Introduction
Subsidies have been an integral part of America’s economy since its founding in 1776. This was made especially apparent during Dr. Burt Folsom’s lecture: “The Myth of the Robber Barons,” which inspired this post. The amount of government spending on subsidies to American companies and citizens exploded over the duration of the pandemic. However, the number of government-given subsidies today has plateaued at nearly $100,000,000 more than before the pandemic. With increased tax dollars going towards funding these subsidies, it is important to discuss the potential benefits and pitfalls of subsidies. In this entry, I will discuss whether or not subsidies are really necessary to stabilize economies, or if they are being abused by American corporations and citizens.
Steamboats and Railroads
In Dr. Burt Folsom’s lecture, “The Myth of the Robber Barons,” he tells the story of the curation of steamboat and railroad industries during the 1800s. In the case of the steamboat industry, Edward Collins was an aspiring entrepreneur who recognized the industrial delays America was facing in its early days. Collins wanted America to be caught up to Britain in the steamboat industry, and after asking, Congress granted Collins a subsidy of $380,000 along with an additional $3 million to build a steamboat company from the ground up. After its first year, Collin’s steamboats were transporting mail between America and Britain in a weekly schedule. The next year, Collins asked for a $400,000 subsidy to help his business grow. Congress granted it. This happened every year, and Collin’s request would always increase by $100,000. One year later, Cornelius Vanderbilt went to Congress and offered to do the exact same thing Collins was doing, but for half of the price. Congress denied Vanderbilt and continued to subsidize Collins. Vanderbilt’s company was 1-day slower than Collins’, however, he offered lower prices for travel and began to draw customers away from Collins. Vanderbilt’s steamboat company became profitable within the first year of business. Collins went back to Congress after a year, asking for a whopping $850,000 subsidy to help his business survive, and asked for an additional $1,000,000 to pay for the construction of a new boat in order to compete with Vanderbilt. Congress granted his request and Collins quickly built a new boat. Unfortunately, this new boat had leaks and other issues, and Collins sold it for $10,000. When he went back to Congress asking for more money, congress denied him and Collins went out of business almost immediately. Vanderbilt continued his reign over the steamboat industry for years to come. For the railroad industry, Congress subsidized Union Pacific and Central Pacific to build 2 rails that would meet together. The subsidies were based on mileage, and both companies wasted valuable resources to build extra-long rails so they could track more miles. In addition to this, both companies would destroy the others’ rails so they could continue to build for longer. When the time came to connect the rails, Union and Central Pacific decided to build parallel to one another so they could keep earning money from the government. Eventually, Congress noticed the company's abuse and forced them to finish the rail. During this time, entrepreneur James J. Hill was building the best transcontinental railroad between Washington and Ohio. After a few years, Hill’s railroad was operating successfully and profitably, while the Union and Central Pacific rail was virtually abandoned.
Are Subsidies Bad?
Nearly all subsidies are given with the intent to help a particular group or industry during difficult times economically. However, while subsidies are designed to help one group, they usually do this at the expense of another. During the great depression, American farmers were given subsidies from the federal government to prevent the collapse of the agriculture industry. While this did protect farmers and their employees, it created an artificial inflation of food prices. This hurt the majority of consumers who were already struggling to buy food to feed their families. Even though the subsidy saved the agriculture industry, many people’s quality of life diminished. One of the largest industries in the world is also the industry that benefits from the most subsidies: oil and gas. By giving money to oil and gas companies, oil and gas production becomes more profitable. Companies can sell at lower costs, and consumers can continue to use fossil fuels. However, in such a flexible market, this does not always work out in a way that ensures the continued low price of gas and fuel. Therefore, subsidies can protect some, but usually at the expense of many. Regardless of this, subsidies aren’t inherently bad, but they definitely play a large enough role in the global economy to cause concern.
Business Subsidies and Politics
Politics seem to play a role in a lot of things, and subsidies are no exception. It is no secret that politicians work with companies to garner support. The most recent case of this was with Governor DeSantos and Disney in Florida. Even though that particular dispute didn’t necessarily include a formal subsidy, it is still important in recognizing the close relationship between politicians and corporations. There are many cases in which a company will be granted a subsidy from a politician in return for public support for the politician. Later on, this support continues in the form of lobbying. This is one of the major pitfalls of subsidies in America, especially with corporations gaining more and more power. If politicians rise to power due to the support and power they gain from the corporations they support, then the voice of the people will never be heard. Corporations will continue to blindly support politicians in an effort to earn more money from the government. Subsidies are often granted to businesses through tax breaks and protection from competition. With this alliance between large corporations and politicians, corruption in government is inevitable.
Unemployment and Welfare
Subsidies are not only granted to corporations, and a large number of American citizens benefit from subsidies. During the pandemic, nearly all American citizens were given a subsidy in the form of stimulus checks. Other forms of subsidies include welfare programs, unemployment benefits, and subsidized interest on student loans. However, even though these subsidies are designed to help Americans during hard times, they unintentionally reward “bad behavior.” Someone can technically live on unemployment for as long as they need to, and this laziness is the reason for today’s service industry crisis. By incentivizing and paying people to stay at home, there will never be any desire for people to actually work. It is the greedy nature of humans that allows for this theft. This greed was also portrayed by the railroad industry’s story. In order to continue using money from the government, the rail companies used unnecessary and wasteful tactics to prolong the duration of the railway’s construction. The time that someone is unemployed is drastically prolonged due to the payments the individual receives during their unemployment checks. Although there are ways to disincentivize this problem, the federal government has not even addressed the issue. Without action, people will continue to abuse unemployment subsidies in the same way that the steamboat and railroad companies did.
Works cited:
“Federal Government Current Expenditures: Subsidies.” FRED, Economic Research, 30 Mar. 2023, https://fred.stlouisfed.org/series/B096RC1Q027SBEA.
Folsom, Burt. “The Myth of the Robber Barons with Burt Folsom.” YouTube, Foundation for Economic Education, 5 July 2011, 
Scott, Gordon, and Suzanne Kvilhaug. “Subsidies: Definition, How They Work, Pros and Cons.” Investopedia, Investopedia, 30 Jan. 2023, https://www.investopedia.com/terms/s/subsidy.asp.