The Impact Of Government Subsidies On Prices

As columnist Steven Pearlstein explains, “well-intentioned subsidies have the perverse effect of shielding colleges from the kind of market discipline that would have forced them to hold down prices by constantly improving their productivity and efficiency, as happens in just about every other industry.”

That’s the theory on subsidies and prices. How does it work in practice? From Dan Mitchell’s blog:

This is why more student aid is not the answer to the student-debt crisis. This is why Obamacare is not the answer to spiraling health care expenses.

But it does explain why the sugar industry keeps lobbying for subsidies. It explains why the health insurance industry supported the central premise of Obamacare. It explains why the NFL keeps strong-arming municipalities for public funds. It also validates the late Milton Friedman’s axiom that businessmen are enemies of the free market.


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