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Source link: http://archive.mises.org/5547/the-snare-of-government-subsidies/

The Snare of Government Subsidies

August 31, 2006 by

Gary North writes that the idea that businessmen are strong defenders of the free enterprise system is one which is believed only by those who have never studied the history of private enterprise in the Western, industrial nations. What businessmen are paid to worry about is profit. In fact, they are rewarded for taking the step of calling in the government. But it is huge mistake in the long run. FULL ARTICLE


Ulrich Hobelmann August 31, 2006 at 9:06 am

The problem is the manager’s problem: ownership. Other than business owners, or Monarchs, a democrat or hired executive will be most interested in the short-term gains. He can freely ignore the long-term harm, as it won’t touch him anymore.

So the hired manager will bite the trap in any case; he has to, for the benefit of (short-term) stockholders.

What’s important is that the general public is educated about the harms interventionism (thanks a lot, Mises Institute and supporters!), but we all know how well a public, government-controlled education system excels at that task ;-)

M E Hoffer August 31, 2006 at 9:27 am

This is a situation exacerbated by MutFund & “Index Fund” investing.

That further disintermediation of “ownership” puts/has put this, discussed in the article, cycle into “overdrive”.

Primarily, though, I thought this was a very well written article that expounds, well, the “free-market” system, as it truly is practiced.

Yancey Ward August 31, 2006 at 10:06 am

A very wonderful essay.

TGGP August 31, 2006 at 10:15 am

What incentive does an individual businessman have to resist the government? As stated, even if he resists, enough will not for his objection to be worthless. His choice is to be a wolf or a sheep. Some might be so disgusted as to accept being made a sheep, but if the most succesful businessmen are those who are able to minimize the role their subjective preferences (whether that be a distaste for hiring black people or a distaste for government intervention) play in pursuit of market success the system is bound to result in the indignant businessman to be a minority. Exhorting people to “be good” is not very beneficial. What is needed is a realignment of incentives.

J D August 31, 2006 at 12:21 pm

This essay makes one wonder . . . . .

Why do those who fund (in a very substantial way) political campaigns continue to purchase a government which ” . . . . expands its control relentlessly.”

Are they stupid?

No. They have the good old sixteenth amendment (Who arranged for that?) which now provides enough “extra constitutional” government revenue to make the process possible and profitable.

They also have the special gift of tax exempt foundations to soften the amendment’s effect on themselves.

Oh well. Government is Business is Government — or is it Business is Government is Business.

Leona Helmsley’s reported assertion was accurate.

It is all bovine excrement.

Jerri Lynn Ward September 2, 2006 at 11:02 am

Dr. North,

I have been arguing your points in an uneducated and intuitive manner as a reason that Texas should not allow doctors to withdraw life-sustaining treatments from patients who want the treatments prior to patients finding a place or doctor to which to transfer.(respirators, tube-administered hydration and nutrition) Futility theory has infected the medical profession, here in Texas, and patients, who are deemed “futile”, are severely limited in finding medical treatments because of the factors you discuss. Thank you for giving me information to argue this point more eloquently.

The medical profession is forming a “white-coated wall” in support of what they consider “their prerogative” to ration care based–not always on physiological reasons–but often on subjective assessments by doctors regarding the patient’s “quality of life”. Once the designation of “futility” is given to a patient, the patient’s ability to find another doctor or hospital to give the care is severely limited by the regulatory mechanisms you describe.

I am convinced that the present regulatory environment has fostered this. If we go to a single-payor system, it will be worse.

Baby Boomers beware!

David K. Meller September 2, 2006 at 12:16 pm

It is true that there is a symbiotic and mutually parasitic relationship between the interests of advociates of government internvention, and the attendent bureaucracy. However, the problem cited in Dr. North’s article may be more simple, but yet more intractible than that.

Businessmen and politicians receive their knowledge of econmics,law, politics,and history from the same sources that everyone else does. If they receive ideas from those sources which are overwhelmingly socialistic, interventionist, or warfare-welfare State collectivist, as seems to be the case, then these businessmen and politicians, like everyone else, will pursue their aims in a society and economy whose paricipants tolerate, and perhaps even welcome, a great deal of such intervention, however destructive and couterproductive such policies are for everyone else!

We libertarians have our work cut out for us, not so much by convincing those businessmen and bureaucrats, who are all too corrupted by (and dependent upon) the warfare-welfare State anyhow, but by articulating the better alternatives which freedom offers to the growing number of poeple who are the net LOSERS in the interventionist game.

David K. Meller

Paul Marks September 2, 2006 at 12:41 pm

The argument of Hayek that was cited (that subsides and restrictions granted for a wealthy minority are soon demanded for the majority of people – thus leading to, eventual, bankruptcy) is, of course, from Bastiat.

As for wealthy people supporting government spending whilst believing they can escape high taxes (via the use of tax lawyers and so on) there is some truth in that (as the level of taxes paid by the mega wealthy Senator and Mrs Kerry show), but the high level of taxes makes it much harder for new people to get rich.

Also even people who think they are politically connected tend to find that things go wrong in the end.

At best they have to hand over a lot of their wealth to the government (or to charity is some deal to prevent people looking to closely at their affairs) and at worse they end up going to jail (the “only the little people pay taxes” lady ended up paying vast sums and going to jail – in fact the lady and her husband had always paid a lot of money in taxes so the oft cited words were an empty boast).

Low taxes and the straight forward rule of law (rather than the complex rule of regulation) is (in the end) better for everyone – including rich “well connected” people.

So, if everyone loses in the end, why are taxes high?

It is not because the rich are “fools” – it is because the power of ideology.

The ever greater cost of the Welfare State programs (Health, Education and Welfare as it was once called).

Vast ever growing “entitlement” spending means high taxes – no way round it.

Starting from very small beginings in the 1930′s and 1960′s the programs for “the masses” now cost vastly more (many times more) than the programs for the rich.

Bastiat’s warning was ignored – a government that subsidize big industrialists via trade taxes, and can subsidize bankers via such things as the Fed, will be called on (in the end) to subsidize everyone.

And no government can subsidize everyone for ever – the numbers do not add up.

David K. Meller September 4, 2006 at 11:30 am

Apropos of the above post, wasn’t it M. Bastiat who observed that “rhe State is the fictitious entity through which everybody seeks to live at the expense of everybody else”?

A very sound and prescent warning, which, as always, went unheeded.

The day of reckoning cannot be postponed forever!!

David K. Meller

Henry Heffner September 4, 2006 at 7:19 pm

Does the “snare of government subsidies” also affect medical research?

After World War II, the federal government began to heavily subsidize biomedical (and other) research. At first, the money was relatively free of strings. Then the various interest groups began to get involved: physicians, minorities, young investigators, groups involved in curing their favorite disease, proponents of alternative medicine, all argued for their “fair” share of research dollars.

This feeding frenzy was accompanied by restrictions on the type of research that could be performed, especially if it involved animals. For example, if an experiment using animals has already been conducted, federal law prohibits that study from ever being conducted again, knocking out the main correction factor in science–replication of results.

Oh yes, in addition, researchers who are dependent on federal grants are afraid to criticize the work of their fellow researchers as their fellows will be reviewing their grant applications.

The end result is not a bankruptcy of money–there is still plenty of that around, and all professional research associations are lobbying for more (Adam Smith’s comment that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” applies to researchers, too). The end result is to slow, misdirect, and even reverse scientific progress.

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