The Government Subsidy Fallacy

Lyndon Baines Johnson Department of Education ...

No Federal Department Left Behind

Just because you don’t think the government should do it, doesn’t mean that you’re against it.

David Henderson points out a Bastiat insight in this blog post that I, as well, find frustrating.  This is from Bastiat’s What is Seen and What Is Not Seen:

When we oppose subsidies, we are charged with opposing the very thing that it was proposed to subsidize and of being the enemies of all kinds of activity, because we want these activities to be voluntary and to seek their proper reward in themselves.

Henderson then shares a technique he uses in his economics class to illustrate this:

When I teach this article in class, I ask the students, who are almost all American, how many of them favor having government subsidize religion or requiring that people be religious. Typically no one raises his hand. Then I say:

Wow! That’s really something. I’m going to go home tonight and say to my wife, “Babes, I have a class of 25 people and all of them are atheists.” Did I get that right? Am I leaving something out?

The classic example of this is the Federal Department of Education.

Mention that we should get rid of it and — despite the fact that since its establishment per student, inflation-adjusted spending on public education has tripled while declining in quality, despite the fact that DC driven education accountability has proven not work (not under this guy, that guy, or that one) and the best accountability is parents, despite the common sense view that sending our money to Washington to have bureaucrats give it a hair cut and then send it back to our schools doesn’t make sense — you will likely be accused of being against education.

When actually, it’s just the opposite.

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11 thoughts on “The Government Subsidy Fallacy

  1. Given that I attended a community college and then transferred to UCLA…most of which was paid for via the GI Bill and government subsidies…I can certainly accuse you of being against my education…and against the education of millions and millions of other people.

    Is some education better than no education? Well…based on the “poor” education that I received then I’m going to have to answer “yes”. Perhaps if I had gone to Harvard like Obama and received a “proper” education then my answer would have been “no”. Oh, well, I guess that he’s an exception…he received a “proper” education and his answer is “yes” as well.

    The point of pragmatarianism is that those of us who value subsidized education should be given the opportunity to put our taxes where our mouths are. It’s “conceited” of you if you think you can truly grasp the impact that subsidized education has had on our development as a country.

    • “I can certainly accuse you of being against my education”

      That’s a post hoc fallacy. Just because you received your education from subsidized sources, as did I, does not mean that we wouldn’t have have earned educations if those subsidies had not existed.

      “those of us who value subsidized education should be given the opportunity to put our taxes where our mouths are.”

      What would stop you from choosing to subsidize education without first letting government bureaucracies touch it?

  2. Xerographica states:

    “The point of pragmatarianism is that those of us who value subsidized education should be given the opportunity to put our taxes where our mouths are. It’s “conceited” of you if you think you can truly grasp the impact that subsidized education has had on our development as a country.”

    Xerographica has decided to use the term “conceited”. How very interesting. Hence if one is against subsidized education then one is vilified. More exacting, if one expresses opposition to subsidized education then the debate stratagem of denying opponents legitimacy is deployed. Yawn.

    Let us examine this case. GI A and GI B enter the armed forces and do basically the same assignment, then shouldn’t each GI be paid the exact same with no future subsidy for a specific future event. That is to say, A and B should be paid on a current account basis an amount equal to the future subsidy. If A would like to save his additional income for education and B would like to buy a sports car, then so be it as utility/satisfaction is derived in many different ways. The argument goes back to Milton Friedman arguing that if in fact government is going to redistribute, then government should pay the redistribution in cash so the recipient is free to choose what creates the greatest satisfaction for the particular recipient. However, politicos through the mechanism of government acting as enablers of special interests only allow the income to be used in ways based on the concept of “the ways things ought to be”.

    An additional case would be student Z pays for his own education without assistance of any government body. Student Z works and pays his tuition. However, when student Z workers he has a shirking partner every step of the way. What shirking partner? For each hour student Z toils he is taxed and part of that tax goes to subsidized education. Hence student Z has a shirking partner who puts forth none of the effort yet reaps rewards:

    ‘A tax levied on corporate profit reduces the care and effort owners put into its operation, since part of the return that would have been received by owners will go to the state. Defacto, private owners of the corporation are saddled with a shirking partner, the state, which takes part of the revenue and provides none of the effort to improve the firm’s return. Consequently the greater is the corporate tax rate, the greater the incentive for corporate owners and management to pursue the “quiet life”.’ – Harold Demsetz, From Economic Man to Economic System, Chapter 10 entitled The Public Corporation: Its Ownership and Control, might shed some light, page 158.

    Want some more? Xerographica notionally suggests “..subsidized education should be given the opportunity to put our taxes where our mouths are.” Its not only Xerographica’s tax but everyone else’s tax as well. Others are in fact coerced into adding to Xerographica’s tax. Maybe this explains it better:

    “This way lies charlatanism and worse. To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.

    But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims.” – F.A. Hayek, from the essay The Pretense of Knowledge

    More? Returning to Xerographica notional suggestion of “..subsidized education should be given the opportunity to put our taxes where our mouths are.” we find that Xerographica’s tax [the whole of] is in effect not used for his specific need, rather his tax is split among tons of subsidies to many exogenous ventures. Hence a very small amount of Xerographica’s tax was actually used to generate his subsidy whereas most of his tax went to other redistribution schemes. That is, how many “mouths” are involved? Once again it might be better explained as follows:

    “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” – Frédéric Bastiat

      • Any particular reason that you haven’t approved my response to W.E. Heasley?

        Errrr…so you chose government subsidized education over private education…yet you’re arguing against government subsidized education?

        How can you know…with any certainty…that we would have been able to afford private education if public education had been eliminated? For-profit organizations do not care about affordability…their goal is to maximize profit. We have no idea what the price of education would be if the government did not subsidize education.

        Who said anything about government bureaucracies touching my subsidies to education? In a pragmatarian system I’d allocate a portion of my taxes directly to UCLA.

        • No reason, other than timing. I’ve approved it now.

          “…you chose government subsidized education over private education…yet you’re arguing against government subsidized education?”
          Yes. I, like most people, responded to incentives and made the best choice for myself at the time. Why does that mean I can’t support what I think would be a better way?

          “How can you know…with any certainty…that we would have been able to afford private education if public education had been eliminated?”
          Because free markets have a good track record of providing what people want.

          Also, unlike you, I’ve noticed about the only industries where prices consistently (we’re talking decades) grow faster than inflation and where innovation is low are precisely those industries that receive the heaviest government subsidies.

          “For-profit organizations do not care about affordability…their goal is to maximize profit.”
          First, what exactly have public colleges been doing consistently raising their tuition rate above inflation?
          Second, for-profit organization certainly care about affordability, otherwise they wouldn’t make much profit. What motivates Walmart and Costco to provide affordable products?

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