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 I’m willing to bet that at least half those households would not be able to cope if those benefits were cut (much less withdrawn completely).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:

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!



  1. I always say, "when it becomes cheaper and easier to buy a congressman than to make your products better, that's where the businesses will spend their money". Unfortunately, we've been there for over a hundred years. The government went over the "too big" event horizon around the turn of the last century.

    The thing I can never quite understand is that the big government crowd condemns business for it but thinks the government is innocent. If the government isn't taking what amounts to a bribe, businesses can't buy them. The answer is less government, not more.

    If the government isn't involved, all a business can do is try to market their products to you. If they get the government to mandate it, they can force you to buy it. Like buying corn to make ethanol, or an uncountable number of other things they force on us.

  2. I find myself in the role of the devil's advocate. Let's play that out, Pete: the tap is cut off, the dole dries up, and these guys close the doors, and lay everyone off. How many people are on social assistance now as a result? And what will the bill be for that?

    Fred Reed did a spectacular post on economics months back where he speculated that gov't and military bloat were the result of people not being able to find real jobs in the private sector. I think he may be on to something.

  3. I completely agree that the corporate dole is, or should be, anathema in our economy. The problem may start at the federal level, but I believe it is driven at the state and local level. When states and towns compete for companies to locate in their area by offering sweet deals, what properly run company would not take advantage of that? If they did not, their shareholders would revolt. The problem comes, IMHO, when the states and towns are terrible negotiators and don't worry about the long term costs and as long as they can point to a short term gain. I know one local company who moves every 8-10 years because that is the normal term of tax benefits the local politicians will give them for locating in their town. Until the towns and states can/will no longer compete with tax and other benefits, this corporate welfare will continue. The whole issue of the federal government picking winners and losers in a "free" marketplace is a whole other conversation.

  4. Actually, the EITC is the only program that has a rational basis. If some economist called it reparations, then they were either racist or against requiring work for government welfare benefits.

    EITC requires for one thing the earning of income. It does reduce the taxes taken out of that income for those who don't make much. And it could be used to give subsidy through a negative income tax. But first and foremost it requires the earning of income, i.e., work and doesn't have the stark penalty for working or earning income that other programs have with their earnings cliffs. A fair number of working people could do all right if the government didn't take a quarter to third of their earned income off the top.

    As an aside, I read recently a point that many of the machines at the start of the Industrial Revolution were invented, developed by members of the clergy. The clergy themselves live off subsidy, and in the 17th/18th century tithing to the local parish was not really optional. So the question is that what made these individuals use their subsidized spare time productively? Perhaps it was that much of the clergy back then were the spare sons of the upper and middle class? Or pastoral work was all that was available even as it frustrated those who were inventive? The latter would also be related to the sudden release of misallocated mechanical talent from farm work to factories and workshops.

    Many have argued that a "basic income" would free individuals to pursue art or invention, but barring the clergy of centuries past, we don't see the provision of basic subsistence as sparking productive activity in most. It seems rather to do the opposite. It is those who are struggling without a handout who tend to get inventive as a means to alter their situation and improve their life.

  5. @JK Brown: No, EITC doesn't necessarily require income – or, at least, not enough of an income to pay taxes on it. If you have no job, but receive welfare, food stamps, etc., that counts as income; and, depending on the number of children you have, you also qualify for EITC, which is paid to you as a tax refund. As a pastor and chaplain, I was familiar with many cases where a family paid no taxes, received only welfare and other entitlement payouts, but also got thousands every year from the IRS in EITC 'refunds'. Frankly, I found it sickening.

  6. $110 billion in public money. Whenever I see a number like that I divide by the number of taxpayers: 100 million. (Corporate and other taxes ultimately derive from individuals since we're at the bottom of the tax food chain.)

    So that's $1100 each.

  7. Fred Reed did a spectacular post… I think he may be on to something.
    Is that on or on to? Because when Fred gets involved, he can make anyone look sober as a judge. Even me.

    If a company or an entire industry is not able to survive without government subsidies in one form or another, the very first question to ask is why, and that's the question that is never asked by anyone who controls or influences the government money tap. It may well be that an industry is in trouble because it's facing unfair competition, such as foreign government subsidies. It may also be a temporary condition which will rectify itself within a year or four – gun and ammo manufacturing under a régime of moonbats comes to mind, but that only increased sales. Evaluate the situation before you let it sink or swim.

    If the product or service in question is essential to the welfare of the nation, then it isn't in trouble financially. The trouble, if it truly exists, is in catastrophically bad management combined with a critically inefficient workforce.

    The problem with our economy, as it exists today, goes back to the Great Depression. The government bailed out the insurance companies and let the banks fail, when it should have done the reverse. In more recent times the city of Detroit filed for bankruptcy, which was granted, and the bankruptcy proceedings were completely FUBAR.

    If you want to save money, or rather you want to see tax money go somewhere other than where it's currently going, look to the military and ask yourself just who the hell it is we're fighting and why. Balance that against the fact that we are the only nation who can afford to build and operate a supercarrier, and we have ten such carriers in service.

    The problems of our economy are legion, and we are relying on a group of men and women who are, for the most part, singularly unqualified to provide any kind of a solution. They've done nothing but win a popularity contest, and they've done so by garnering the votes of people who truly do not understand, and will never understand, that the light they see at the end of the tunnel is most certainly a train. That is, those who can find the tunnel. Most can't.

  8. That's poor reporting by the Telegraph. A big reason farmers need those subsidies is the supermarkets screwing down the farmers on prices. And the government are happy with that because the public don't see their food bill increasing.

    TLDR: it's bread and circuses.

  9. Points being missed.
    'Free market' applies to counties, states, countries, and other geographical locales just as much as it does to businesses. If BASF is going to build a new plant, generating millions of dollars in taxes over decades, they get to choose the locale. The subset of likely locales gets to *compete* for BASF's plant. Just as a cheaper but comparatively well built car is ideal for a consumer, a good location coupled with a tax break for BASF is ideal for the manufacturer. The tax subsidies *are* free market. 100 percent free market. The concept is *locales* competing for a customer, who they then collect taxes from, directly and indirectly. Whoever provides the most attractive package to BASF gets the spoils.

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