It is a common and mistaken notion that subsidies are not only harmless but beneficial. This conclusion is misguided and harmful. On the surface it would appear that simply giving money or special privileges to a private individual or a company would be the equivalent of a charitable act. In the world of business where competition operates to lower prices this act of giving by the government has implications and consequences that are far reaching and destructive.
This can be readily observed in the field of farm subsidies. Farmers are able to “set aside” their land and receive monetary compensation for not putting their land in crops. So what’s the harm? First someone has to pay for this and if there isn’t enough tax revenue it must be paid in borrowed money which eventually compounds interest and must eventually be repaid. Those farmers competing with the farmers setting aside land have a distinct disadvantage. The productive farmers must work the land, buy the seed and fertilizer and face the risk of poor weather to pay for their investment while the subsidized farmers simply wait for the government check. This is not only unfair it is a way to draw more farmers into the subsidy program where they can get a better return on their land by simply owning it and signing up for government subsidies.
The subsidy for not being employed has similar effects. A person who takes unemployment because he cannot get a job equivalent to the job he lost easily decides to take the unemployment check until he can hopefully return to the earning level he has lost. This destroys any incentive to simply seek a job that is on the market. The question asked by the unemployed is , “ Why should I take less than I had”. The answer is , “Because it is gone and no longer exists”. The consequences of huge monetary deficits from unemployment payments is so obvious that only the most obtuse can deny them.
Subsidies are bribes the government offers for political pandering. The politicians know they have nothing to pay for such schemes unless they confiscate money from those who are not being subsidized. This raises the cost of doing business and lowers the take home pay of those who are not receiving government payments or favors. As this subsidization spreads the issue becomes cloudy as partial subsidies and favors reach practically all areas of the economy. An obfuscating factor is the issue of claiming tax breaks are some sort of favor. That which the government doesn’t tax is not a favor by the government. People earning money may have a tax slapped on them but they earn nothing simply by being told they will not be taxed. This is another distraction politicians use to claim some industries or companies are being treated with favoritism ( especially by the opposition party). Direct payments are subsidies. Not taxing is simply keeping the government’s revenue gathering apparatus at bay.
Are there any forms of subsidies besides direct payments? If one company is allowed a tax break and another company is not does this constitute a subsidy? No but it is a lack of justice which the government is charged with implementing. Recognizing government injustices is the job of the government and correcting such breaches is likewise its job.
The government has meddled in the economy so long it has become acceptable to so many that it is seldom questioned. Yet most people understand that there is a distinction between private and government actions. Anyone who has stood in line waiting for a driver’s license or license plates or stamps knows how the government operates. Likewise the difference between voluntary trade and forced payments can hardly be ignored. Knowing the difference, why would anyone want the everyday trading we participate in to be interfered with by some armed intermediary? People who have advocated government force have tried to put a benevolent face on government interference by pointing to the benefits government has to offer. Look at Social Security and Medicare. Yes, one should look at these two programs and see them for what they really are. First they are unsustainable. Second they are inadequate for the purpose they were created. Third they require subsidies to continue which must be paid for by people who must support the programs but will be unlikely to receive adequate benefits. There is the unfairness of those who contribute and never receive anything as they die before they become eligible for receiving benefits. There is the burden of the young that must pay when they are trying to meet everyday living expenses. There is the administration costs that eat up the value of the contributions in buildings, real estate, personnel, utilities, vehicles , etc. All this extra expense because some people have decided they must force some people to contribute to the welfare of other people which will get them constituents to keep them in political power.
We have looked at the consequences of subsidies but what, if any, benefits are there? In the short term the beneficiary of a subsidy has an advantage over the person not receiving a subsidy. This is only a short term benefit that will create more problems than it will ever solve. First those who do not receive the benefits resent those that do. Second the benefits must be paid for and if they are not paid for with tax revenue they are paid for with borrowing and/or eventually printed money which leads to inflation. This demonstrates that subsidies are the tool used to lead to demise of a nation. Government spending is only accepted and advocated if it appears to be a benefit to someone. Lobbyists exist to exploit this. Yet none of the participants look at what they are “accomplishing” in the long run. This brings us to the essential component of politicians thinking. It can be summed up as follows. “ Can I get away with it.” The current standoff in Congress with the debt has one side saying time is up and the other saying, we can extend this charade a little longer if we simply kick the can down the road. The fact that an increase in the debt limit will still have to be addressed again with far greater consequences is evaded and ignored.
When the role of government subsidies is recognized as the road to destruction the government will no longer pursue this method of distorting the economy. Free trade and competition will be encouraged and a stable economy without the distortions of government meddling will make prosperity and expectation and a reality. The practice of subsidizing by the government needs to be recognized, not as a method for improvement, but as a tool of destruction to the economy and the lives of millions. It’s use should be outlawed. This will limit government to its proper function of protecting individual rights. Without this recognition and limitation a police state is the inevitable result.