Mises Wire

The Philanthropic Ogre

Recently, the Trump administration announced it would seek some $12 billion in subsidies to support the farmers hurt by the tariffs set by foreign countries as a consequence of the ongoing trade wars with China, the EU, and Canada, which, it seems, are not that ‘good, and easy to win’ after all.

At first glance, it may look like a good idea; many might think it makes sense to seemingly come forward to help those who are suffering and lend them a hand to get back on their feet. However, behind those subsidies are a worrisome sign of the ever-larger Ogre in Washington.

An Ogre? Let me explain:

In 1978, Mexican writer and Nobel Award Winner Octavio Paz, defined government as “el ogro filantrópico” (the philanthropic ogre) that is, a creature that gives out subsidies and programs to supposedly alleviate poverty, but at the same time devours more and more of the nation’s prosperity through the taxes used to fund those social programs and the ensuing corruption. The Ogre may even have good intentions, but its actions will do far more harm than good.

We could say that this Ogre, which hides beneath the government structures on every country on this planet, has even some kind of rhythm, almost like a dance. It moves in a succession of steps, devouring more with each of them until it becomes so bloated that it can’t dance anymore, and when the waltz stops it finally shows us its real face of tyranny and violence. We can see it at work right now, for example, in Venezuela.

What are these steps? Well, the waltz begins with the Ogre intervening in some parts of the economy, to, say, impose tariffs on a few products. At first it seems like nothing too fancy or too worrisome, and easy to be explained away. However, this creates a disruption; those affected by the original intervention demand the government’s help in return, and, being a philanthropist, after all, the Ogre is happy to comply, diverting money in support of that vulnerable group, and with every new step, it multiplies the disruptions on the economic landscape and the number of the demanding stakeholders.

Since more money is needed to deliver the goods, the Ogre soon has to face one of two choices: acquire more debt or print more money. In both scenarios, the cost of the waltz will be eventually paid for by the individuals, who end up paying more in taxes and bearing the cost of an increasingly manipulated economy.

In time, the signals of offer and demand become so obscured by government intervention that the economic agents no longer know if they are going in the right direction, with the resulting waste of value and resources, which in turn makes the people demand even more state intervention. Thus, the waltz picks up speed, becoming a dizzying display of spending; a turbulent river where the cronies catch all the fish while everyone else is left hungry.

That is the real perversity of the Ogre’s waltz: Once the music starts, is almost impossible to stop. No matter how many laws are passed or studies funded, or even how honest are the intentions of the swamp-like creature; the problems created by the increased government intervention cannot be solved by a new regulation, on the contrary, every problem “solved” generates a host of new externalities, until the system can’t spend anymore, because everybody is broke.

That is the genuine danger of the new subsidies proposed by Trump. Not only do they distort the incentives of the farming industry, but they will also add even more weight to an already crushing national debt that stands above $21 trillion. That debt will never decrease as long as the Ogre keeps adding new “temporary” programs that soon become acquired rights in the mind of the beneficiaries, including, of course, all those local politicians who will run for election on the back of Washington DC’s generosity.

I don’t know, maybe Trump means well. However, setting in motion the Ogre’s waltz, by embarking on a trade war and then using subsidies to “help” those most affected by it, will not work.

Those subsidies will increase the debt, they will further weaken the economy and open a boatload of opportunities for corruption and crony capitalism, and at the end of the day America will be less prosperous, and the world will be less free because of it. As the saying goes, the road to hell is paved with good intentions — and that’s one tariff we won’t offset through subsidies.

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