Dear Friends,
It seems to me, the elite subsidize that which doesn’t work, by taxing that which does… until it doesn’t either. Then government subsidizes it as well. Grinding down economies one industry at a time. By making profitable industries unprofitable and unprofitable ones into cronies. Its politically genius but economically stupid. Genius politically since it makes everyone dependent on the “Prince.” Stupid economically, because it hollows out the economy, until the roof supports the foundation. Subsidies become a subsidy trap. As was the case in Argentina before Milei. What are the motivation and likely outcome of factions, and politicians policies? Are they subsidy freaks? The answer tells us if they’ll hollow out the economy for self interest, or build it up for the national interests.
On the surface subsidies appear to help give struggling industries a leg up. Once they get up, they should be able to stand on their own two feet… shouldn’t they? But, they can’t, and so don’t. The moment the subsidy is removed the industry disintegrates like dry ice in an oven. It was a subsidy trap. The US subsidized the mohair industry for almost a century. The moment that subsidy went away, so did the the mohair goat. All mohair production immediately went to Australia. Because it can be produced there cheaper and so more profitably. Even as the US mohair industry might have survived, without the subsidy, and even found a way to thrive. There was no need, because it was subsidized. Weakening it to the point of dependency. Like deer that have been taught not to be self sufficient.
There are those industries however, that would not exist if not for government support… like space, aviation and scuba technology. On the face of it that argument makes perfect sense. It was the “Space Race” that triggered the Space Age. Aviation was advanced light years by the World Wars. Even as those self same wars advanced submarine and related technologies. Moreover, it can be said that even today the cutting edge of aviation is governments, trying to outdo each other with 6th generation aircraft. All logical and cogent arguments for subsidies. Except that it’s government regulation itself that hampers creation and adoption of technologies. Aviation, underwater, space and others. Subsidies go to technologies useful to kill people… instead of improving lives.
Let’s face it, politicians don’t subsidize an industry, to forward a technology, save an industry or to give a helping hand… they do it for power. That’s the only motivation of a politician to subsidize. Because politics is transactional. In politics you never get anything for nothing and you never give something for nothing. Those who do are quickly squeezed out. Subsidies then are the currency of the realm. A politicians will subsidize an industry to get a crony, trade political favor or pay a political debt. The altruistic arguments are simply the tools of a con. “Imagine if only…” then get us to fly into that bug light. That’s why we have so many subsidized industries today. Most have become so dependent they would go the way of the mohair goat should the subsidy stop. Subsidies become traps.
Do we want politicians who’ll rip down the economy, for selfish interest, or those who will build it up, for the nation’s interests? Wise people will choose the altruistic politician over the egoistic one. Why? Because its in our own self interest to build the economy, as well as the interest of everyone in it. Ruining profitable industries to subsidize unprofitable ones, thus making cronies, only enriches the political class. While it impoverishes the rest of us. The real beauty of the subsidy trap is the bait is so glittering. We could have anything we want, we only need subsidize it, and like bugs we fly into the light. Bait however is just that… bait. The answer then is to eschew the subsidy trap. If we want a strong and growing economy. Because subsidies harm the economy and the industries subsidized.
Sincerely,
John Pepin
