Subsidy or Subsidies

Categories: Tax

Handouts. Pork. Political vote-buying. That is, when a given industry can’t compete on a level playing field, like a U.S. cattle producer not being able to compete against cheap mad cow meat from central China, the U.S. government will give subsidies, or free money, to those American cattle farmers so that they can, you know, keep on keepin’ on.

That is, the world market for ground beef might be $2 a pound, but the cheapest price at which U.S. producers can produce their meat is $2.20. So the U.S. government, hoping to keep their farmers employed, and not wanting a repeat of the Joad family singers, will subsidize farmer meat production to the tune of some $0.40 a pound in free money, courtesy of the American taxpayer, so that those farmers can compete without having to actually slaughter and maintain the mad cow pastures, just south of the Beijing nuclear plant. And live to meat-produce another day.

The same government handouts occur internationally, where the U.S. manufacturers have to compete against countries that allow all of their own companies to collude, co-opt, and work together in aggressively competitive ways to dominate a world market.

So think about the cattle industry in China, where the Chinese government is in active support of its own Chinese companies coming first, ahead of those from other countries. Those other countries work together, from the wheat manufacturer to the water piping distributor to the fertilizer company tapping its own politicos to co-opting Grinders R Us when it comes time for the cattle to, uh...come home.

A subsidy is essentially a negative tax. The government is subsidizing supply. Lot of controversy surrounding subsidies. Some folks support 'em, while others claim that they unfairly affect prices, or give developed countries a big advantage over less developed countries that might not have the cash to help their industries. But no matter how mad some people are about subsidies, just remember that no one's as mad as the cows.

Related or Semi-related Video

Finance: What are Subsidies?6 Views

00:00

finance a la shmoop what are subsidies they're handouts pork donations [empty hands, man puts coins in homeless man's cup]

00:08

political vote buying that is when a given industry can't compete on a level

00:13

playing field either domestically like a US cattle producer not being able to [cattle in fields]

00:17

compete against cheap mad cow meat from central Russia well the US government

00:21

will give subsidies or free money to those American cattle farmers so that

00:26

they can you know keep on keepin on that is the world market for ground beef

00:31

might be two bucks a pound but the cheapest price at which US producers can

00:36

produce their meat is 220 a pound so the US government hoping to keep their

00:40

farmers employed and not wanting a repeat of the Joad Family Singers that [cowboy on cattle ranch]

00:46

you remember them from Grapes of Wrath will subsidize farmer meat production to

00:50

the tune of some f40 cents a pound in free money donations courtesy of the

00:54

American taxpayer given to farmers so that they can keep farming and compete [money from people going to government, then to farmers]

00:59

without actually having to slaughter and then maintain mad cow pastures just as [man cows with uni-brows]

01:04

they do southeast of the Chernobyl nuclear plant and it's the government [cows near Chernobyl]

01:08

policy that we want to keep our American farmers alive and well to meat produce

01:12

for another day all right well the same government handouts occur

01:15

internationally where US manufacturers have to compete against countries who [people working in labs]

01:20

allow all of their own countries companies to collude co-opt and work

01:24

together in aggressively competitive ways trying to dominate a world market

01:29

so think about the cattle industry in Russia where the Russian government is

01:32

an active supporter of its own Russian companies coming first ahead of those [Putin holding up patriotic signs]

01:36

from other countries you know yeah we're wondering why this is bad like why do

01:40

people act surprised when countries actually support their own companies

01:44

like their own companies or evil some out who came up with that idea anyway

01:48

those other countries work together from the wheat manufacturer to the water

01:52

piping distributor to the fertilizer company tapping their own politico's for

01:57

product to co-opting grinders are us when it comes time for the cattle to you

02:01

know come home well a subsidy is essentially a negative tax the

02:05

government is subsidizing supply which shifts the curve to the left like on

02:10

this little graph thing here that is input suddenly got cheaper

02:14

thank you hard-working taxpayer contributions lots of controversy

02:17

surrounding subsidies some folks support them while others claim they unfairly [happy people dancing in front of government building]

02:22

affect prices or give developed countries a big advantage over less [a group of unhappy people]

02:26

developed countries that might not have the cash to help their industries

02:30

there's a whole lot of corruption in unlevel playing fields that cloud the

02:34

story on both ends but no matter how mad some people are about subsidies just

02:38

remember that no one is as mad as these cows [mad uni-brow cow charges the screen]

Find other enlightening terms in Shmoop Finance Genius Bar(f)