[venky]

In some cases it is a no brainer that it causes serious damage. Like of instance in India fuel subsidies are given to the entire population, distorting demand and prevents market prices from reducing consumption. In the end this causes huge debt for the public oil companies who are unable to pass their costs onto their consumers.

But on the other hand there are those who are really poor and I mean really poor who are desperately dependent on low cost kerosene for cooking. In this case eliminating the subsidies might cause starvation or atleast malnutrition. It will also almost definately lead to riots and a breakdown of law and order in poorer neighbourhoods.

So should subsidies be used in order to protect the most vulnerable members of society? It can also be used to allocate resources for areas of economic development which are deemed necessary by society, like for instance renewable energy.

Ofcourse subsidies can always be misused by goverment in order to buy votes; so the question remains is it worthwhile to have a government or legislative that is enpowered to allocate subsidies when it wants.

[BlueGhostNo2]

well given your goal is 'stop people starving to death' I think it makes more sense to pay them an amount of money sufficient to stop them starving to death and no more. Why use a subsidy?

[Snowrunner]

I think it what a society decides is worth spending money on. Free Education? Massive amounts of Food? Cheap Energy for individual transportation?

If you put subsidies in then the end result will always be that more people make more use of the subsidized product, there are clearly areas where this is damaging, but others where I would say an "enlightened" society should invest.

Some of the things that come to mind:
- Food production, and by that I don't mean to make it cheaper for Food Processors to get raw materials, but by a two pronged approach:
1. Subsidize the production of "complete" food, e.g. a carrott instead of "precursors" e.g. corn.
2. Provide "Foodstamps" or similar subsidies to the low income households that are directly affected by this. Tie these to those complete foods though and thus help the farmer to find a market which in the long run should reduce the dependencies on their subsidies.

- Education
An educated society is more adaptable and flexible in crisis situations. Plus an informed population will also participate in a vote. Of course no politician wants their citizen to really understand what they are doing.

- Public Services
To these I would count essentials. This would include public transit, power, water or even telecommunications. The latter one doesn't need to be devoided of Governmenet subsidies / sponsorship, I rather could envision a basic service level provided by the Government with the private sector filling in the bells and whistles.

That's of the top of my head. Subsidies aren't evil, but they become evil when certain special interest groups take them over.

[Gerben]

Subsidies can have a very positive effect. There are however always negative side-effects.

The cooking fuel subsidy is used in many countries in the world. Many countries that have no welfare system use subsidies for food and fuels to make basic necessities more affordable. Controlling prices at the border is more cost-effective for them than setting up a welfare system.
Another reason for cooking fuel subsidies is deforestation. Give poor people money and some will make a living chopping down trees for firewood. Giving them cheap cooking fuel reduces deforestation. Now that the prices of fuels in many countries are rising, deforestation will accellerate.

[Quinny]

No of course not. Subsidies, like taxes can be used as an effective lever to direct spending towards longer term strategic goals.

Look where a 'free' market's got us!

[cube]

$this->bbcode_second_pass_quote('venky', '.')..But on the other hand there are those who are really poor and I mean really poor who are desperately dependent on low cost kerosene for cooking. In this case eliminating the subsidies might cause starvation or atleast malnutrition. It will also almost definately lead to riots and a breakdown of law and order in poorer neighbourhoods. ...

[TommyJefferson]

Subsidies ALWAYS distort markets in ways that result in a higher level of suffering, corruption, and malinvestment.

Look at FreddieMac and FannieMay. Look at our American transportation system. Look at our agricultural system.

Go study economics... link

Subsidies create slaves and political violence. Use reason to learn why non-violence is better.

[MarkJ]

The rental, home improvement, heating equipment service/upgrade/replacement and heating fuels subsidies have been good for our businesses. Insulating, weatherizing and replacing windows, furnaces, boilers and water heaters can save millions of gallons of fuel. Many of my apartment buildings and investment properties were partially paid for by subsidized rents, subsidized home improvements, block grants etc. If the subsidies, tax breaks, grants and incentives didn't exist, many properties would have fallen apart and been abandoned like many other city properties.

One the other hand, subsidizing heating fuels for homeowners with uninsulated homes and 50 percent efficiency heating equipment effectively promotes waste indefinitely. The waste is good for our fuel sales business, but bad for the taxpayers and private organizations that fund these programs.

The rub with freebies and subsidies is that safety nets have created multi generation dependency. When someone runs out of food, fuel, or has their gas, water and electric service terminated, taxpayers and/or private organizations will often bail them out.

[smallpoxgirl]

Subsidies distort the supply and demand curve. They cause people to use whatever thing you're subsidizing in excess of what they would normally do. If there is some other benefit to society, subsidies might make sense. For example, a community might subsidize a recycling program to reduce it's landfill costs.

Subsidizing an expensive, scarce, natural resource like petroleum that people really should be conserving is maddness. For the poor of India that you were mentioning, what subsidies will do is allow them to become (or stay) dependent on a resource they can't afford. It will allow them to reproduce and have children based on the expectation of continued access to that resource. It will allow them to delay dealing with their economic reality and in so doing, will set them up for an even greater calamity in the future. Reality is difficult, but denial is ultimately a lot worse.

[TommyJefferson]

Government central planners simply cannot know the millions of variables that determine how to most efficiently and fairly utilize any resource.

ALWAYS they malinvest. Always they create a situation where whomever controls the political power can use the legal force of the state to unfairly take advantage of others.

Look at New Orleans. If not for subsidies, it wouldn't be there, hundreds of thousands of people would not be suffering evacuation and crime. Billions of dollars could have been spent improving the lives of the people who earned that money instead of wasted on a sinkhole.

Go study economics.

[dsula]

$this->bbcode_second_pass_quote('TommyJefferson', 'S')ubsidies ALWAYS distort markets in ways that result in a higher level of suffering, corruption, and malinvestment. Look at FreddieMac and FannieMay. Look at our American transportation system. Look at our agricultural system.
Go study economics... link Subsidies create slaves and political violence. Use reason to learn why non-violence is better.

[TommyJefferson]

$this->bbcode_second_pass_quote('dsula', 'S')ubsidies should not be confused with welfare or public spending on public infrastructure.

[dsula]

$this->bbcode_second_pass_quote('TommyJefferson', '')$this->bbcode_second_pass_quote('dsula', 'S')ubsidies should not be confused with welfare or public spending on public infrastructure.

[Quinny]

Where from?
$this->bbcode_second_pass_quote('TommyJefferson', '')$this->bbcode_second_pass_quote('dsula', 'S')ubsidies should not be confused with welfare or public spending on public infrastructure.

[TommyJefferson]

$this->bbcode_second_pass_quote('dsula', 'H')owever subsidies is not public spending on public projects. Or is it?

[cube]

$this->bbcode_second_pass_quote('dsula', '.')..
Not true. Subsidies should not be confused with welfare or public spending on public infrastructure.
Subsidies should be used to jump-start and establish business that are not currently present in an area.

[smallpoxgirl]

$this->bbcode_second_pass_quote('TommyJefferson', 'G')overnment central planners simply cannot know the millions of variables that determine how to most efficiently and fairly utilize any resource.

ALWAYS they malinvest. Always they create a situation where whomever controls the political power can use the legal force of the state to unfairly take advantage of others.

[dsula]

$this->bbcode_second_pass_quote('cube', '
')For example public transportation seems to fit the above description pretty well. It might cost $1.50 to take the bus however that only covers maybe 1/3rd the operating costs. Taxes cover the rest. In order for the system to be "unsubsidized" meaning those who use the service pay for it's full costs --> a bus ticket would have to cost $4.50 ouch >_<

[Quinny]

There seems to be a general acceptance that the market rules on this thread. IMHO this is absolute b******* . It's a good servnt but a terrible master, look where it's got us!!!$this->bbcode_second_pass_quote('dsula', '')$this->bbcode_second_pass_quote('cube', '
')For example public transportation seems to fit the above description pretty well. It might cost $1.50 to take the bus however that only covers maybe 1/3rd the operating costs. Taxes cover the rest. In order for the system to be "unsubsidized" meaning those who use the service pay for it's full costs --> a bus ticket would have to cost $4.50 ouch >_<

[Dreamtwister]

I like the milk example.

Let's pretend that the actual retail price of milk is $4.00. Pretty discouraging, isn't it?

Well since the government heavily subsidizes milk, grocery stores are able to put up a much more comfortable sticker price of $2.00. The price to the consumer appears cheaper, doesn't it? Well it's not, because the government had to cough up the extra $2 from it's own revenues, either directly from taxes, or indirectly through inflation.

But even worse, is that everybody chips in for that extra $2, even if they never drink any milk. Where's the "Didn't drink any milk this year" deduction on my tax form?

And finally, subsidies are anti-small business. Huge agribusinesses like ADM, Cargill and Monsanto are capable of operating on less profit-per-unit because they have scale. Joe the farmer can not. So Joe the farmer gets pushed out of business, which he then has to sell to...you guessed it...ADM, Cargill and Monsanto.

But the situation is even uglier than all that!

What if the government of Guadalawhothehellcares decides to subsidize it's farmers to the tune of $3? You know someone is eventually going to find a way to profit from loading that surplus milk onto a plane and flying it to markets half-way around the world. Don't laugh. At my neighborhood supermarket, I can buy tomatos from Spain for less than those grown locally.

Even education is a risky investment. When the population is well-educated, not only are they a threat to the government, they think of themselves as too good to swing a mop for minimum wage. Somebody has to shovel the shit, or society doesn't work.