Thursday, April 06, 2006

Do you get what you subsidize?

Not that a blogger lacking any newsfeed beside the noise in his head doesn't come to dread the daily chasm of blank white space. Not that the "Publish Post" button does not sometimes become a nagging presence ....but I really do have an excuse for my absence last week: My homework ate the blog.

Well, specifically, my homework for the last week of the quarter is to complete my taxes. I take more than pride in doing the taxes myself. H&R block, who can't even do their own taxes, were getting hundreds of dollars from me for preparing my returns and may have been planning to reward my years as a loyal customer by selling my tax data. The taxing exercise provoked me to examine an old idea which, when I was younger and still the child of a republican household, I held pretty comfortably because I could make it fit most of the instances of subsidies I was aware of. We were a farming family, but not entitled to any of the farm subsidy programs of the era and we struggled: subsidizing uncompetitive crops only perpetuated kinds of farming whose time, perhaps sadly, had passed.

The notion that you get what you subsidize has a powerful grip on the conservative mind.
I admit that is a pretty sweeping generalization. But generalizations are not always invalidated by their counter examples and sometimes, as when one must deal with the winds of "averaged sentiment" that fill all political sails, generalizations are useful. The fewer exceptions and the more common and harmful the supporting examples, the more useful the generalization is. As one of a gazillion examples one could dredge from the political blogs of the world, look at the comments that came up when Gothamist put up a post mapping the incarceration demographics of Brooklyn. The comment thread is knotted with various restatements of the idea that tax money spent to remedy poverty only sowed more poverty. The negative form of the idea, that the power to tax is the power to destroy has a New York example as well: a negative subsidy in the form of rent control is claimed to make the landlord's economics untenable and leads to abandoned apartments.

When filling out your 1040, note carefully the question about expenses you can use to reduce your taxable income:
  1. Margin interest you pay your broker
  2. Interest paid on raw land held for speculation
  3. Interest on a loan taken to invest in business with someone else
  4. Investment interest you couldn't deduct on your 2004 return
  5. Money borrowed for investment in oil or gas activities
I have none of these expenses. Few readers of this blog [admittedly already a very small sample;] have these expenses. Except for landlords, very few in the red zone of Cadora's map of Brooklyn have these expenses. That is because these tax breaks are subsidies for the risks taken by the rich.

I wish I were a Brad DeLong or some other such smart person well read up in economics because I am keenly curious to know if there are any currently credible laws, theories or maxims among economists that state [or refute for that matter] the idea that subsidies effectively promote certain conditions, institutions or activities. It is clear that the idea has long been gospel in the minds of legislatures as they forge, fudge and tweak the tax codes.
I want to be quite clear about one thing: if subsidies do promote something, it may not be the things those subsidies, negative or positive, were crafted to support. What seems obvious to me is that every releveling of the playing field eventually benefits whatever organization or class is most agile and able to turn the new subsidy into a food source. That agility is best provided by a tax lawyer. That ability is hard at work in a corporation building biodiesel plants with DOE grants and tax breaks, or building a privatized prison facility.
The people least able to make any economically advantageous shift of accounting or economic activity are the people who barely participate in the economy at all. So I am not surprised that drug traffic is a huge part of the economy in "bad neighborhoods" but I do NOT see the drugs as the cause of that. They are more the result of having few other opportunities. Junkies don't run the cartels or the distribution network, a pathetic species of entrepreneur does.

The commenters to that Gothamist post who said the money spent on anti-poverty programs only produced more poor and more crime seem unaware that family size is very strongly inversely correlated with family income. Talking about the morals or family values of ghetto dwellers being the root of the poverty cycle is a smokescreen, the talkers fool only themselves. Those commenters are unlikely to be aware of the cost/benefit analysis of head start programs. It was not the good students in those Brooklyn neighborhoods that wound up in prison.

I may not be able to answer my own question. It begs other questions.
What is a subsidy?
Lets say it is any financial relief or resource given or lent by a community to one element, member or class among that community. Tax relief for a specific segment of a community where others must pay the tax is not exactly the same thing as putting money in their pockets but close enough. Raising money by a tax on the community in order to pay for work done by a small segment of the community, particularly work that would not otherwise be done because it has no market or no benefit beside the creation of employment is a subsidy. Oil drillers and defense contractors look heavily subsidized from my perspective. Providing financial support to someone who can't work or can't be paid enough for the work they get to be able to meet basic needs of food, shelter etc would seem to fit my definition of subsidy.

How do you tell who or what is the real beneficiary of a subsidy?
Sometimes its clear: An industry lobbies congress for a boon in some form: trade barriers to competing goods, tax breaks, outright payments to shore up waning markets. Then to overcome resistance to an expensive give-away, it becomes less clear: trickle-down theories are invoked and more often the "make jobs=get votes" arguments are applied to direct new monies to corporations. This means of spreading money around through wages is inefficient in that much of the money is retained by the corporation as profit or plowed back into lobbying and sometimes the actual product is something no one will ever use or something that may never work.
Sometimes its not clear. Buying health insurance for the poor is actually a subsidy to the hospitals, many of which would otherwise shut down because they are now operated for profit by large corporations. I know Waltham Hospital in Massachusetts had a well regarded maternity program but served a town with many underinsured immigrant laborers: it was closed by its parent company for its perennial lack of profit. The new Mass health insurance law may change that. If the cost to society of welfare, crime and punishment for semi-literate dropouts is much greater than the cost of early education intervention which forestalls the social ills, as this Rand Corp. study concludes, what heartlessness and fear would prompt one to save a little tax money and let lives go to rot? Why react as if the only beneficiaries were those who would gain a chance at normal livelihood and productivity when the society as a whole clearly, if not directly, will benefit?

I am actually grateful that so many conservatives are so blatant and their selfishness so widely publicized because it lessens the danger that I could fall into the trap of faulting a straw man. If there is any danger of attacking a nonexistent target, I suppose it might lie in the question of who is a conservative. Could a political view point that includes authors of these opinions, some fascist, some simply failing to look at the causes and effects they talk about, still demand respect for its views?

So I am sitting here looking at the Form 1040, Sched A and wondering if I should borrow a few million bucks and form a software start-up. Having worked in at least ten such [now defunct] start-ups, I've learned a lot that might impress a banker. But I'll make sure to give my self a good salary and get the papers of incorporation set up so my personal assets aren't scratched by any bankruptcy proceedings. I think I must be entitled to some kind of subsidy but I better hurry up and get it while the Republicans are still in power.

And I think the answer to my question is yes, you do bring about some change via subsidy but no, most don't expect and the rest don't admit what the change is actually going to turn out to be.

Examples of "conservative" comments on how society should treat its dregs. Michael Savage:
[P]eople on welfare should not have the right to vote while they're on welfare. Period. End of story. People with less than 100 IQ should not have the right to vote...
Oh sure. Social services are the answer. Throw money at the problem!
Does anyone bother to notice that the neighborhoods with the most crimes are also the ones receiving a lions share of social service money to begin with?
Nah... No one bothered to correlate the two.
Giving more money to the black population will not solve anything. It has been tried again and again, and it is a failure. Admit it!
Typical liberal elites with their heads in the sand.
Meanwhile the white population of the world is declining by 1-2% per year. By 2050, less than 3% of the world's population will be white. By 2100, less that number will be 0.5%.
Where are our priorities?

Craig Smith and Rush Limbaugh
Blaming the Safety Net: An “Entitlement Mentality”

Countless right-wing pundits quickly blamed the tragic aftermath of Katrina—and the glaring portrait of American poverty the hurricane revealed—on the remaining programs of the social safety net, or what Craig Smith described as “the psychological consequences of the modern welfare state.” Radio extremist Rush Limbaugh lashed out at what he called an “entitlement mentality,” and the editors of the right-wing Washington Times purported to observe a “malfeasance of citizenship” that was “largely the product of a mental state of dependency induced by deliberate government policy.”
ETC. Its too easy to find this stuff to call it quote mining...these really are their thoughts.


Davo said...

I want to be quite clear about one thing: if subsidies do promote something, it may not be the things those subsidies, negative or positive, were crafted to support.
Hoo boy. You do write a lot of difficult to understand words... heh.

GreenSmile said...

If I ever meet up with you Davo, I will confine my speech to things that can be said with a mouth full of steak and no sentences that go on so long you forget the subject by the time the verb comes around. And no more than one sentence between beers.


[actually, I cut this one short and may come back and put the punch line on it.]

cul said...

Great post.