Saturday, June 23, 2007

Slicing Subsidies

AEI published a short essay yesterday arguing for the elimination of subsidies to US farmers. As much as one should support cutting off free handouts at the expense of taxpayers, AEI argued that such a change won't really harm the industry. This sadly suggests that if the supports are keeping farmers around, they are justified.

If the government funds an industry, it's a problem even if many firms would otherwise go under. Especially if they would otherwise go under. Subsidizing a profitable firm means you have a few more people working on something that doesn't need working on. Subsidizing an unprofitable firm means you have a whole company doing a wasteful job. Such supports pass a tipping point from loss to profit. Successful companies are not at a tipping point so subsidies (while still undesirable) only waste at the margin.

Don't be afraid to deregulate a firm--or even an industry--into destitution. Such times are when we can often do the most good.

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