Geek Rant

Today’s post is going to be a fairly short one. I want to talk about government subsidies, the effects they have on the economy, and the effects they have on you and me. In particular, I make an argument that the presence of subsidies make us lose more money and result in sub-par products and services. As a case study, I will talk about corn, which is a blaring example, but my arguments should apply to all subsidization.

We started subsidizing corn for basically the same reasons as subsidizing anything else: we perceived an “unfairness” in the market, which appeared to be a market failure. The conception is that farmers are part of the hard-working poor, so they deserve more money. On the flip side, corn is a “basic commodity,” so it should be cheaply available to everyone. As it appears on the surface, the government should pay for some of it so we don’t have to ourselves.

Obviously, that logic has several flaws. Farmers are certainly hard-working, and they definitely aren’t wealthy, but they are not as dirt poor as they are often made out to be. More importantly, everybody does not need corn. Even more importantly, if the government pays for it, it’s no less expensive. We get higher taxes, so we are still paying the full price of it.

But unfortunately, the problems go much, much deeper than that. For one, this creates a cycle. Lower (apparent) prices leads to an increase in demand which, in turn, leads to pressures on the market to increase the prices some more, but since it’s already being subsidized, we might as well just subsidize it just a bit more. After all, this just demonstrates ever more clearly that corn is a basic commodity that everybody needs. Eventually, things will reach an equilibrium again. This is still a big mistake. Trust me, we are paying heavy premiums on our corn. We just don’t see them because they are paid with our tax dollars.

This apparent decrease in price results in a lot of side-effects, too. We use corn in everything we eat now. Corn is not very nutritious. Corn is in our food because it is cheaper to obtain than the actual food we think we are eating. Americans are fat, and this is the reason why.

Corn is even being used to make fuel! It’s not efficient considering the amount of corn and work required to make it, but the market price does not reflect this because of subsidies. Imagine what would happen if the government subsidized oil. That’s what’s going on with this corn ethanol movement. We get about 375 gallons of ethanol per acre of corn, and to use it we must burn about 15% more ethanol than petrol. Doing some math, that means one vehicle that might normally get 20 miles per gallon on petrol doing 1000 miles per month needs somewhere around two acres of corn per year to power it. Combine that with the fact that we are paying for that with taxes and you can see why this idea is bogus, and yet so many people are still touting corn ethanol as the future of fuel because they don’t see that there is more money required than the apparent cost of the corn. I don’t want to pay for the entire nation’s auto fuels, personally. I like to drive as little as possible anyway, so I would get nothing out of it. We would not even be considering this if not for the subsidization.

Briefly, here are my conclusions:

• Subsidies don’t solve the problems they seek to solve.
• Subsidies actually result in inflated prices.
• Subsidies cause consumers to purchase more than they normally would, more even than is beneficial or healthy.
• Subsidies loosen consumer value-per-dollar standards.