Why do we have subsidies?

For many years, and especially over the past four years we have heard about a variety of subsidies the industry.  Subsidies come in a variety of forms – from outright cash payments, to reduced amounts for use of land. 

Agriculture gets huge subsidies from the federal government each year ($46 billion or 39% of all ag income).  So does the oil and gas industry ($20 billion per year).  Many others as well.  The question is why?  Why subsidized industries that are profitable?  Ranching, mining and oil and gas also get to use federal lands at ridiculously low costs for lease costs -far less than any individual of corporate entity would charge for similar leases. Oil and gas is an industry that makes money every year – there are huge private corporations.  Most of the agricultural subsides go to huge agri-businesses because the family farm is quickly becoming something of the past. The question is why?

In theory, subsides are used by governments to encourage private companies to invest in new technologies.  One of the most obvious is recycling.  In the early 1970s when the US decided recycling should be a goal, there was no easy way to recycle steel, aluminum and plastics.  Ten years or so later, these technologies emerged as a result of taxes on these products.  Today virtually no bauxite mining occurs (the material that yields aluminum) because the amount of material that can be recycled exceeds the demand.  Small pug mills to recycle steel have become the backbone of the steel industry in the US< much to the Chagrin of Big operators like Bethlehem steel.  The small pug mills can be located almost anywhere.  Bu the technology was born of innovation and taxes on steel that were used to subsidize the industry until it became competitive. 

Another place where subsidies have paid off is renewable energy, the price of which has fallen by 99% in the past 20 years.  If we want a less-carbon energy future, the investment in renewable energy seems like a good investment.  And if we create the patents for these new technologies, we can make them and earn the profits off royalties in others.  It is what we did with cars and oil. 

Subsidies to develop fracking and like technologies might be a place to subsidize exploration, bu that was generally not the case.  Those developments were created by innovative entrepreneurs and corporate backers.  It has also allowed the US to become independent from certain energy sources because we can now recapture oil and gas in places that used to be to costly to recover.

What about markets we do not want to encourage?  Coal and tobacco have received huge subsides in the past.  If we want to move away from coal, subsidies would need to end. Coal plants in some area lose money that rate-payers pay for.  So people subsidize coal plants?  That make little sense.  Many Americans live paycheck to paycheck.  Most corporations do not.   A Bloomberg article from October 2020 notes that corporate America has over $2 trillion saved up in reserves and cash, money that has not been reinvested.   Many of these companies are likely to be those with subsidies. 

So let’s ask – with $2 trillion in cash, do you think there might be a better use of subsides than cash on hand right now??