“Public opinion always wants easy money, that is, low interest rates” – Ludwig von Mises, Austrian economist, 1881-1973
I HAVE always had a healthy dose of skepticism when it comes to subsidies. It’s a view that’s widely known among us in the field.
But let me tell you what really keeps us economists up at night. It’s our uncanny ability to focus solely on one question when we counter policy proposals: “But who will pay for it all?”
Oh boy, that question is a real gem. We demand answers, serious ones, mind you, but they’re often as elusive as Bigfoot.
Yet, we just can’t help but obsess over the funding aspect, even if it means diverting attention from the more important stuff. And wouldn’t you know it, our politicians are more than happy to exploit this fixation for their own gain.
Here’s one problem with this fixation on “Who Will Pay?” (WWP): it often ends up biting the critics of government spending right in the backside.
By focusing so much on who’s footing the bill, we conveniently forget to ask ourselves what we’re actually paying for. You know, things like the effectiveness (or lack thereof) and the potential wastefulness of these shiny new government programmes.
Take subsidies, for example. A substantial chunk of subsidy expenditure doesn’t even reach the intended recipients.
Nope, it ends up in the pockets of companies and middlemen, while the low-income groups that were supposed to benefit are left high and dry.
In 2022, out of a whopping RM78bil subsidy bill, two-thirds (RM52bil) went straight into the hands of companies and middlemen, while only a measly one-third (RM26bil) made its way to those who actually needed it through cash transfers and social assistance programmes. Talk about a twisted way of distributing the wealth, huh?
And don’t even get me started on politicians and their miraculous funding solutions. They always seem to find a way to fund their pet projects, no matter how shortsighted or absurd the methods may be.
They’ll proudly claim that they’ve unearthed the necessary funds, rather than admitting defeat due to a lack of resources. It’s like watching a magic trick unfold before your eyes.
Poof! Funds appear out of thin air, and suddenly we have free buses, free education, and all sorts of other “free” initiatives that come at a hidden cost.
Focusing on who pays often overshadows the opportunity costs of public programmes, as I discovered during my experience working on a government rationalisation subsidy initiative.
I’ve witnessed how focusing solely on who pays for public programmes can lead to overlooking their opportunity costs.
For instance, there was a government subsidy programme aimed at promoting a specific industry. While the financial costs seemed justifiable, we failed to consider the opportunity costs of those funds.
As a result, critical sectors like small businesses and infrastructure suffered from a lack of necessary support.
I’ve seen how excessive fuel subsidies have led to wastefulness and environmental harm. Consumers, taking advantage of the subsidised prices, engage in smuggling activities, neglecting more sustainable alternatives.
Furthermore, the question of who pays conveniently serves political interests. Politicians can use it to dismiss opponents’ strategies without criticising their objectives directly.
“Who will pay?” becomes a non-committal denunciation that can conveniently be swept under the rug when the same politicians propose their own spending programmes.
Throughout my numerous interactions with government officials, I have consistently emphasised the importance of differentiating between worthwhile and unworthy activities proposed by businesses.
The marketplace, you see, serves as a reliable judge to determine which activities truly add value and generate profit. After all, profit represents the surplus of revenue over resource costs.
Now, here’s the thing: activities that rely on subsidies are typically not worth pursuing. Why, you ask? Well, the fact that they require a subsidy from the very beginning suggests that the business idea lacks the potential to create value.
It needs that subsidy because it simply won’t be profitable and cannot generate revenues greater than the costs involved. It’s as clear as day.
Let’s face it; private investors aren’t going to throw their hard-earned money into endeavours that don’t make economic sense.
They have a keen eye for spotting potential winners and losers. So, if the private sector isn’t willing to invest, it’s a clear sign that it would be a bad idea for taxpayers to invest as well.
It’s a simple case of following the wise judgment of those who understand the market dynamics.
To make matters worse, the concern about financial costs conveniently gives politicians’ economic plans a shiny veneer of credibility. It’s as if they suddenly possess a sense of responsibility and restraint – qualities rarely associated with the political system, wouldn’t you agree?
But let’s peel back the curtain of deception, shall we? “Who will pay?” is just another run-of-the-mill talking point among the establishment.
It’s their golden ticket to portray themselves as the paragons of fiscal responsibility, carefully crafted over the years. It’s all about maintaining their image, my friend.
With this clever “WWP” rhetoric, they can pick and choose which programmes they want to support, all the while condemning others as outrageously expensive.
They don’t bother addressing the actual goals of spending; that’s just for show. They know how to play the game, and they play it well.
But here’s the kicker: by fixating solely on the financial aspect, we miss the mark entirely. We fail to address the real objectives that politicians claim to aim for.
It’s a free pass for future spending on whatever they desire, as long as they can scrape together the funds. And guess what? They always seem to miraculously find the money.
Ironically, many voters have been duped into believing that there are practical limits on government spending, especially when entrusted to those responsible for managing public funds.
Oh, the paradox! By granting these politicians the responsibility, we unknowingly enable a free-for-all plundering spree, regardless of political affiliation.
This is where economic ideas shine their brightest and unveil valuable insights.
Ludwig von Mises’ arguments about bureaucracy and economic calculation, for instance, expose the inherent flaws in public administration and spending. But alas, these crucial ideas risk being overshadowed when we obsess solely over raising funds.
