Thursday, April 4, 2013

Government Subsidies

The federal government has been subsidizing industries for many years and they are often the target for elimination but rarely are the critics successful but why? Let’s look at the industry that is the biggest target for eliminated subsidies; big oil.

The three major categories that big oil receives subsidies for are the strategic oil reserve, farm equipment subsidies, and low income fuel assistance programs, totaling 2.5 billion a year. Oil companies are subsidized by the federal government to put aside a specific amount of oil into the Strategic Oil Reserve to ensure in the case of a crisis our government has access to a large enough inventory to manage a crisis. Farming subsidies are probably the oldest of all federal subsidies. As part of that subsidy, oil companies receive just under a billion dollars to supply farmer’s fuel at a reasonable price. The Low Income Fuel subsidy that helps low income families heat their house in the winter represents about $500 million a year.   

So when we talk about subsidies for “Big Oil”, these are the three biggest subsidies the oil companies receive. The average person hears subsidies to big oil and they believe it is simply money that goes in the pocket of big oil companies but the pockets it is going into is DOD (government), Farmers, and Low income citizens. That is why these programs survive. If they were truly just tax breaks going into the executives of big oil they would have been stopped long ago. Most people don’t have the attention span to listen to the entire argument so it is easy for politics to be injected into the arguments. So “Big Oil” remains the bad guy “screwing” the tax payer but are they?

I am against federal government subsidies. The venture capital market is the best avenue for investment in promising technology, products, drugs, etc… If an idea or product is viable it will attract private capital. The “renewable energy” business is the perfect example of why I am against federal subsidies. My biggest concern is the federal government picking winners and losers. What expertise do these bureaucrats have to make that decision compared to private capital? If windmills (which is an ancient and ineffective technology) are a viable energy source- why wouldn’t it attract private capital? Because private capital looks at all of the factors including longevity and ROI which they have determined not to risk their own capital. So why risk the tax payer’s capital? What does the country have to gain? Sustainable energy? Really, if that was the case why then not invest private capital?

The companies most likely to get federal subsidies are companies that donate to political candidates. It gives them access and unfair advantage. It is also important to remember that it is easy to spend other people’s money when the people’s money you are spending is not aware of how it’s being used. Private capital ventures have to guarantee a return or they will not attract new investors.

The market is the best mechanism to flush out future products and industries. Subsidies are attractive to politicians because it gives them power to control. That is not why we have a federal government. The founders knew that the federal government’s role was to ensure foreigners did not attack us, and that commerce was consistently practiced between the states. The constitution was the law and the courts were the referees. Everything else was up to the states and people. We need to move closer to the founding intent…

No comments: