Federal Subsidies Miss Target

The Wall Street Journal today discusses how the growth in federal subsidies for college has contributed to the growth in college costs for students. Cato scholars have been arguing for years that rising grants and loans are not so much helping students, but causing bloat in college administration costs, including wages, benefits, and excess building construction.

It is a similar story in other policy areas. Federal subsidies cause unintended effects that undermine the stated purpose of interventions, and often end up lining the pockets of people not targeted. Farm subsidy advocates want you to believe that struggling farmers are aided by billions of dollars in annual subsidies, but the real beneficiaries are mainly wealthy landowners. Housing subsidies are supposed to reduce housing costs for people with low incomes, but–to an extent—programs such as Section 8 and the Low Income Housing Tax Credit fatten the wallets of landlords and developers.

Federal taxes and regulations often miss their targets as well because of unintended consequences. Corporate tax hikes, for example, mainly reduce worker wages, not corporate profits as targeted, at least in the long run. Minimum wage laws do not help the lowest-income, least-skilled workers, they harm them. And federal regulations, in general, often serve to protect big firms from competition, not make the marketplace more fair or efficient.

My new study, Why the Federal Government Fails, discusses the unintended consequences of federal intervention. In my experience, federal policymakers focus far too much on what programs are supposed to do in their idealistic dreams, and not enough on the actual effects in the real world.