Monday, December 13, 2004

Liberating Europe

In response to Washington Post op-ed that called for subsidizing Boeing so it can compete with European subsidized Airbus, Don Boudreaux wrote his own op-ed with the mandatory longer explanation at Café Hayek.

Don’s right about a lot of it, but he’s wrong when he says “For as long as any foreign subsidy lasts, it is a gift to consumers. We consumers who are not taxed to fund these subsidies should be thankful.”

No, we shouldn’t be thankful; we should be outraged. In this interconnected world, their loss is our loss. Don himself points out: “A subsidized firm spends much time and effort and resources playing politics; this is time and effort and resources not devoted to improving operating efficiencies and the firm’s facility for anticipating and satisfying consumer demands.” There’s an opportunity cost here. If Airbus won’t improve its product, we don’t get the improvement. Sure, we might get some gold-plated arm rests, but we won’t get the genuine novelty and innovation that can only come with fierce, mind-stimulating competition.

We also loose money. Those European taxpayers won’t burn their refund in their backyard if the government cuts the subsidy and passes on the saving. Believe it or not, they will buy something (and to be sure, some of it from us). Simple mathematics tells us the net worth of all the buying will add up to all that gold-plating. Except in this case, it will serve a worthwhile function.

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