Subsidy insanity: Government support for bad ideas

By Don Tabor

Ronald Reagan warned that "Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." But he failed to point out that the latter is often most harmful.

Government at all levels intervenes in the economy with subsidies to encourage us to make choices seen as beneficial, but those choices are rarely as wise as the choices of the marketplace, and there are always unintended consequences.

This should be no surprise, because in every case, a subsidy is really nothing more than a bribe to make a choice a rational person otherwise would avoid. Were it not, the subsidy would not be needed.

Subsidies take many forms beyond direct payments, including tax credits, mandated purchases by government agencies, contractors, and utilities; regulations that suppress competition; quotas on imports; and directed matching funds such as those that lured Norfolk into its light rail debacle.

In all cases, the result is to encourage a choice already rejected by the marketplace for very good reasons.

My great-grandfather, Whitmel P. Martin, was one of six Bull Moose Republican congressmen who used their influence in a closely divided Congress to pass the first U.S. Sugar Act, a system of import tariffs and quotas that subsidize domestic sugar producers.

Sugar prices in the U.S. are twice the world price, driving up the prices of thousands of U.S.-made foods. Kraft, Brachs, Hershey and other confectioners have moved production and thousands of jobs to Mexico and Canada to escape those artificially high prices. Now, even so uniquely American a product as Life Savers candies are imported.

But what of the benefits to sugar farmers? Louisiana farmers struggle to grow sugar cane in a climate that is marginal at best for that crop because, with the subsidy, switching to alternate crops is unattractive. In Florida, great environmental harm results from growing sugar cane in the Everglades watershed on land that otherwise would be used for far less harmful grazing or left as swamp.

The FAA heavily subsidizes scheduled airline service to 150 remote airports that do not have the volume to justify that service, with some airports averaging only six-tenths of a passenger per scheduled flight. The subsidy costs about $200 million annually.

Yet many other remote airports in similar circumstances connect to major airports with unsubsidized Air-Taxi services, which fly only when there is demand and charge by the flight rather than by the seat, allowing fliers to lower their costs by sharing flights. Air-Taxi services prosper at the unsubsidized airports but cannot compete with the subsidized scheduled airlines at those favored locations. So, the marketplace has provided a better alternative but the subsidy prevents its full implementation.

It is not the cost of a subsidy that is its greatest harm; it is the better choices lost to us by protecting the bad ones.

The list of subsidies is almost endless, and the harmful, unanticipated consequences even more so. But once in place, subsidies develop a constituency that will fight to the death to preserve them.

The corn ethanol subsidies are universally seen as a failure, even by the environmentalists who initially advocated them, and have raised food prices at great harm to people across the world by diverting land that could be producing food to producing a fuel substitute that consumes more petroleum to deliver than it replaces.

Only a madman could want to keep that program alive, yet it seems there is no shortage of insanity in our Congress, as the subsidy is practically untouchable.

But there are no entrenched constituencies in the free market. When an idea no longer works, it is abandoned. Those who cling to a bad idea go out of business. In Congress, clinging to a bad idea guarantees reelection.

Every subsidy starts out with good intentions. It certainly seemed like a good idea to grow our own gasoline instead of being dependent on OPEC. But if it was really that good an idea, then why wasn't Exxon buying up farmland?

The reality is that lots of things seem like a good idea when you have unlimited access to other people's money, but we are a lot more careful when it comes to investing our own. No politician, or party, can ever be as smart as thousands of investors safeguarding their own nest eggs or millions of customers making their daily choices in the marketplace.

No matter how good an idea appears to be, if it requires a subsidy to make it successful, that is the voice of the marketplace whispering in our ear that it's not as good an idea as it seems. When we ignore that voice and place our trust in a politician or visionary over the marketplace, we are indeed buying the best insanity our taxes can buy.

Guest columnist Don Tabor of Chesapeake is a grandfather, Libertarian activist and proprietor of TidewaterLiberty.com. He is a dentist in Norfolk and Hampton.