Wednesday, January 16, 2008

On Subsidies

Subsidies encourage you do do or make more of what is being subsidized. That is, after all, what subsidies are supposed to do. If you pay people to do something, and you pay them enough, they will do it.

Pay people not to grow crops, and they won't grow crops.

Pay people to grow more corn, and they will grow more corn.

Pay people to produce more milk, and they will raise more cows (and give them drugs to make more milk).

Pay people not to work, and they won't work.

Pay people money for each child they have, and give them more money over time for each child, and they will make more children.

Pay people to work more, and they will work more.

Pay people to act responsibly, and they will act responsibly.

Of course, not all payments are money (which I know is what you assumed up to this point, making the mistake that economics is about money, when it's not -- it's about value). We pay each other in different ways -- socially, with praise, with prestige, etc. If you really want to get people to do what you want, use a combination of reward for doing good and punishment for doing bad. Indeed, too often we reward the bad (subsidize it, in fact), and excuse it at the very least. Too often we even hear people say we shouldn't condemn the bad. Thus, bad behavior spirals out of control.
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