Subsidies for Big Oil

Who complains about subsidies for Big Oil? Who complains about raising taxes on the wealthy?

Those who complain about such government policies in most cases are missing the point. I believe such complainers assume that such measures are benefiting or penalizing management and shareholders. But Econ 101 says otherwise.

If a business is either rewarded or penalized by the government, the market assures that the benefit or detriment is passed on to the consumer. If this were not so, then the return on investment to the stakeholders would be changed and market forces would not tolerate such a disruption; in the extreme case, either competition comes in, or the company goes out of business.

Instead, the benefits or burdens get passed on to the customers. So a “subsidy for Big Oil” becomes a subsidy to consumers of energy from Big Oil. That is, to all of us.

This argument does not mean that subsidies and penalties imposed by the government are good. The oppositie is in fact the case: it means that government distorts the marketplace by picking winners and losers. Thus the best choice of resource allocation is not made, as the market is skewed by the heavy hand of government.

But all those who complain should realize that they are complaining about subsidies or penalties imposed upon themselves.

In the final analysis, a subsidy for Big Oil lowers the price of gasoline; removing a subsidy raises it.

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