Obamanomics: Feeding the horse to feed the birds

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Politics,Beltway Confidential,Timothy P. Carney

Progressive ideals, like using the federal government to help the poor or save the environment, typically bump into political realities and come out as corporatism: Big Government-Big Business collusion ostensibly serving some underserved group.

Often, the corporatist policy completely or partly undercuts its ostensible goal: look at ethanol subsidies, fuel-economy standards leading to more aluminum manufacturing, or food-safety regulations leading to greater concentration in the industry, to name three that come to mind. Politicians and bureaucrats get more power. Big business gets its subsidies and protective regulations. And the intended beneficiary gets much less than he was promised.

Straight-up redistribution would not only provide more aide to the needy cases in these situations, it would probably help the economy by creating fewer inefficiencies. But there’s much weaker political clout behind just giving money to poor people, or taxing carbon dioxide than there is behind, say, foodstamps, manufacturing subsidies, or cap-and-trade with allocated emissions permits.

Obama’s manufacturing subsidies are a prime example. Pitched as a jobs program to help the middle class, they are primarily subsidies to big businesses like Boeing, General Electric, and Caterpillar. Typically, these manufacturing subsidies are also bank subsidies.

Liberal blogger Matt Yglesias addresses this in an interesting blog post today:

Taxing doctors in order to subsidize factory owners (“invest in manufacturing”) so that they’ll hire some waitresses to go become factory workers seems like an exceptionally roundabout way of accomplishing the goal. Why not just tax those who have a lot (regardless of sector) and give money to those in need?

ADDENDUM: I forgot to explain the analogy, which I learned from Uwe Reinhardt.

If you want to feed birds, you could buy bird seed and feed birds. Or you could buy hay and feed your horses, knowing that when the hay comes out the other end, the birds will have something on which to snack.

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