Monday morning words of wisdom brought to you by Stephen L. Hall.
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Not to long ago I wrote an article regarding the political mathematics of paying taxes, and who it is that actually pays taxes. This day I ought to concern myself with that most pernicious and evil of underhanded governmental practices, the subsidy.
Perhaps the easiest way to explain certain aspects of the political viability surrounding subsidies is to create a simple model of society. Let us create an ideal village in which there will be one hundred people in various occupations and fields. We will keep the numbers very simple for illustration purposes.
Suppose ten people form a consortium of candle makers, deciding of course to name their consortium “The Light of the World.”
(“The Light of the World” was the motto of Standard Oil back when they got their start producing kerosene as a cheap and reliable substitute for whale oil for everyone’s lamps and lanterns. The name “Standard Oil” was chosen as a brilliant marketing ploy implying that they were the standard against which all other kerosene products must be measured. You see some of the more nefarious refiners would mix in the their kerosene noxious and volatile waste products like gasoline, instead of safely dumping the useless gasoline in the streams and rivers.)
In addition to the candle makers, there are ten each of farmers, teamsters, brewers, cheese makers, woodsmen, craftsmen, herdsmen, and weavers, for a total of ninety workers. The village forms a council of nine people and a king so that now everyone is gainfully employed. Every person in the village earns twenty dollars each year and are taxed at a rate of fifty percent.
Each person, except government, regardless of their profession, is taxed a simple and straightforward capitation tax of ten dollars each. So the total taxes of the village comes to nine hundred dollars. However, because of their participation in such a vital industry, each candle maker receives back from the village nine dollars each every year.
In fact, every profession is deemed vital and receives back an industry subsidy of nine dollars each , but the society is set up along game theory rules where no person outside of their profession is told that people in other professions are also receiving a subsidy, but everyone is made aware of that every person is taxed at the same rate. Perhaps they are too indifferent or uninformed to research the matter in the public records.
So, of the nine hundred dollars collected each year, eight hundred and ten dollars are refunded in subsidies, while the council and the king each receive their share of the remaining ninety dollars for administering the laws of this village, each receiving nine dollars.
(You were too told there would be math . . . it was in the title.)
From the individual’s point of view, they are receiving an excellent deal. Though they are taxed ten dollars, they receive back nine dollars, so they do not really feel bad about the one dollar they are paying because they are told that they really should be paying ten dollars.
Naturally, the individual fears that their taxes could be increased to pay for subsidies other people might be receiving; and they also fear that being only ten percent of the population the other members of society could get together to take away their subsidy if they suddenly decided that making candles was not really that crucial to the continued health and well being of society.
Let us further suppose that each member of the council is elected by and represents a different profession. Each profession has their own member of the counsel. Our village king is elected by popular vote, with every election being first held by the farmers. As such Iowa, I mean, the continuation of farm subsidies are an important election topic every four years.
Now, because of the fear that these subsidies could be withdrawn, our candle makers decide that they will hire a lobbyist to make sure that these subsidies continue unabated. Each member of the profession kicks in one dollar each, which will be paid to the lobbying professionals. For simplicity purposes, our lobbyists are also our council members, where our lobbying effort is the simple bribe of one dollar to each councilman and a dollar to the king.
So that from lobbying, each village official receives ten dollars, which with their nine dollar salary means that they earn nineteen dollars each year. Each of the other villagers earns twenty dollars, pays ten in taxes, gets nine back in subsidy, then pays one dollar in lobbying, so that they have eighteen dollars each year.
So we know that everyone feels good about their own subsidy, because it reduces their effective taxation, but they resent the subsidies that other people are receiving because it increases their taxes. They do not know how much these subsidies are costing them each, but they know that the subsidies are out there and someone has to pay for them.
Everyone complains about the influence of the lobbyists, but are more than willing to pay their own lobbyist to protect their own subsidy. They will also complain about the connection of the lobbyists to the state, but they want their own lobbyist to be well connected. All of the workers will say that they want to get rid of the lobbying system, and they want to get rid of some subsidies that they don’t think are important, but they don’t want to get rid of their own subsidy.
Without getting into the economic inefficiencies of price distortions from subsidies, and we have only talked about the “corporate welfare” or industry subsidies and not even touched upon such subsidies as the popular home mortgage interest deduction, or the welfare of the earned income child tax credit, and many others. The real world subsidies are more complex and convoluted, but they all operate upon the same political mathematics.
Subsidies are a cottage industry involving nothing but the hiding of the fact that the state convinces people to pay them to pretend to redistribute wealth from one group to another while they are redistributing that wealth in both directions. The illusion that the taxpayer is getting a sweet deal, when really every taxpayer is getting the same deal in one form or another.
The only people who really profit from this paper shuffle of subsidies is the revolving industry of lobbyist and government. It is easy to hide the subsidy in between the real business of government, but by creating a model as we did above where the only business of government is subsidy, it becomes clear.
There is a reason I say that all subsidies are evil, this is just one of the aspects of the evils of subsidies. Think about how you tell farmers voting in Iowa that you want to end farm subsidies, or tell people living in poverty that you want to end their welfare subsidies, or tell elderly that you want to end their social security subsidy, or tell alternate energy manufacturers or oil companies that you want to end their subsidies.
How would you break the subsidy industry? You either eliminate all subsidies on the principle that all subsidies are bad, or you live with the lobbying for profit system.
