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February 9th, 2011

Grants and Subsidies and Regulations—Oh My!

By Sam Clovis

Given the great start to the Iowa legislative session, one could take heart that our fellow Iowans got the message last November.  The same cannot be said about the Republicans that got elected to the House and Senate, US Capitol version.  So far, the message out of the Republican conferences is that they will courageously cut $100 billion from the budget.  Let’s see, that is 3% of the current budget.  This massive, herculean effort will reduce the deficit all the way down to $1.5 trillion.  Way to go, guys.  Way to make a difference.

Let’s run down some real numbers—something all the apparatchiks in DC might be able to get their collective (and I use that word advisedly) heads around.  There are three areas where these erstwhile protectors of freedom could really make a difference in our financial destiny if they would but figure out how to do a Boolean search on Google, something any eight year old could do with great alacrity.  Those areas of interest are federal grants, federal subsidies and the regulatory regimes associated with all the executive department agencies.

Any self-respecting free market economist (not an oxymoron) turns gray when confronted by the market and budget distorting influences perpetrated by Leviathan.  Grants, often immediately addictive like some street drug to government officials, force state and local governments to raise taxes to match or manage categorical grants offered by the pushers in DC.  By underfunding grant programs, the national government can claim credit for a program without having to take the heat for the taxes people have to pay to support the grant habit.  Subsidies, perhaps the most pernicious distortion of market processes, artificially support supply operations that would not exist if the market were allowed to operate on its own.  This form of government interference has many manifestations—tax credits, direct assistance, depletion allowances, and trade actions, to name a few.  When one plots the amount of subsidies on a standard supply and demand chart for a commodity or industry, one cannot escape the clear visual that subsidies have the same affect on markets as taxes.  Imagine that—market interference that comes in the form of concentrated benefit for particular industries and diffused costs spread to all taxpayers in America.  Finally, regulations, often intended to “protect the consumer,” almost always have exactly the opposite effect.  Rather than allowing more competition, regulations raise barriers to entry, and help concentrate industries, which eventually leads to higher prices and less competition.  Consumers lose and crony capitalists have less competition.

Today, about $550 billion dollars annually is repatriated to state and local governments in the form of some 1000 grant programs.  All but 17 of these grants are project or categorical grants, thus requiring oppressive reporting requirements and funding from state and local governments.  As these grants proliferate, and they have, they become nearly eternal in nature.  As our own Senator Grassley announced some $900K in American Fire Grants coming to 12 Iowa fire departments, remember that those funds are tax money paid by the citizens of this nation.  Sound like an earmark?  Imagine that.

Finding the federal liability for subsidies is nearly impossible.  Based on several sources, the range of costs to taxpayers stands between $480 billion to $850 billion a year.  Today, there some 2,107 subsidy programs supporting industries and causes all across this country.  In the energy industry, we find some $70 billion a year being meted out with 25% of that funding going to renewable energy programs.  On the surface, one ought to be able to see that these elements of the energy industry could not make it on their own without our tax dollars providing charity to products for which there is little or no demand.

In any given year, some 80K pages are posted to the federal registry.  Most of these pages deal with regulations that impact private business either directly or indirectly.  Any time a regulation requires a company to change something, add staff, modernize equipment or otherwise incur costs, those costs are passed directly on to consumers and fewer enterprises will be able to operate in that industry.  Again, measuring the costs of regulations to taxpayers is nearly impossible, but reducing the cost of regulation could not help but encourage more competition and put more money into taxpayer pockets.

If the folks in DC are serious about reducing the deficit, one can see over a trillion dollars right out there on the table.  And guess what—entitlements haven’t been mentioned one time.  Republicans can find a lot of issues upon which to run in 2012, but reducing the deficit has got to be near the top.  It’s called Google.  Just enter some words like “grants, subsidies and regulations” and see what happens.

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About the Author

Sam Clovis
Sam Clovis is college professor, retired Air Force fighter pilot and former radio talk show host. He has been active in republican politics in Iowa for quite some time and is a highly visible and outspoken conservative. He has run for office in Iowa and remains a popular conservative figure.

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