Robert Tracinski on The Paradox of Subsidies


“Call it the Paradox of Subsidies. Why do you subsidize something? To make it cheaper. What is the actual effect? To make it more expensive.”

Robert Tracinski:

The greater the subsidy, the more money flowing in to the sellers of a product or service, the less incentive they have to reduce costs …

Hence the treadmill effect created by the Paradox of Subsidies. The more the government subsidizes something, the more expensive it gets — which requires higher subsidies to get the same results, which increases the costs even more — which requires still higher subsidies, and so on. And then some myopic observer … comes along to declare that the free market is broken and government needs to take over.

… What was the actual intention of the subsidy? … The intention was to hide its cost from the consumer. The intention was to tell the consumer he can buy as much of it as he wants without regard for cost.

… in shielding the consumer from considerations of cost, subsidies shut down the mechanisms that would actually, in fact, make something cheaper.

… What drives down prices in the rest of the economy, outside of government-subsidized bubbles … is innovation spurred forward by competition.

All of that happens because producers and consumers are responding to price signals.

But when customers are insulated from prices, they have less incentive to reward the innovator who disrupts the status quo.

The Australian film industry has been subsidised to the tune of hundreds of millions of dollars of taxpayer money over the years from both federal and state agencies and schemes.



Keynesian roots of Australian post-war film funding

EconomicsWorkshop.ORG points to evidence that post-WWII film funding in Australia was directly influenced by Keynesian economic theory.

It asks:

If Keynesian economics “proved” that government spending boosts the economy, was the argument made (at the time) that film funding therefore kills two birds with one stone?

i.e. That (government funding of film-making) … improves film production and on top of that makes Australia richer?

It’s also interesting that:

  • Providing tax breaks for film production seem to rest on the argument that lowering the tax burden of producers is an economic plus; it makes them more likely to embark on ventures and more likely to profit from their ventures and less likely to fail …
  • Yet taxing citizens — and, by the previous argument, thereby reducing the citizens’ ability to be productive — in order to pay for film grants, results in increased “economic activity” for Australia as the grant money is spent.

The “tax breaks” argument seems to contradict the Keynesian “stimulus spending” argument.



Punk rocker, David Thomas: “government has no business in the arts at all”

David Thomas of Pere Ubu
David Thomas of Pere Ubu

Briah Doherty at shares the following extract from an interview by Big Takeover with David Thomas of the punk band Pere Ubu (whose motto is “Art is forever, the audience comes & goes.”):

I remember reading provocative quotes from you – and I’m sorry, I can’t pin down where – where you made statements about the vitality of art produced in free market societies, as opposed to art that is state funded.

You came across as a bit of a libertarian. I try not to take anything you say at face value – I think of you as a provocateur – but I wonder if you actually still feel that way? (Because if so, there’s, umm, some irony to the band being mostly based in Europe these days, since state support of the arts is prevalent over there… and in Canada, I might add).

Yes, I still feel that way. I’ll take the dirty socialized art money but I prefer crummy little clubs where there’s a promoter who is risking his own money to put the show on. I feel no urge to thank an audience. I thank the promoter – as should the audience.

Follow up re “dirty socialized money” – is this less a matter of political principle for you, and more a matter of personal pride as an artist?

I think the government has no business in the arts at all.

Follow up: do you not think it valid, in countries that cannot compete on equal footing with the American entertainment industry, like Canada, to support their artists through government funding?

I doubt there’s a Canadian musician, filmmaker, writer, or novelist who hasn’t received some government support along the way, be it scholarships, grants, fellowships, things like the Canada Council.

No, see above.

Follow-up: In a purely market driven entertainment landscape, which is mostly what we see in the States, doesn’t that lead to the proliferation of Miley Cyruses and Britney Spears and other such phenomenon?

Isn’t it bad for art?

No, it’s good for them.

Here’s a video of the band doing their kooky stuff:

HT: Dr Anna Blainey Warner