The real addiction problem - government subsidies

Over in formerly great Britain, this economist gets it.

The head of a group which advises the government has called for a review of tax breaks for farmers.

Economist Dieter Helm, who chairs the independent Nature Capital Committee which advises the Department for Environment, Food and Rural Affairs, said the current system led to "subsidy addiction".

Farmers will be paid for delivering benefits for nature and the countryside after Brexit instead of receiving subsidies for the amount of land they farm, Defra secretary Michael Gove has indicated.

However, Professor Helm, who said he was speaking in a personal capacity, told BBC Radio 4's Today programme: "If you're producing 0.7% of output, receiving £3 billion of subsidies for that output of about £9 billion and being exempted on rates, and being exempted on diesel and being exempted on inheritance tax, this is quite a list and we've got there by accident almost, one after another of these concessions has been made, it's kind of a subsidy addiction in the end.

"Farmers receive not just the £3 billion of subsidy, they receive a whole range of other benefits that nobody else in the economy gets."

There's more at the link.

He's right, of course;  but the problem extends far beyond farms.  In a sense, every single government payout to any recipient runs the risk of growing into a subsidy without which the recipient simply can't make it.  Welfare and entitlement programs are the most prominent example.  Back in 2014, Forbes reported that "perhaps 52 percent of US households - more than half - now receive benefits from the government".  I'm willing to bet that at least half those households would not be able to cope if those benefits were cut (much less withdrawn completely).  Our tax system actively subsidizes the lowest-income element of society by paying them the so-called 'Earned Income Tax Credit'.  (I've heard the EITC called 'reparations-for-slavery in disguise' by some economists.  Current agitation for the implementation of some form of 'Basic Income' is, in part, fueled by those who regard it as another potential element of reparations.)

The biggest subsidy problem in this country arises in commerce and industry.  To name but a few:

• There's the ethanol subsidy, in the form of tax credits and other measures, which nets giant corporations such as Archer Daniels Midland and the like billions upon billions of taxpayer dollars, each and every year.
• There are agricultural subsidies in general.  According to Wikipedia, these paid about $20 billion to farmers and industrial corporations in 2005.  I'm sure it's a lot higher by now.
• There are rescue measures for troubled industries.  The most prominent in recent history is the Troubled Asset Relief Program (TARP) bailout of the financial industry in 2008, which disbursed almost $430 billion, including over $80 billion to the US auto industry.

Those are only three out of many subsidies paid out annually by US taxpayers, many of whom know little or nothing about how their tax dollars, both federal and state, are being spent.  In 2014, Forbes reported:

I recently read the February 24 Good Jobs First report, “Subsidizing the Corporate One Percent” ... It says that three-quarters of all state economic development subsidies went to just 965 corporations since the beginning of the study in 1976. The Fortune 500 corporations alone accounted for more than 16,000 subsidy awards, worth $63 billion – mostly in the form of tax breaks.

Think about that. The largest, wealthiest, most powerful organizations in the world are on the public dole ... there are 514 economic development programs in the 50 states and the District of Columbia. More than 245,000 awards have been granted under those programs. I ask again, where is the outrage? The system is antithetical to the idea of free markets. A quarter of a million times, state governments decided what is best for producers and consumers. That should make us cringe. First, the government is inefficient at providing public goods, and it is terrible at manipulating the markets for private goods. But more importantly, those 514 economic development programs are almost all the result of insidious cronyism. Narrow business interests manipulate government policymakers, and those interests prosper to the detriment of everyone else. Free markets be damned.

. . .

The 965 companies in the report received over $110 billion of public money.

Again, more at the link.

That $110 billion would pay for an awful lot of other needs, if it weren't being siphoned off to feed corporate greed.  Do you want to know why so many companies spend so many millions of dollars every year on lobbying Washington for their own special interests?  It's been estimated that up to $9 billion every year is spent on the lobbying 'industry'.  In other words, by spending that $9 billion, companies get back up to $110 billion or more (according to Forbes) in direct and indirect benefits.  They get back $12.22 for every $1 they spend.  Sure sounds like a bargain to me!

In general, government subsidies to commerce and industry are, I submit, a curse, and a ripoff of the taxpayers of that nation.  I've no doubt there are some that are justifiable . . . but how can we identify them amid the morass of corporate cronyism, bribes and backdoor deals?  I think that British economist is right.  Subsidies have become nothing more or less than an addiction.

Here's a corporate litmus test.

• Can a company, or an industry, survive on its own, without government subsidies?
• If not, is it essential to the security and/or survival of that nation?  By that I mean, can the nation continue to exist, and guarantee its own security, without it?
• If the answer to both questions is "No", then let it sink.  Don't subsidize failure!

Peter