19 Jul 2012

Lies, damned lies and subsidies

In response (and agreement with) Jeff Michael's useful discussion of the costs and benefits of the "Delta conveyance" [PDF] I clarified the different ways that government can deliver a subsidy that benefits special interests at a cost to the rest of the population, namely:
  1. Financing a project with a government guarantee to get a lower interest rate
  2. Financing a project with cheap money FROM the government
  3. Allowing a beneficiary to pay a share of costs that's less than their benefits, e.g, farmers paying 25% of the cost of the conveyance but taking 75% of the water.
  4. Lowering project costs, via "loans" of personnel or equipment, access to "surplus" inputs, acquisition of land via eminent domain, etc.
  5. More?
Bottom Line: Special interests LOVE government project not because government is good at building dams, roads, etc., but because they do not have to pay the cost of what they get.*
* The same is true about international aid. The "needy" participate not because donors are really good at delivering what they need, but because donors are giving them stuff for free.

H/T to RM