Economic Report President

succession of new opportunities and challenges of an ever-changingworld. However, considerations of fairness require that we ensure thatno part of our society bears disproportionate losses for the sake ofachieving net gains for the rest. More pragmatically, achieving politicalconsensus to embrace worthwhile change sometimes requires lookingout for the interests of those who are visibly harmed, even if thatmeans sacrificing some portion of the potential gains. Three very differentareas of current policy concern—agriculture, corporate mergers,and international trade—illustrate these difficult choices.AGRICULTUREFor more than a decade, a new, bipartisan farm policy has directedfarmers to seek income increasingly from markets rather than fromFederal subsidies. The 1994 Crop Insurance Reform Act and the FederalAgriculture Improvement and Reform (FAIR) Act of 1996 sought toreplace the farm income safety net, based on government-managedprice and income supports, with a system in which farmers managetheir own risk through crop diversification, transactions in futuresmarkets, and government-subsidized crop and revenue insurance.However, when the President signed the FAIR act, he expressed hisconcern that it failed to provide an adequate safety net for family farmers,and he reiterated his commitment to work with the Congress tostrengthen that safety net.Farmers prospered in the first few years under the FAIR act. Netfarm income rose to a record $53.4 billion in 1996 and remained highin 1997, as export demand grew and world commodity prices rose from1995 levels. In addition, farmers benefited from the transitional paymentsprovided by the 1996 act, which boosted farm income by about$6 billion in both 1996 and 1997. In 1998, however, farm income fell, ascommodity prices dropped sharply and farmers confronted a number ofweather-related problems. In response, the Administration insisted ona $6 billion emergency assistance package to boost farm income. Netfarm income in 1998 is estimated to have been about $48 billion, onlyslightly less than the 1997 figure of $50 billion. The President has alsopledged to work with the Congress this year to reform the cropinsurance program and farm income assistance.The experience of 1998 reflected the tension inherent in a farm policythat is market oriented yet tries to provide an adequate safety net forfamily farmers. Current farm policy encourages farmers to make theirplanting decisions on an economic basis rather than with an eye to governmentsupport, while helping them manage risk by subsidizinginsurance against both poor harvests and low prices. But to the extentthat farmers have a reasonable expectation that the government willstep in to provide assistance in the event of an emergency, theyare unlikely to take all the appropriate risk management stepsthemselves. This gives rise to a moral hazard problem that cannot be38