Is Picking Winners With Subsidies Efficient?

Is picking winners with subsidies efficient? Any review of either the literature or the evidence would you you in the direction of answering no to that question.

It’s not really plausible to argue that it’s efficient in the economic sense of the word. If people are employed at their highest valued use, will they be working in the public sector, picking winners with taxpayers money?

To ask the question is to admit that there are perhaps 100 to 200 people in venture capital firms on Sand Hill Road who are world-class at venture capital investment selection.

It might however be a way of achieving a political goal – add jobs, subtract competition, deliver votes, repay political favours, or something of that nature.

To dress up what is a political device in the language of economics or finance, using words like “investment” is an abuse of the English language.

It really is dissembling to suggest that if one company gets something from taxpayers and another does not, that there does not exist a state of affairs where the state has favoured one company over the other.

Structural reforms in the 1980’s delivered substantial gains for New Zealand in many areas, while incurring some very real social costs that have not fully been appreciated by those for whom that experience is alien from their day-to-day reality in policymaking bubbles.

But it seems that some sections of those structural reforms have been rolled back quietly over a long period of time by different governments in the guise of picking winners through subsidies, investments and free hits built into regulatory regimes.

It’s not clear what the overall strategy of the state is, nor are there any clear intellectual arguments in favour of such a selective application of state assistance for one part of the economy but outright disavowal of the idea that the state can provide assistance for other policy problems.

Is cognitive dissonance and no coherent strategy the new normal?


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