Friday, June 17, 2011

Congress can't stop subsidizing the rich

There's a little econ riddle I like to ask people to plant a thought in their brain: Say a sweater costs $10 at a store, and the government wants to decide between putting a $10 tax on the merchant who sells that sweater, or the customer who buys it. What is the difference?

The answer is, there is no difference. Those policies will switch who "writes the check" for the tax, but it will not change who actually pays the tax. It's the same thing with the illusion that employers pay half of social security.

So turning that metaphor around from taxes to subsidies, a recent Marginal Revolution post from Alex Tabarrok got me thinking about who a subsidy really goes to.

Farm subsidies are the perfect example of corporate welfare. They are big checks given to rich corporations that let them sell their product cheaper. My friends on the left can easily relate when I tell them why I oppose farm subsidies.

But what if instead we sent cards out to consumers that let them get a discount for the American food that purchased. When that happens, some people jump ship to support that program. I can understand why when the checks are only written to the poor, but sometimes they're written to everyone.

The USDA's "Know Your Farmer, Know Your Food" program gives loans and grants to "local food producers," but since this is an unproductive, needlessly expensive way to produce food, and the product they make costs more, isn't this simply subsidizing the rich?

What's next, subsidizing opera tickets? Don't worry, we already do that.

The Trabarrok posts says that the Republicans are cutting some food aid, where the check is written to the poor, but keeping a ton of the farm subsidies intact, where the check is written to the rich. This is the worst way to go about this.

Interesting point from Trabarrok at the end. We love our agricultural subsidies so much, when the World Trade Organization told us to stop paying $147 million each year to the American cotton industry, or give the same amount to Brazil's cotton industry (and the customers of that industry), our leaders chose to double down instead of leading the table.

What an absolute mess.

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