Are Subsidies Actually Beneficial?


Brynn Jaspersen–Honorbound

Prior to reading Naked Economics, I never considered the idea that politically motivated subsidies could affect modern-day economics.  The question lies whether their effect on the economy is a positive or negative one.  As chapter eight mentions, “When it comes to interest group politics, it pays to be small” [1].  This is because the costs of whatever favors this small group gets from the system are spread over a large, unorganized portion of the population.  In short, politicians rise in rank by offering small groups benefits without looking to the good of the entire country.  Since 1955, the government has continued to subsidize mohair, a wool substitute that was used in the production of military uniforms—emphasis on was used because the military switched to synthetic fibers long ago.  Yet, the federal budget has continued to include cash payments to Mohair farmers, money coming straight from our own pockets [1].  Now, you may be thinking – how have these farmers managed to remain subsidized?  Why do we continue to pay taxes towards a useless wool?

Well, because this small group of Mohair farmers is so small, they tend to go unnoticed.  Granted, we are probably only each supplying them with a penny or two coming from our pockets, so there is very little effect on us [2].  But, the reason these farmers are able to “scathe by” is because they are such a small group.  This all leads to the question, how can subsidies be beneficial to whomever is granted a subsidy as well as our economy as a whole.  I believe subsidies could very well be stifling innovation; they may serve a purpose for a while, but it soon becomes counterproductive and non-innovative, as presented with the Mohair example in Naked Economics.

This got me thinking how it all relates to a “real-world” situation, one that goes beyond the government-funded subsidies.  For instance, my eldest sister Emma graduated from Texas A&M last May and is forced to face the “real world,” in other words, is having to figure out expenses on her own and seek a job that provides a steady income.  If my dad were to continue to give Emma an “allowance” after graduating, then where would her incentive be to find a job out of college and to be productive in society?  You see, receiving some help financially from my parents did serve her well throughout her time in college, allowing her to thrive and focus on her academics.  However, because she has graduated, it is her responsibility to pave a road for herself in society and use her college-level knowledge and skills to create something—to be someone.  Without incentive among citizens, I’m afraid new technology, new developments in any sort of industry for that matter, could very well grow stagnant.


[1] Wheelan, Charles J. Naked Economics: Undressing the Dismal Science. New York: W. W. Norton, 2010.

[2] Rauch, Jonathan. “Articles by Jonathan Rauch.” Accessed March 28, 2017.



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