Why Subsidies Are Bad
The short version is that they fuel inflation, speculation1, and regulatory capture.
Almost every economic problem is either supply-side2 or demand-side.
Individual subsidies just throw money at demand.
Corporate subsidies just throw money at supply.
The left generally loves one, the right, the other
I’ll leave it up to you, Wise Reader, to figure out which.
But neither really does anything useful! Federal student loans aided and abetted the insane tuition inflation that was driven by greedy for-profits on one side, and greedy university administrators on the other. Oil subsidies have left us with a dirty economy and a captured Congress.
What we should really be talking about is investment. Specifically, the main avenues are that we either need to invest in things that expand supply - but pay back the taxpayer - like the loans that were made to Tesla; or, in clearing out competition-suppressing regulations garnered by incumbents through capture.
Investments, in the form of corporate loan backing and guarantees, allow us to free ourselves of the obligation to directly fund corporate welfare (like we have for oil companies), thus keeping them off the federal teat. Look no further than Tesla, who I don’t think expect government to support them indefinitely in quite the same way the oil bastards do. Tesla also simply doesn’t have any real way to keep government supporting them: there are demand-side subsidies for them, but those will only last as long as the consumer demand lags that of oil.
Individually, things are a lot harder to parse. Cash benefits are avoidable at the bottom - the safety net - but universalizing each program is basically a demand-side subsidy for that particular industry, unless we go whole-hog with a UBI, in which case we’re just courting generic economy-wide inflation. Individual programs are also often too small-bore to make much of a difference, and don’t scale well at that.
But when we zoom back out to first principles, we can make the obvious observation that most of the problems individuals face, actually are on the supply-side3. Pre-K is expensive because it’s care-intensive, not merely because everyone needs it (everyone needs bread too, after all). Housing is expensive because of zoning-induced4 artificial scarcity and a New-Deal-era financial system that’s built on an assumption of housing inflation perpetually exceeding general inflation5. College is expensive because a professionalized administrative class used accreditation commissions to create what’s effectively a cartel6. Healthcare is expensive because of hospital, insurance, and pharmaceutical cartels. Having kids is expensive because of… well, all of the above.
The only major demand-side problem, by contrast, is that wages don’t keep up with all of these costs. In other words, the Cost Disease.
So, to tie it all back together, basically there are no demand-side problems besides sluggish wage growth, and that’s only a problem because of all the supply-side problems we’ve accumulated due to regulatory capture and cartelization/monopolization. All of the subsidies we’ve spent the last 30, 70, 100 years (depending on which one we’re talking about) have basically been throwing good money after bad, on dumbass Democrat theories of “Well, we need to give people access to [blah blah blah]”, competing against shitty, cynical, and mostly-racist Republican theories of “The free market will save us [from wasting money on those dark folks over there]”.
In short, we really need to start eradicating subsidies from our economy. And we need to not make new ones. Instead, we should be investing in building capacity (AKA supply) for new or cost-diseased sectors, and (probably piecemeal, since all-at-once is politically toxic) replace all but the lowest safety net of our social welfare state with a simple UBI (or just taxing the rich to pay for all this investment).
On future subsidies.
Yes, I know this is triggering for some of you out there, but I’m not talking about Reaganism, I’m talking about the actual supply side of the equation.
Again, I’m not talking about Reaganism, I’m talking about actual supply restrictions that keep us from meeting demand. If you’re going to accuse me of anything, accuse me of being a “supply-side con-prog”.
And racism-induced.
This is a REALLY shitty assumption. I mean, it doesn’t even pass the sniff test - above-general housing inflation will inevitably result in an affordability crisis, not some magical windfall. The entire financial sector should be fucking ashamed of themselves for this one.
I’m perfectly happy to build the case for this if y’all wanna start arguing me on it. But broadly speaking, it’s been proven that most of education inflation started in the 80’s, and since then, administrative costs have been the primary driver of inflation. In fact, professor salaries have stayed constant, adjusted for inflation and population growth.
Now, many people love to bitch about the drop in federal and state subsidies, but those were only a contributing factor, not the controlling one. Professionalization happened in the 40s-50s, consolidated in the 60s, and only became a problem once the subsidies were drawn down in the 70s-80s. Cartelization was the natural response. And I dare you: go look at college football and basketball TV revenues; I’ll bet that they only took off around the same time as cartelization, because that was when the administrators finally took the helm and started driving profit-seeking through college sports.
As I was scrolling down reading, I stopped and thought, "What about college sports?" I should have finished the article first, because the next block of text was...college sports.