ECONOMIC

price stability without the risks inherent in direct intervention in commoditymarkets.Farm programs also influence the efficiency of resource utilization in agricultureby helping farmers bear the risks of crop failure caused by badweather, pests, or disease. For most commodities, production risk is paid forby consumers in the higher prices needed to induce people to undertake riskyactivities. For grains and cotton, current legislation provides free insurancethrough disaster payments when bad weather prevents planting or when aharvest of two-thirds or less of normal production on allotment acreage isrealized. These payments totaled about $840 million in 1974 and 1975 together.The economic arguments favor replacement of the disaster paymentscheme by an expanded system of nonsubsidized general crop insurance.Subsidized crop failure encourages farmers to use marginal land too intensively,contrary to the conservation goals of agricultural policy, and couldreduce the output of our agricultural resources in the future.Farm programs offer both opportunities and pitfalls in the effort to makethe most of our agricultural resources and thus increase real GNP. Opportunitiesoffered by the commodity price boom of recent years were used toestablish a potentially valuable legacy of a full-production policy for agriculture.The challenge is to use whatever new opportunities present themselvesto eliminate remaining restrictive measures. Most important for theimmediate future is not to let the pursuit of farm income support or pricestabilization lead us back into past restrictive approaches.TAX POLICIES FOR CAPITAL FORMATIONIn Chapter 1 it was noted that a higher rate of investment is desirable fortwo reasons: to help sustain the expansion in the short run and to providethe new capacity required in the longer run to ensure rising real incomes,productive employment opportunities for a growing labor force, greaterself-sufficiency in energy, and a cleaner environment. Chapter 1 also notedthat one of the important causes of the recent productivity slowdown hasbeen the slower growth in the stock of capital per worker over the lastdecade. The conclusion was therefore reached that an important objectiveof economic policy in the years ahead should be to ensure adequatelevels of new investment. In the near term, stable economic growth is essentialfor a higher rate of capital formation. But policies may also have tobe devised to counteract the forces, identified in Chapter 1, which mayhave lowered the effective rates of return to saving and investment andinterfered with an efficient allocation of capital resources. For example, thePresident's proposed reductions in personal and corporate income taxes canbe justified in part as an offset to the bias against private investment createdby our tax structure, under which the real tax burdens for business as well asindividuals rise in periods of high inflation. There are a number of other162