Wednesday, March 18, 2009

Subsidizing Industry X

First, I’d like to define the word subsidy:
Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.
(from the American Heritage Dictionary)

Henry Hazlitt’s Economics in One Lesson © 1946, is a must read for anyone who wants to understand what the hell is going wrong in today’s economy. I quote the referenced chapter liberally because I could not possibly present as concisely as Mr. Hazlitt.

From Chapter XIV, Saving the X Industry,
“We are concerned only with a single argument for saving the X industry – that if it is allowed to shrink in size or perish through the forces of free competition (…) it will pull down the general economy with it, and that if it is artificially kept alive it will help everybody else.”
Does this sound like a familiar argument?

Hazlitt goes on to explain that direct subsidies to certain industries are better than tariffs, price fixing or monopolistic exclusions because, he says, “there is far less opportunity for the intellectual obfuscation that accompanies (those) arguments." His matter-of-fact tone causes me to be even more concerned that we, as a country, have blindly accepted the above “emergency” argument with nary an attempt at reason by its proponents, let alone any efforts at subversive obfuscation.

When did we become uneducated legislated pawns instead of informed citizens?
“It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. It should be equally clear, that as a consequence, other industries must lose what the X industry gains. They must pay part of the taxes that are used to support the X industry. And customers, because they are taxed to support the X industry, will have that much less income left with which to buy other things. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger.

“The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.”
Finally, he exemplifies the opportunity costs in artificially supporting any industry.
“If we had tried to keep the horse-and-buggy trade artificially alive we should have slowed down the growth of the automobile industry and all the trades dependent on it. We should have lowered the production of wealth and retarded economic and scientific progress.”

“We do the same thing, however, when we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it.”
How is subsidizing the failing financial industry any different?

What should be obvious to us all has instead become a big blind spot – rather than demand that government be limited to protecting our individuals rights which gives us the freedom to make our own choices, we increasingly rely on the omnipotence and worse, the assumed omniscience of government to give us what we want.

This behavior is antithetical to the foundation of this country.

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