Mr. Fertig is economic columnist for the New York World Telegram and Sun and other Scripps-Howard newspapers, in which this article first appeared October 9, 1961. He also is the author of the new book, Prosperity Through Freedom.
You’ve probably heard the old story about the inhabitants of a fabled island who did not seem to be engaged in producing goods of any kind. When a puzzled visitor asked how they got along without work, he was told the answer was very simple. "We make a living by taking in each other’s washing." To some extent, at least, the handing out of subsidies to individuals by the U. S. government reminds one of this fabled island.
Of course, if everybody were subsidized equally, no one would profit and subsidies would have no special value. The game then would be up. But this is far from the case today. Now, some groups have their hands deep in the public trough receiving substantial subventions while millions of hard-working taxpayers must pay the bill and work all the harder to pay the taxes which pay the subsidies.
Undoubtedly the largest single subsidy in the country goes to agriculture. The Department of Agriculture spends over $6 billion a year, of which nearly $4 billion pays for farm subsidies in the form of price supports for crops. But while the farmer is heavily favored, he is certainly not alone in getting government money.
The extent of subsidies can be judged by the report of the Joint Economic Committee of Congress at the end of 1960. It takes seven solid pages of type in this report to describe all the subsidies which are provided today—ranging from subsidies to shipbuilding and ship-operating companies through domestic sugar producers, consumers of electric power, and dwellers in public housing, to veterans.
The irrationality of subsidies reaches its height in the payment of 8.5 cents a pound to exporters of raw cotton, with the result that foreign producers of textiles can buy cotton that much cheaper than American producers, which then makes a high tariff on manufactured textile imports necessary in order to protect American manufacturers.
But the end is not in sight–not by a long shot. Whenever a new problem arises, someone rushes forward with a ready solution—a new subsidy. The most recent recommendation of this kind came from the Interstate Commerce Commission which has authority to regulate railroads. The Commission suggested a $52 million payment to railroads to subsidize commuter traffic. This, of course, would only be a starter. The subsidy would grow.
Everyone knows that the railroads are in dire straits because of high costs. Yet, curiously enough, the subsidy suggestion came to Congress within a few days of a demand by rail unions for another wage increase of 25 cents an hour, plus provisions for a six-month notice of layoff to rail workers. Railroad officials estimate this demand will cost the industry more than $274 million and, if applied (which it would be in time) to nonunion rail workers as well, the total cost would be $462 million. About a third of Class 1 railroads didn’t even earn their fixed charges in the first seven months of 1961. Now, costs will go up—and, of course, more subsidies will probably be offered as a solution.
This column has frequently told about the plight of American railroads. They have been overtaxed, and overregulated, and crippled by government action. In 1959 railroads paid $422 million in miscellaneous taxes to state and local governments while truck lines, air carriers, and bus lines paid less than 10 per cent of that sum. Airlines can recover their investment in new airplanes in as little as five years, bus lines in seven years, but railroads have an average depreciation schedule of 28 years, and their buildings about 100 years.
We can hardly be accused of being callous to the interests of the railroad industry since we have written in support of their demand for the four freedoms—"freedom from discriminatory regulation, from discriminatory taxation, from subsidized competition, and freedom to diversify." But just where do we stop with subsidies? The present government formula seems to be to overburden and practically destroy an industry; and then, instead of trying to remove the obvious cause of the trouble, a proposal is made to disguise the weakness by a government handout.
The subsidy racket reached its zenith recently when the NewYork Times editorially approved subsidies for the Metropolitan Opera Company because new union demands made the conduct of opera practically impossible. "If the Met is subsidized, of course all other operas should be aided too," said Don Francisco in a letter to the New York Times. "Next in line with crutches and cup would come the ballet, closely followed by musical concerts, light opera, and other forms of entertainment…. In due course logic would suggest aid to good movies and TV and radio stations if in distress…. And some of our newspapers and magazines aren’t doing so well financially. How about a little assist for them? Their contents are art. And it is important that the public be kept abreast of current events and world-wide problems…."
Of course, all this is said with tongue-in-cheek, and may sound fantastic now. But who knows what demands will be made for federal government support if we continue to follow our present course? The idea seems to be to load industry down with uneconomic restrictions and taxes and then try to patch up the resulting mess with a government subsidy.