James d. Gwartney

Video:
Subsidize Silly Walks
(You can see the classic entirety at: 
https://www.dailymotion.com/video/x2hwqki
)
Governments promote economic prosperity
(?)
when they encourage production and
exchange, and discourage plunder. When effective law and its enforcement make it difficult to
take from others, either via crime or use of political action, few resources will flow into
plunder. Moreover, the resources employed defending against plunder will also be small.
In the modern world, however, government itself has become a major source of
plunder. Governments often take resources from some in order to provide subsidies and favors
to others. While it is not technically theft because it is done through laws, it is still a negative-
sum activity that harms the citizenry and slows economic growth.
In France, transfers and subsidies now account for approximately half of the overall
budget.
(66)
Social Protection subsidies comprise the bulk of the transfers (43 percent of the
total budget),
(67)
 but the government now supports numerous other activities, including culture,
airports, specific manufacturing firms, solar power, fossil fuels, and agricultural goods ranging
from chickens to wine. There are 250 different grants and subsidies for small business start-ups
in rural areas of France.
Subsidies and government favoritism are a danger to both political democracy and
economic efficiency. There are several reasons why this is the case.
First, the subsidies distort prices and encourage businesses to spend more time
searching for favoritism in central governments and less time developing better and more
economical products. Predictably, an increase in the availability of government favoritism will
strengthen the power of special interests and encourage deception. In order to obtain more
government funds and gain advantages relative to rivals, businesses and other favor-seekers
will tie their interests to popular objectives such as increasing employment, reducing poverty,

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improving environmental quality, and lessening dependence on foreigners. Even when their
actions are motivated by financial gain and political power, interest groups will have a strong
incentive to claim they are seeking to achieve broader, more popular objectives than is actually
the case.
Second, subsidies to some firms and sectors place others at a disadvantage. Some of the
unsubsidized firms will be driven out of business or fail to enter the market because they can’t
compete with subsidized rivals. The result is a diversion of resources from businesses
dependent on market consumers to those favored by politicians.
Third, and perhaps most important, the subsidies and favoritism will create an
improper, unethical relationship between business and political officials. “Corporate welfare”
and “crony capitalism” are thereby encouraged, and the interests of the taxpayer compromised.
The greater the degree of corporate welfare (i.e., the more numerous the government subsidy
programs directed toward business), the greater the flow of resources into favor-seeking
activities. (Note: Economists often use the term rent-seeking to describe the favor-seeking of
businesses and other groups.) As politics replaces markets, the economy will be increasingly
characterized by cronyism and counterproductive activities, and economic growth will fall
below its potential.