Stay Informed

stay informed

media library

media library

get involved

Register | Forgot login info

Thomas Sowell Quote

Very few problems can or should be solved, in the sense of wiping out every vestige of themónot even crime or disease. Would anyone really spend half the Gross National Product to wipe out the last vestige of shop-lifting, or every minor skin rash?

ideas > The fallacies of economic subsidies and government payments

The fallacies of economic subsidies and government payments
Senator Obama recently revealed his economic cards on the OíReilly Factor. He said that he wants to redistribute income from the rich to the poor. He considers the rich to be those who gross more than $250,000 a year. Under Obamaís plan, a waitress making minimum wage would receive a subsidy check from the government on a regular basis. This is a great political idea with horrible economic consequences. In other words, it will get votes even if the intended consequences of redistributing wealth never happen. Policies like this make a country poorer and here is why.

Why does a waitress make minimum wage? The skills a waitress has are not difficult to learn. They do not require a degree or any kind of professional training. Either you can interact with people or you canít. Either you can walk and carry food or you canít. Either you can remember an order or you canít. Therefore, the barrier to becoming a waitress is very low, meaning that an employer has a large pool of prospective employees to choose from. Also, waitresses serve prepared food and consumers have an almost infinite number of restaurants to choose from, therefore employees must keep costs low to compete. Waitresses get paid minimum wage because they perform work that consumers deem to be minimum wage work. Barack seeks to take away some of the consumerís power and give it to bureaucrats who will determine which jobs and pay grades are eligible for a government subsidy provided by taxes from the ďrichĒ. Paying any worker more than the market will bear leads to an oversupply of that kind of worker in the market, at the expense of all other jobs.

A minimum wage job provides a good or service that is either ubiquitous or unnecessary. Increasing the wage of a minimum wage worker via subsidy will encourage people who currently arenít in that line of work to enter that line of work, even if there are enough of these workers in the marketplace. Why would we need more minimum wage, menial labor workers? They are already plentiful. More workers flocking to these kinds of jobs means there will be fewer workers available to do other work that consumers demand. This will drive up the wages in other areas, which means the consumer will have to pay more for other products and services or these things will not get produced.

Subsidizing work also leads to workers that are not concerned with improving their lives. Instead, they do the minimum necessary to maintain their subsidies. Imagine the incredible inefficiency and drag this will be on the economy. Imagine the goods and services that will not be produced. Reducing incentives to improve oneís life situation means that the economy will stagnate as more people get on government subsidies because it is just easier to do little to receive more.

In summary, subsidizing menial work with government payments provides an economic incentive for people to seek menial, labor intensive work. More people will want to do this kind of work because it pays more than other work that is not subsidized by the government. Subsidies are nothing more than welfare payments. They keep people from improving their lives. Why get an education when you can just be subsidized by the government? More people will work in minimum wage jobs because the government subsidizes them, not because people demand the goods and services that these people produce. This will lead to less goods and services that people want which means a lower standard of living for all, especially those who are poor and working minimum wage jobs. People who would normally their lives with education and training will now seek to do whatever it takes to remain in a government subsidized job. This economic policy is a disaster, but it gets votes because people do not understand the true economic impacts of this type of policy. Instead, they hope that things get better. If the world worked as well as Senator Obama wishes it would, through edict and dictate from the government, why donít we see plenty and abundance from all the socialist governments in the world?
Contact us