This post from awhile back explored the phenomena that governmental subsidies – even ones that are the product of good intentions – eventually generate obsolescence.
Following up on that thought, the Washington Post’s Steve Pearlstein makes the point in this op-ed that governmental subsidies in college funding, housing, and health care have caused serious distortions in the market place, starting with college funding:
And one of the big reasons [that college administrators] can [continually raise tuition] is the ever-increasing amount of public money pumped into the system in a losing effort to keep college “affordable.” In effect, these 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.
And how about health care?:
In health care, the big culprit is the tax deduction for employer-paid health insurance, which has hard-wired into the American psyche the expectation that companies should pay for their employees’ health insurance. . . Unfortunately, the unintended effect of this $112 billion-a-year tax deduction is to make insured consumers largely indifferent to how much health care they consume or what it costs. And in the face of such indifference, doctors and hospitals and drug companies have done what any profit-maximizing industry would do: push prices and utilization up 7 to 10 percent each year until so many people are priced out of the market that government is forced to pump in even more money, spurring a whole new round of spending increases.
Finally, the home ownership subsidy:
And then there is homeownership, which has somehow become synonymous with “the American dream.” The mortgage interest deduction already costs the Treasury $62.6 billion a year, supplemented by billions more in implicit subsidy provided via Fannie Mae, Freddie Mac and the regional Home Loan Banks. To a large degree, however, this money has rewarded those already with homes while making it harder for everyone else to afford one.
The home mortgage deduction is no different than a monthly rebate. Over time, its effect is to boost the price of the house until it incorporates most of the subsidy. And the more the house appreciates, the bigger the tax deduction, creating a dynamic of ever-increasing house prices.
Read the entire piece. All of which re-emphasizes that government subsidies are strong medicine with serious side effects. As such, they should be deployed infrequently and with great care.