Say No To Bailouts and Subsidies

by | Mar 25, 2020 | POLITICS

We are setting ourselves up to become Japan when it suffered more than two “lost decades” of weak or no economic growth.

Can you hear the oinks of the pigs running toward the feeding trough now that Farmer Uncle Sam has rung the feeding bell? For several weeks politicians have been jockeying to up the ante with progressively higher bailout proposals: $850 billion, $1 trillion, $2 trillion. And the lobbyists are out in force to help divvy up the pie.

We should just say no to all subsidies, especially at a time like this. The actual harm from coronavirus and the destructive government-ordered business shutdowns cannot be undone by subsidies. The harm is real and “papering it over” with handouts to each of us, paid by all of us, will not make it go away. As stated on this website and elsewhere, the solution requires free-market measures, such as deregulating prices and undoing harmful regulations that prevent cures.

Subsidies are, at root, a collective mutual robbing session which is not only unjust, but creates enormous “deadweight losses.” Subsidies entail taking money from Peter to pay Paul, and simultaneously from Paul to pay Peter, with enormous losses to the politically corrupt process that allocates them.

Deadweight losses are economists’ jargon for the pure destruction of wealth that happens whenever government tries to redistribute wealth. Just consider all of the lobbying expenses alone as each business jockeys for the favored position at the feeding trough. All of it is unproductive spending; all of it is deadweight loss.

But also consider the entrenchment of inefficient businesses and the squandering of the resources of efficient businesses and productive individuals to pay for all this.

We are setting ourselves up to become Japan when it suffered more than two “lost decades” of weak or no economic growth. This happened when its government chose to paper over its economy with subsidies paid for with huge government deficits (“money printing”) after its real estate crisis of the early 1990s. As a result, the Japanese now labor under the world’s largest debt burden as a percentage of GDP, exceeding 250%, and from the propping up of inefficient “zombie companies.”

The fact that subsidies seem “free” because our government can simply “print” the money to pay for them does not change their destructive nature. None of it is “free” and, like Japan, we will pay the price for a long time with a significantly reduced quality of life and standard of living.

We must “just say no” to these subsidies, and turn to market-oriented measures to recover from this nature- and man-made crisis.

Made available by the American Institute for Economic Research.

Raymond C. Niles is a Senior Fellow the American Institute for Economic Research. He holds a Ph.D. in Economics from George Mason University and an MBA in Finance & Economics from the Leonard N. Stern School of Business at New York University. Prior to embarking on his academic career, Niles worked for more than 15 years on Wall Street as a senior equity research analyst at Citigroup, Schroders, and Goldman Sachs, and as managing partner of a hedge fund investing in energy securities. Niles has published a book chapter and numerous articles in scholarly and popular publications.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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