Tag Archives: subsidies

CEI Podcast for September 15, 2011: Solyndra

 

Have a listen here.

Myron Ebell, Director of CEI’s Center for Energy and Environment, takes a look at the brewing Solyndra scandal. Solyndra is a company that makes solar panels and recently declared bankruptcy. In 2009, the federal government gave Solyndra a $535 million loan even though its own analysts predicted the company would go bankrupt in 2011. The company’s cozy relationship with political figures, including a major political donor with an investment stake, make the loan — and its low interest rate — look rather suspicious.

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More Corporate Welfare on the Way?

Politico headline from today: “Qualcomm exec calls for small-business research funding.”

Alternative headline: “Businessman asks government to give money to businesses.”

Government should not give money to private businesses, period. Businesses should compete in the marketplace, not Washington. There is a lot of money to be made by selling people things they want. Companies that do a good job of that deserve every cent they earn.

Subsidies are not earned. Nor are they given to companies make things people want. Companies already doing that don’t need handouts. In short, corporate welfare is allocated by politics instead of economics.

What Mr. Jacobs is asking for would be a boon for lobbyists and politically favored businesses. But it would be a drag on everyone else. And not only because they would be paying for the handouts. Lost innovations are part of the price. The money spent on corporate welfare is money not spent on more worthy projects.

See also Wayne Crews and I on corporate welfare in the new edition of CEI’s Agenda for Congress.

Joe Biden’s Weak Case for Government Meddling

Joe Biden believes that government played a large role in the success of railroads in the 19th century. In this video, Don Boudreaux points out that that isn’t actually true. There were four transcontinental railroads. Three of them received subsidies.  The fourth was the Great Northern Railway, founded by Canadian immigrant James J. Hill. He alone rejected any special government favors.

All three subsidized railroads went into receivership. Hill’s Great Northern Railway remained solvent, and is still in business today as the BNSF Railroad.

Consistently Inconsistent

More than 60 different agencies publish more than 3,500 new regulations every year. There are more than 1,000 federal subsidy programs covering everything from mohair to ethanol. When the government involves itself in that many different projects, some of them are bound to contradict each other.

For example, the federal government spends more than $1 billion per year on anti-obesity programs. But the federal government also spent more than $12 million to help Domino’s Pizza tout its new recipe with 40 percent more cheese; this is roughly the opposite of an anti-obesity program.

Dairy Management, the USDA-funded program that gives taxpayers’ dollars to Domino’s, Pizza Hut, and other private firms, is designed to help dairy farmers. By encouraging restaurants to use more cheese in their recipes, the USDA is achieving its goal of giving dairy farmers more business. But it also undermines the competing federal goal of reducing obesity.

Government has a long history of undermining its own goals. One of the more famous examples involves paying farmers to destroy their crops in an effort to raise food prices during the Great Depression. When (frequently unemployed) non-farmers complained about having to pay more for food during those hard times, the federal government then took actions to lower food prices – while keeping in place the policies that raised them in the first place.

The spirit of consistent inconsistency goes beyond the government’s spending habits. Vice President Biden will have a meeting today in the White House about government transparency. It will be closed to the public.

Unintended Consequences of Unemployment Benefits

This letter of mine ran in today’s New York Times in response to Paul Krugman’s July 4 column.

To the Editor:

Paul Krugman is at a loss to explain why some people oppose extending unemployment benefits. One reason people hold such an opinion is that when government subsidizes something, there tends to be more of it.

The more government subsidizes unemployment, the more people will indulge in it for longer periods of time.

Ryan Young
Washington, July 6, 2010

The writer is a journalism fellow at the Competitive Enterprise Institute.

Making Broadband Accessible: Innovation, Not Intervention

FCC regulators want to provide wider and cheaper broadband access by subsidizing it, raising taxes, and forcing network owners to share their network infrastructure with competitors.

A few things the FCC should consider:

-Subsidies don’t make broadband access any less expensive. They just change who pays for it. In this case, that would be anybody with a phone. Which probably includes you. The great economist Ludwig von Mises observed that “A government can no more determine prices than a goose can lay hen’s eggs.”*

-The tax would make owning a phone more expensive. And when something becomes more expensive, people consume less of it. With tax-exempt technologies like Skype and Google Voice now available, people can switch away from a taxed phone to something cheaper more easily than ever. The more people who do that, the less revenue the phone tax would generate, defeating its very purpose.

-If a company has to share its network infrastructure with its competitors, it loses the incentive to maintain and improve that network. Why invest millions of dollars if it will help your competition just as much as yourself? Quality suffers. So does innovation. In the long run, it is innovation, not FCC intervention, that will make broadband affordable and accessible for everyone. The long-run view is just as important as the short-run view here.

-Land-based networks are expensive to build in rural areas. The cost per customer is huge compared to denser urban areas. Fortunately, that isn’t as much of a problem for wireless technologies. The FCC seems hellbent on the land-based networks since wireless networks aren’t yet advanced enough for mass-market broadband service. But they will be soon enough. And every dollar spent on old-fashioned wired networks is a dollar unavailable for improving wireless service. An unintended consequence of FCC intervention would be slower innovation.

*Ludwig von Mises, Human Action, 4th ed., (Irvington-on-Hudson New York: Foundation for Economic Education, 1996 [1949], p. 397.