Government’s Role in Times of Transition
The times, they are a changin'. As they always do.
Change causes pain. Because it requires change. It requires adaptation. It requires abandoning old comforts that no longer have a foundation to stand on, finding new foundations, and building on them.
What is the role of government in times of major change? Daniel Levis wrote:
When the economy changes dramatically, making certain jobs and even whole industries temporarily unnecessary, or even obsolete, people look to the government for answers. Thinking creatively about how they can capitalize personally on the change doesnâ€™t even occur to them.
Governments come to the rescue with ridiculous bailouts and financial aid and retraining programs and the people become even more dependent.
Government bailouts and subsidies have their place. They have the potential to alleviate suffering and stabilize the economy during periods of transition. The problem is that they're too often used to procrastinate transition instead of facilitate it.
An industry stands on the brink of collapse. Government offers a bailout. Companies take the bailout and use it to finance business as usual. The money runs out, and they're back where they started.
If we're lucky, they make a few changes and the overall economy improves, so that by the time the money runs out, they can limp along on their own. But we're not getting full value for our bailout dollar.
Subsidies are even worse. An industry goes into decline. Their lobbyists claim that they're too important to let fail, government subsidizes them, and we end up indirectly (via taxes) paying higher prices for their products indefinitely without even realizing how expensive they are.
And if anyone tries to cancel their subsidies? You can't do that, you heartless spawn of satan!
There are some things that have to be paid for through taxes, or they'll never get done, and we'll all be worse off for it. Who would build and maintain the interstate highway system if not government? Who would finance the military? (I'm not saying their current level of funding is ideal -- just that we need military, and without taxes, we wouldn't have much.)
But when an industry where benefits are parceled out on a person-by-person basis goes into decline, long term subsidies aren't the answer.
Consider all the people who are being paid NOT to farm their land. How does that make any sense at all? Sure, it helps those whose profit margins would drop if higher food production led to lower prices. But at what cost?
Everyone else has to pay higher than market prices for their food (both at the store and through taxes!) Useful resources sit idle. People learn that they can get money for nothing.
Why not just let market forces do their work, allocating resources where there's demand for them, shaking out the less efficient producers, and sending them off to work in another industry where they can provide more value?
It's not as if food production would grind to a halt and we'd all starve. As soon as the less efficient producers started moving on to other industries, supply would decrease, and prices would move up to sustainable levels. That's how free markets work.
If low priced foreign goods are killing domestic industries, then sometimes tariffs or other trade barriers may be appropriate. Better to bring in money through tariffs then spend money through subsidies.
If government wants to keep inefficient food producers in the business, there's a better way than by paying them to do nothing. Instead, they could buy the food and send it overseas as foreign aid. Why spend a dollar here to subsidize idleness and a dollar overseas on aid when same dollars can do both jobs?
Ultimately, the purpose of subsidies should be to facilitate transition. They should have strict expiration dates, after which they should not be renewed. That'd give people time to either improve their businesses or transition to different industries.
If they chose to stick their heads in the sand and use the subsidies to prop up unsustainable businesses, they should be allowed to fail and bear the burden of it themselves in the end. The people of this country do not have the responsibility to care indefinitely for those who abuse society's efforts to help them make a necessary transition.
Unfortunately, lobbying is easier than change.