The Destructive Nature of Subsidies and Tax Breaks
“Subsidies are prima facie evidence that consumers would not buy the product at its market price. They distort markets, compromising economic growth, breed corruption and undermine social welfare by foisting inferior or over-priced goods onto the market” Kenneth P. Green
Cities and markets have historically been created under pragmatic realities. Towns, villages, or any other settlement existed in logical places: by a river, by the sea or close to a trading road. Farming was possible where the soil was rich. Fishing was productive and worth it only if the gains outweigh the costs. The logic was quite simple and fair – either you can or you can’t. If you could on some times, and not on others, than most likely you would adopt a nomadic lifestyle, looking for certain benefits in certain places on certain times. In this system, the value on goods was equal to the realities of producing it or getting it. It was, at the core of it, the real definition of a free market economy, where supply and demand drive the development and expansion of societies. If a resource was to be mismanaged, abused, and consequently lost, then logically the market and the people would react accordingly. Lessons would be learned and laws would be put in place trying to avoid the same mistakes to be repeated. Then the modern world invented subsidies and tax breaks.
Different from credit – an extension to fulfill an obligation, subsidies and tax breaks are inflationary tools that create a false reality. They support unrealistically what should not exist. Interestingly enough, the etymology of subsidy comes from sub “under, behind” and sedere “to sit”. One could easily concluded that the word was invented to illustrate something that remains still and unproductive. The headline: “EU Subsidies – Millions for Doing Nothing” does more than simply playing on the words. It highlights one of the most dangerous economical inventions our societies have now so well become depended on.
On the conservation and management of natural resources, subsidies and tax breaks are the most destructive force ever existed. They take away any sense of responsibility and desire to manage with a long term approach. They entice people to be rewarded for being inefficient and corrupted. Giant corporations, with legal and financial power to lobby politicians, themselves in charge of allocating subsidies and giving tax breaks, usually end up siphoning most of the money while the small producers end up being short handed (click here for more information). Our history is filled with examples of how these practices only prolong the inevitable and unfortunately stagnant innovation.
How long would the whaling era have gone on without the subsidies?
Would whaling still go on today in Japan and Iceland? (see more info here)
Would our economy be so oil dependent if we paid the real price for oil?
What would happen if the oil companies did not benefit from any tax breaks?
Would our consumerism be so high if not subsidized?
Would corn and soy be everywhere if their subsidies were taken away?
What would happen if the richest countries did not spend $106 billion per year subsidizing their own farmers?
Would the ocean’s fish stocks be depleted if no subsidies existed? (see more info here)
Does it make sense to fill groceries stores in polar regions with ice cream manufactured thousands of kilometers away? (see video here) The insane thing is not the price they pay but the fact that we have created and supported an economy that is illogic, nonsensical and ludicrous.
Does it make sense for countries to still subsidize families for having children? Isn’t 7 billion enough?
Would our lives really be miserable without these fiscal illusions?
Would the Arctic and polar regions development made sense if governments didn’t help?
Is it viable to sustain a lifestyle that without these supports, would crumble into pieces?
Some say that if the subsidies are taken away, it will hurt major industries and people will loose their jobs. Maybe it is, but everybody will adapt and manage. It is better to deal with reality than fiction. Right now, fiction is king. Financially the world is broken down. The planet’s resources are seeing the end of the line. Our population is unstoppable, and still we look at ways to continue its trajectory.
It is as if a person had spent his salary even before receiving it, eaten away his yearly supply within the first month, and borrowing more than he could even repay in his lifetime, and tell him not to worry, just continue doing what you are doing, the government will back you up, no strings attached.
If we want to grow “sustainably”, the first and most important step will be to stop all subsidies and tax breaks. Obviously it is wishful thinking that will most likely never happen but we must at least look into it. The exercise is crucial to understand the conundrum at play. Energy subsidies, social subsidies, science subsidies, consumer subsidies, environmental subsidies, farming subsidies, and fishing subsidies are nothing more than old and inefficient ways to keep a status quo on declining and obsolete practices. They lure the population and governments into a fantasy world and false beliefs, making people cling on what has already past. Most importantly, they take away any sense of responsibility and accountability.
“Thanks to farm subsidies, the fine collaboration between agribusiness and Congress, soy, corn and cattle became king. And chicken soon joined them on the throne. It was during this period that the cycle of dietary and planetary destruction began, the thing we’re only realizing just now.” Mark Bittman