The Nanny State

I used to think government handouts were a good idea.  After all, we pay taxes so the government can do the job of running the country, and it's nice to get some money back.  When I was a farmer in the late 1980s, it was useful to get subsidies to help with drought, bushfires and other natural disasters.  Subsidies help people recover from difficult situations, or to cope with changes in their lives.

So why do I now believe that government handouts are generally a bad thing?  Let's apply a common household situation.  Say the dishes need washing, or the bedroom tidying.  The children are reluctant to do the jobs, and put off complying with parental requests, or their own consciences.  Eventually, a parent does the dishes or tidies the bedroom.  The child learns that he or she does not have to expend the effort to do these tasks as long as they can rely on someone else to do them.  It is the same with government handouts.  Why put aside money to cope with a drought year or two, or plan for dealing with a bushfire, when you can simply expect the government to pay you when things go wrong.  Or why bother trying to find work when Centrelink will pay you not to work?  As long as you are satisfied with the standard of living provided by welfare, why allow yourself to be tied to the routine and discipline of a paying job?  Sure there is a requirement to actively seek work, but in reality if you live in a remote community, you are exempt from the 'looking for work' test, even if there are jobs going begging.

My personal experience of this was in a remote community where for years I tried to hire people to help my wife with the housework.  As her MS progressed, it became more and more difficult for her to cope, and I was far too busy at work to spend much time on housework.  Despite very high levels of unemployment in the community, during a four-year period we hired a local to help us for exactly zero days.  And it wasn't due to lack of trying!  It seemed that it was a source of 'shame' to clean someone's house, yet there was nothing shameful about sitting back and claiming unemployment benefits while a disabled woman struggled for lack of help.

Anyway let's get back on track before I get completely lost.

My current thinking is that government subsidies stifle individual and corporate responsibility.  A farmer who can rely on a handout in drought years is relieved of the responsibiltiy to plan for drought years despite the fact that they are an inevitable part of farming life in many parts of Australia.  A company which relies on government tariffs on cheaper, better imports is relieved of the burden of making competitive products, and hence has less incentive to invest in quality - look at Australian-built cars for example, nearly as bad as American-built cars, and for the same reason.  A mother who can rely on the welfare system, and the generosity of strangers, to feed her children has little incentive to divert resources away from feeding her own smoking, drinking, or obesity.

I do believe that government has a role to play in providing a safety net, but I think the balance has swung so far in that direction that it's now more than a safety net, it's a lifestyle.  If people can live on welfare, then welfare is too generous.  Everyone has a right to adequate food, water and shelter.  Beyond that, everything else must be earned.  Companies don't have the right to any support, as they are supposed to risk-manage their business rather than expect governments to bail them out when they screw up.

One final example that shows how subsidies don't work:

In 2006, the Australian Government introduced a $2000 rebate for conversions of petrol or diesel vehicles to run on cleaner-burning LPG.  Immediately prior to the rebate, a basic conversion for a Falcon station wagon cost around $1600 to $1800.  By mid-2007, a basic conversion for the same vehicle cost around $3500.  This was despite a huge increase in the number of conversions occuring and the number on installers competing for market share.  Therefore, the actual cost to the consumer reduced from an average $1700 to an average $1500, while the rest of the subsidy ($1800) became profit for the installers.  As the amount of the rebate has fallen over the subsequent years (to currently $1250) the average cost of an installation has also fallen so that the actual cost to the consumer is still at around $1700.  It seems that the market value of an LPG conversion is $1700, and all that subsidies achieve is to inflate the price so the consumer still pays the market price.