11 ways governments create wealth transfers from taxpayers to corporations and reduce competition
Governments have a lot of power to influence the economic fate of their citizens. Here are 10 ways the governments transfer money from taxpayers and protects big businesses.
Most of these consequences could be considered unintended. However, if you are a little bit cynical, this is all working as designed.
1. In the pandemic response: give massive contracts to pharmaceutical companies
And then promote these vaccines, require them and give them away to other people.
2. Start a war, or participate in one
Whether it is a war between nations or war against drugs, the government pays companies in these industries with contracts to produce weapons. Bombs and bullets have not gone out of style yet. You could also say that the war against illegal drugs in the US helps protect the market of the companies that make legal drugs like alcohol, sugar, tobacco and fentanyl.
3. Regulate industries
Many big tech companies beg for regulation. Google can pay an army of lawyers and billions of dollars to comply with any requirements that the government can come up with. When a start up needs to meet the same level of compliance, it will make it impossible to start a new business in the industry.
4. Shut down segments of an economy
Recently, a proposed gas pipeline project was shut down in the United States. Fuel is still transported to the United States, but instead of in a pipe it still comes on a train. The people that own the train companies (Warren Buffett, among others) were very happy with this arrangement.
5. Make rules so that student loans are easy to get and can’t be forgiven in bankruptcy
Colleges and universities benefitted from this and went on a tear, upgrading their facilities and raising their prices. The discussed student loan forgiveness is a handout to these predatory lenders that should have to realize losses on the bad investments they made.
6. Require licensing to start businesses
This is a fine line. You don't want to eat at a restaurant that is filthy or have electrical work done by somebody that does not know what they're doing. However, you don't want to have so much regulation that it is difficult to start a new enterprise. Adding regulations to an established industry deepens the moat for the established players. If there are 10 rules and you add 2 more, the existing companies only have to comply with 2 new rules but a new entrant would need to comply with all 12.
7. Repeatedly bailing out banks artificially limits their downside and increases risk-taking.
8. Local governments can either stifle new building construction (which drives up prices) or allow rezoning and apartments to be built where they were not previously allowed (reducing property values)
9. Any time the government creates something (roads, schools, police forces) they are deciding to take money from its citizens and distribute it to companies that are doing the work.
However, most would agree that doing stuff like this is part of what the government is supposed to do.
10. Use tariffs to stifle international competition
Tarrifs can be useful to control the flow of goods in and out of a country. Tarrifs are a way to protect domestic producers.
11. Provide subsidies to certain companies and industries
These cause long term market distortions but can be important tools. Examples of subsidies include price guarantees for farm goods, tax breaks for opening a factory in a particular town and tax breaks to consumers for buying electric cars and solar panels. The consumer feels like they are getting a tax break, but it allows industries like the electric car industry to charge more than the market would normally bear.
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