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subsidies Archive

Friday

30

May 2014

0

COMMENTS

Reading Rainbow Ditches Government

Written by , Posted in Culture & Society, Free Markets

Reading Rainbow was an iconic children’s show with a long run on PBS that ended in 2006. As one of millions who grew  up watching the show – it aired for the first time just days before I was born – I’m happy to see it returning to encourage new generations to read. LeVar Burton, long time host and a major force behind the show, announced on Kickstarter plans to revive the program as a web-based program and get it into classrooms for free. The campaign quickly blew through its $1 million goal, which was hit in less than 24 hours. The revival is not a return of the TV show, though, but rather an evolution appropriate for reaching new generations.

It is also a testament to the fact that government is not a necessary ingredient for the provision of educational content, especially in the age of Kickstarter and ubiquitous crowdsourcing. Proponents of public television will no doubt argue that the campaign would not have caught fire if it weren’t for the decades of exposure the program already had on government subsidized television. This is a far point. But even accepting this particular project might not have gotten precisely as much support as it did, and as quickly as it did, if not for its previous exposure, does mean that: 1) such exposure could not have come without government or, 2) that it or similar worthy causes could not thrive otherwise.

So for fellow fans of Reading Rainbow, celebrate not just its return, but also that it is doing so through voluntary support instead of government force.

Wednesday

5

December 2012

0

COMMENTS

An Unconvincing Case for Protectionism

Written by , Posted in Economics & the Economy, Free Markets

A few weeks ago, Rep. Tom Rooney took to the Daily Caller to make “a conservative case for sugar tariffs.” He failed in my view, but he did succeed in proving my recent point that bringing home the bacon and handing out political “gifts” is a bipartisan disorder.

Rep.  Rooney makes the following arguments, as I understand it:

1) All countries use protectionist and interventionist policies in the sugar market – therefore we must too.
2) Brazil has captured a lot of the market and will drive out US producers with low prices if they don’t receive government assistance.
3) Jobs will be lost and prices will rise if that assistance isn’t provided.

He goes on to say that government assistance shouldn’t be too high, nor should it involve dictating business practices. That’s not enough; it shouldn’t exist at all. I agree with Milton Friedman’s view that even unilateral free trade is a better option than meeting subsidies with subsidies and tariffs with tariffs. If Brazil wants to “plow another $1 trillion into its sugar market over the next few decades,” we should let them. It’s money straight from their taxpayers pockets and into the hands of US consumers. It harms them, not us. As for the 142,000 US jobs supposedly on the line, it’s not either/or. The choice is not between subsidizing US sugar or seeing those people forced into unemployment. Their labor can be used elsewhere, and when combined with lower sugar prices than we would have otherwise seen if not for Brazilian subsidies, the net result is greater production for us. We get cheap sugar and we get whatever else those 142,000 people are able to produce. The only real loser in this equation is the Brazilian taxpayer.

Sure, the decline of US sugar producers would be disruptive to the people whose jobs were lost, but I think the social safety net (more like hammock these days) is more than big enough to handle it. And disruptions happen in all markets in a competitive system. Whether or not its because another firm has developed a more efficient business model or because of foreign subsidies doesn’t really make any difference, so long as it’s not our taxpayer doing the subsidizing. The real issue is that bad government policy has so encumbered the market that absorption of displaced workers is difficult, but more taxpayer handouts are not the solution to that problem.

Rooney repeatedly warns of a Brazilian led OPEC for sugar, presumably to explain his seemingly contradictory (amazingly, I find myself in agreement with Think Progress of all places) concern that Brazilian control over the market will mean both lower prices (to drive out American producers) and higher prices (to hurt US consumers), but OPEC strikes me as a bad comparison. An oil cartel can be effective (somewhat) at manipulating prices because oil production is necessarily concentrated in places where oil can be found, and the major national producers are few. If you have no oil deposits, it doesn’t matter how high and enticing prices get, you can’t join the market. It’s true that sugar cane cannot grow just anywhere, but the barriers to entry are not near so significant as oil. Non-Brazilian producers can simply increase production to offset any attempts by Brazil to artificially raise prices. In other words, even if US producers dwindle because Brazil is able to charge below-market prices thanks to subsidies, any later attempt to raise prices and charge above-market rates after capturing a dominant position would result in the return of US producers, or other new entrants to the market.

There is also a national defense issue with regard to oil that doesn’t exist for sugar. Interruption in the supply of sugar does not pose the same concerns as interruptions in the supply of oil.

What I think it comes down to is whether we adopt the protectionist view that within all arbitrarily designated political borders there must be complete self-sufficiency, or we instead allow ourselves to be blessed by the productive advantages brought about by global trade. Free trade is best, to be sure, but if the only available choices are between letting others foolishly distort their markets or joining them and doing the same to ours, I think it’s an easy decision which path to follow.

Monday

11

January 2010

0

COMMENTS

Biomass Subsidies Backfire

Written by , Posted in Economics & the Economy, Free Markets

More unintended consequences from government interventionism in the market, via WaPo:

…In a matter of months, the Biomass Crop Assistance Program — a small provision tucked into the 2008 farm bill — has mushroomed into a half-a-billion dollar subsidy that is funneling taxpayer dollars to sawmills and lumber wholesalers, encouraging them to sell their waste to be converted into high-tech biofuels. In doing so, it is shutting off the supply of cheap timber byproducts to the nation’s composite wood manufacturers, who make panels for home entertainment centers and kitchen cabinets.While it remains unclear whether Congress or the Obama administration will push to revamp the program, even some businesses that should benefit from the subsidy are beginning to question its value.

“It’s not right. It’s not serving any purpose,” said Bob Jordan, president of Jordan Lumber & Supply in North Carolina, even while noting that he might be able to get twice as much money for his mill’s sawdust and shavings under the program.

“The best thing they could do is forget about it. All it’s doing is driving the price of wood up.”

Subsidies, by their very nature, distort markets.  While this specific outcome may or may have not been foreseeable, that there would have been some destruction by forcing a good to be used for a different purpose than the market generally allocates it should have been obvious.

But don’t count on government deciding to “forget about it,” despite the damaging evidence.  The deep-seated desire of some to save civilization by promoting “green technology” is based on a near-religious fanaticism in support of AGW.  If it hasn’t been shaken by ClimateGate and today’s global cooling, a little economics isn’t going to do it either.  The only hope is to vote them all out.

Monday

5

October 2009

0

COMMENTS

We Don't Need Government To Spark Innovation

Written by , Posted in Economics & the Economy, Energy and the Environment, Free Markets

The administration is spending big bucks subsidizing favored business models.  In particular, they are pushing a “green auto industry:”

The Obama Administration is eager to establish a green auto industry and is willing to spend money to make it happen. So far the U.S. Energy Dept. has agreed to lend $8.5 billion to help companies large and small retool plants to make more fuel-efficient cars and develop new technologies. On Sept. 22, the Energy Dept. announced the latest such loan: $528 million for a Silicon Valley startup called Fisker Automotive that vows to produce 130,000 plug-in hybrids by 2013.

The U.S. government believes in funding companies outside the established industry because it’s important to nurture new ideas. “We’re trying to create competition among technologies in the marketplace,” says Matt Rogers, an Energy Dept. adviser. Fisker and Tesla Motors, another startup that has received $465 million in federal money, both say their cars are high-tech and have spurred plenty of consumer interest.

Why do we need government to “create competition?”  Markets do that best when the government footprint is as small as possible.  Bigger government stifles competition because policy makers cannot possibly predict what innovations will eventually take off.  Relying on politicians to fund the next big technology is a fools game.  When politicians funnel money to favored groups it is an inherently political process, and it also takes away funds otherwise available for private investment.

It is also impossible to foresee what innovations will eventually lead to technological revolutions. What if there’s some completely new model on the horizon, the discovery of which could be significantly delayed because government distorted the market with heavy subsidizes to interest group approved industries? We don’t need bureaucrats in Washington pretending that their special interest handouts will “create competition,” we need them getting out of the way so private investors can create real competition and innovations.

Wednesday

8

July 2009

0

COMMENTS

A Regulation We Could Actually Use

Written by , Posted in Economics & the Economy, The Nanny State & A Regulated Society

James Gibney of the Atlantic proposes making the actual cost of food apparent to the consumer by requiring labels indicating whether a product has either received government subsidy or benefited from anti-competitive tariffs.

Americans pay much more than they should for their food. Thanks to a thicket of subsidies and tariffs that support American farmers and tilt the growing field against cheaper foreign producers, we get ripped off twice: first as taxpayers who ante up for roughly $25 billion in agricultural subsidies each year ($4 billion for milk alone in 2006); then as consumers who pay higher prices at the checkout counter because we can’t take advantage of low-price imports.

…So, how can we get more Americans to look up from their feedbags and demand that Congress restore some sense to the marketplace? I recommend a little truth-in-packaging. Just as food manufacturers now list their products’ ingredients and nutritional value, they should also disclose their “free-market” value.

To wit, every product whose ingredients benefit from a subsidy should include the following language on the label:

“This product has been subsidized by the U.S. government at taxpayer expense. For more information, please visit usda.gov.”

And every product that benefits from tariff protection should have the following language on the label:

“This product is protected from foreign competition by U.S. import tariffs. Its price is higher as a result. For more information, please visit usitc.gov.”

Now there’s a regulation that makes sense.  That, unfortunately, also means it will never happen.

I must take issue with one thing Gibney says, though.  He says “subsidies and tariffs were originally intended to help protect small farmers–a purpose they’ve largely outlived.”  The idea that they have “outlived” their purpose implies they once served any purpose beyond vote buying. This is a fiction.

Other than that minor quibble it’s an excellent post. I’d like to take the idea a step further and apply it to all products receiving government assistance. A good way to solve the problem of concentrated interests versus diffused costs would be to make people actually see the consequences of the bad policy coming out of Washington. Knowing their food has been made a little bit more expensive is one thing, but seeing that same little bit added to the hundreds of products they use every day would make them realize that it adds up mighty high.  But like I said, this will never happen. Forgive me for dreaming.

Hat tip: Cato@Liberty