Haley, you may want to try using a different browser (firefox or crome) because for some reason when using internet explorer some posts don’t show up.
Ok, let me try posting my question here then, see if this works…
I’m not an economics major or anything, I’m just trying to more fully understand some basic principles of economics, especially as taught by the Austrian thinkers. Here is my question regarding subsidies:
I have read that government subsidies falsely lower prices because when the government gives money to one industry or business, it makes their goods cheaper than they would be if the market priced them. I’m thinking things like corn subsidies which have been targeted as the reason why junk food is so much cheaper than healthy food.
However, I have also heard that when the government subsidizes something, the prices go UP because the business or industry has less incentive to produce a more cost effective product. I’m thinking things like student loans or healthcare.
Can anybody help me understand this better? Can both situations be true, that subsidies can either cause prices to go up OR down depending on the industry? Or am I not understanding this correctly?
Thanks!
Welcome to the forum!
In the former cases, they are subsidising the supply. In the latter cases they are subsidising the demand.
Welcome!
Graham got it…there is a difference between subsidizing demand and supply, and one will increase prices while another will lower them (at the expense of increased prices elsewhere)
If you’re interested in learning more, I highly recommend checking out this beginner post.
For info on the forum, be sure and check out the newbie thread:
Dang it, stupid IE Browser, now I have to re-type my post again.
I said, great, thanks for the clarification on that matter. I guess I had it more or less right the first time I just didn’t understand why. That makes more sense now.
While I have your attention (maybe), I wanted to run by an analogy that I’ve been turning over in my head recently. I read an article on Mises yesterday about how the more government intervenes in the free market the more it has to keep intervening to correct for the mistakes and distortions its intervention inevitably brings about until the point that it has taken over all the means of production in a society and we have socialism instead of capitalism.
I’ve been thinking about this in terms of the weather. Government, or science at least, now has the ability to at least partially control the weather. They can do what is called cloud seeding where they can essentially “seed” the cloud to create the conditions it needs to produce rain. I wouldn’t doubt that there are other ways in which we can control the weather now too.
I’m wondering if those who favor government intervention in the markets would also favor government’s trying to control the weather for the same reasons: to make things more fair, to ease the burden of suffering on certain people, for economic gain, etc.
Of course, I’m sure readers of this site would see the folly in that. When you try and control one aspect of the weather it would undoubtedly produce unforeseen consequences which we would then have to try and correct and it would once again become a self-perpetuating circle. Sure, we could make it rain in Africa but perhaps by doing that the annual migratory paths might disappear and herds of animals might starve if they can’t reach dry pastures and then we’d have to put them on the endangered list and try to protect them and so forth and so forth. It becomes like a domino effect, or perhaps more accurately, the butterfly effect. Maybe that region would actually benefit but somewhere halfway across the world others would suffer because their usual weather pattern had been disrupted.
I think most people can clearly see why the government shouldn’t be trying to control the weather (I hope so at least!), and yet would completely miss the parallels when you try to explain it to them in economic terms. Even now, with the entire Western world in shambles because of governments falling lockstep in line like lemmings toward economic disaster, many people out there can’t fathom doing anything any differently. Or if they do, they just think that we need even MORE government oversight so as to prevent this disaster from happening again.
Maybe if we start framing this argument in terms of the weather, those who are less economically inclined might be better able to understand and visualize what we are talking about. What do you all think? Is this an appropriate analogy? How can we improve upon it? I appreciate your thoughts and feedback.
Haley, welcome. Yes, I like your analogy. In both cases the problem is: The Pretence of Knowledge – a claim to knowledge about, and full control of, the unknowable.
Well, you’ve gotta be careful, because the argument can then be extended to private businesses trying to control the weather.
Wheylous, private businesses can legitimately try to control only things that don’t affect/damage the property of others. The markets in tort, liability, and insurance would quickly regulate anyone’s attempt to control the unknown/uncontrollable.
But why should you not be able to seed as many clouds over your own property as you’d like?
Why should you not be able to dam the river that flows through your own property? Why should you not be able to fire bullets from your own property? Why should you not be able to swing your own arms around you regardless of who’s standing near you? Because if I can prove that your actions caused damage to my property, you’ll be exposing yourself to tort.
Those other actions (besides the dam) directly harm the property of others. When you seed clouds you are not directly harming them, you’re just preventing rain from getting to them. In the same way when a business competes it doesn’t “steal” from you when it has a better product.
Then with the dam, too, you’re not directly harming them – you’re just preventing water from getting to them.
The business competition analogy is a non-argument. No sane arbitrator would ever recognize your “easement rights to ‘your’ level of sales”. The voluntary exchanges between you and your customers are not your, or anyone else’s, property. Hence, you have no tort against anyone doing anything which would make them less likely (or completely unlikely) to happen going forward.
I think the difference between controlling the weather and controlling an economy is the difference between not having the knowledge, and not being able to have the knowledge. Its conceivable that scientists learn all the variable that effect weather, and then are able to tweak those variable to acheive the exact results they want. But with economics, the necessary knowledge is tacit, dynamic, and dispersed.
I like your analogy though. I tend to visualize “the economy” as a pond with microbes, plants, insects, fish, frogs, etc. Trying to clean up the pond by removing algae leads to a decline in fish which leads to a decline in birds which leads to an increase in insects and so on. If you try to add fish to make up for the decline, you introduce some disease which didn’t exist in the pond before. Then you add an anti-biotic, but that kills off the microbes which the smaller fish feed on. And on and on and on.