis (Dallas Morning News). Varvel’s cartoon about capital injections related to Knott’s cartoon, “What This Congress Needs,” by showing how each era was in desperate need of funds and the efforts gone to preserve these funds. Both men depicted in the cartoons were harshly criticized by their peers and the people of America for their efforts in aiding their country.
The “Great Recession” was unlike anything America had seen since the Great Depression of the 1930’s. When banks started to have lack of regulation and poor accounting, it caused the beginning of the financial crisis on Wall Street. Sadly, had the advice of Brooksley Born been applied earlier on, the disaster could have been avoided. Rather than being prevented, however, the Great Recession had begun when an influx of homeowners received such large loans that they were unable to pay the banks back. Henry Paulson and Ben Bernanke did everything in their power to bring America’s finances back to normal, by loaning funds, establishing bills, and injecting capital into companies. As shown in Knott and Varvel’s cartoon’s, the efforts given in order to fix the failing financial system were actions Hoover and Paulson thought were necessary for the United States. Hoover and Paulson had many different successes and failures during their terms in the US government. Their efforts have given modern-day government an outlook on how to avoid and handle another disastrous stock market crash.
Beattie, Andrew. “What Is Moral Hazard?” Investopedia, Investopedia, 3 Jan. 2018, www.investopedia.com/ask/answers/09/moral-hazard.asp.
CFR Staff. “The Credit Rating Controversy.” Council on Foreign Relations, Council on Foreign Relations, www.cfr.org/backgrounder/credit-rating-controversy.
Horton, Ron. “The Great Recession.” St. James Encyclopedia of Popular Culture, edited by Thomas Riggs, 2nd ed., vol. 2, St. James Press, 2013, pp. 541-543. Gale Virtual Reference Library, http://link.galegroup.com.ezproxy.lib.utexas.edu/apps/doc/CX2735801140/GVRL?u=txshracd2598&sid=GVRL&xid=87cd5064. Accessed 12 Apr. 2018.
“Inside the Meltdown.” Frontline, produced by Michael Kirk, Jim Gilmore, and Mike Wiser, PBS, 2009.
Manning, Robert D., and Anita C. Butera. “Consumer Credit and Household Debt.” Encyclopedia of Contemporary American Social Issues, edited by Michael Shally-Jensen, vol. 1: Business and Economy, ABC-CLIO, 2011, pp. 33-45. Gale Virtual Reference Library, http://link.galegroup.com.ezproxy.lib.utexas.edu/apps/doc/CX1762600011/GVRL?u=txshracd2598&sid=GVRL&xid=635eef03. Accessed 16 Apr. 2018.
Markham, Jerry W. “The Crisis Begins.” A Financial History of the United States, vol. 6: From the Subprime Crisis to the Great Recession (2006-2009), M.E. Sharpe, 2002, pp. 473-523. Gale Virtual Reference Library, http://link.galegroup.com.ezproxy.lib.utexas.edu/apps/doc/CX1723800208/GVRL?u=txshracd2598&sid=GVRL&xid=5e26353e. Accessed 15 Apr. 2018.
McDonald, Oonagh. “The Repeal of the Glass-Steagall Act: Myth and Reality.” Cato Institute, 16 Nov. 2016, www.cato.org/publications/policy-analysis/repeal-glass-steagall-act-myth-reality.
“Moral Hazard.” International Encyclopedia of Organizational Studies, edited by Stewart R. Clegg and James R. Bailey, vol. 3, SAGE Publications, 2008, pp. 917-919. Gale Virtual Reference Library, http://link.galegroup.com.ezproxy.lib.utexas.edu/apps/doc/CX2661400320/GVRL?u=txshracd2598&sid=GVRL&xid=7d7982a8. Accessed 15 Apr. 2018.
Rouse, Margaret. “What Is Great Recession (Great Recession)? – Definition from WhatIs.com.” SearchCIO, Mar. 2012, searchcio.techtarget.com/definition/The-Great-Recession.
“The Warning.” Frontline, produced by Michael Kirk, Jim Gilmore, and Mike Wiser, PBS, 2009.
In the political cartoon “Five Year Anniversary,” by Nate Beeler, five stacks of one hundred dollar bills are set on fire on top of a cake that reads “2009 Stimulus.” The five candles represent the Stimulus Package’s, also known as the American Recovery and Reinvestment Act, five years of age upon being signed into legislation by Barack Obama in 2009. Beeler’s cartoon depicts the idea that the ARRA wasted money rather than pushing the economy out of the Great Recession.
In December 2007, the United States experienced a time of rising unemployment and declining GDP (gross domestic product) that lasted until 2009. This period was dubbed the Great Recession due to the severity of the negative impacts. The U.S. National Bureau of Economic Research defines a recession as a “period of at least two consecutive quarters of declining levels of economic activity” (Krabbenhoft), and during the time span between 2007 and 2009 GDP decreased by 3.5 percent and the unemployment rate increased more than 5 percent. The gross domestic product indicates the total value of goods and services produced over a period of time, so production and consumer spending decreased drastically. The government attempted to alleviate the unemployment rate and increase economic growth by creating what’s known as a multiplier effect. The multiplier effect occurs when there is an increase in final income from the increase in spending from the initial stimulus. Consumer expenditures make up 70 percent of GDP, and increasing consumer expenditures would create this effect, for consumption leads to the selling of goods and so on. Business investments are also a main component of GDP, and providing business incentives to increase the level of investment was also critical to alleviating the economy. With these two conditions kept in mind, President Bush signed the Economic Stimulus Act of 2008 into legislation. The ESA consisted of 3 provisions: the first provision provided a tax rebate for taxpayers while the second and third provided tax incentives to businesses to stimulate business investment. Unfortunately, consumer spending did not increase as the government hoped it would. Many households preferred to keep their money in their savings rather than spend it or pay their debts; thus, the multiplier effect did not take off. The tax incentives for businesses were also ineffective because the success was minimal and did not improve the economy; therefore, the ESA was failed, but it inspired a new act that was created by the next president, Barack Obama.
After becoming president, Barack Obama signed the American Recovery and Reinvestment Act of 2009 into legislation. The ARRA allowed people to keep a larger segment of their paychecks, provided tax credits for homebuyers, college expenses, and home improvements. Essentially, people got more than a single rebate and had more of an incentive to increase consumer spending. The ARRA also provided money for the government to improve health care, education, and infrastructure in order to create more jobs for the public and decrease the unemployment rate. Despite these efforts, the economy continued declining; however, GDP increased slightly during the third quarter of 2009 and fourth quarter of 2013, but unemployment continued to increase. Although the ARRA played on the idea of the multiplier effect, it did not work because people either lost hope during the recession and stopped looking for jobs or used their money in ways the government didn’t intend. The ARRA had good intentions, but nothing occurred the way the government believed or wanted it to happen. This relates to John Knott’s cartoon, “What’s the Next Play Going to Be?” because of the naive thought that people would comply with what higher officials wanted them to do; in the end, people spent money the way they wanted to spend it or stopped trying to find a job whenever hope was lost. It is difficult to bring an economy out of a recession or decrease the unemployment rate immediately, and it takes time for such drastic changes to occur because people do not have unanimous opinions. Ultimately, the ARRA failed just as the NRA had due to the difficulty in governing people’s actions. The failure of the ARRA and the NRA also expressed the theme that assuming what an entire nation of people would do is naive because people do not act or think similarly, and it is not safe to predict how millions of people would behave, especially during a crisis.
The irony behind the cartoon lies behind the fact that the anniversary of the Stimulus Package was being celebrated despite how negatively people viewed it. It is celebrated because the White House believed the ARRA was good for the economy, but many others thought otherwise as indicated by the burning money. Beeler’s cartoon depicts both standpoints, but the main focus is on how disfavored the ARRA was as shown by making the burning bills the focal point of the cartoon.
Nate Beeler’s political cartoon “Five Year Anniversary,” stresses how much of a fail the ARRA was due to the amount of money it dissipated. Many efforts were put in to save the economy, but the government did not consider the fact that some households or businesses wouldn’t comply with their intentions. The government was unable to dictate the people’s actions, ultimately leading to the collapse of the American Recovery and Reinvestment Act.
Krabbenhoft, Alan G. “Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009.” Encyclopedia of Business and Finance, 3rd ed., vol. 1, Macmillan Reference USA, 2014, pp. 234-236. Gale Virtual Reference Library. Accessed 28 Nov. 2016.
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