Subsidy or Subsidies

Handouts. Pork. Political vote-buying. That is, when a given industry can’t compete on a level playing field, like a U.S. cattle producer not being able to compete against cheap mad cow meat from central China, the U.S. government will give subsidies, or free money, to those American cattle farmers so that they can, you know, keep on keepin’ on.

That is, the world market for ground beef might be $2 a pound, but the cheapest price at which U.S. producers can produce their meat is $2.20. So the U.S. government, hoping to keep their farmers employed, and not wanting a repeat of the Joad family singers, will subsidize farmer meat production to the tune of some $0.40 a pound in free money, courtesy of the American taxpayer, so that those farmers can compete without having to actually slaughter and maintain the mad cow pastures, just south of the Beijing nuclear plant. And live to meat-produce another day.

The same government handouts occur internationally, where the U.S. manufacturers have to compete against countries that allow all of their own companies to collude, co-opt, and work together in aggressively competitive ways to dominate a world market.

So think about the cattle industry in China, where the Chinese government is in active support of its own Chinese companies coming first, ahead of those from other countries. Those other countries work together, from the wheat manufacturer to the water piping distributor to the fertilizer company tapping its own politicos to co-opting Grinders R Us when it comes time for the cattle to, uh...come home.

A subsidy is essentially a negative tax. The government is subsidizing supply. Lot of controversy surrounding subsidies. Some folks support 'em, while others claim that they unfairly affect prices, or give developed countries a big advantage over less developed countries that might not have the cash to help their industries. But no matter how mad some people are about subsidies, just remember that no one's as mad as the cows.