Government Intervention Does More Harm Than Good, Especially With Fossil Fuel Subsidies


Matthew Yglesias recently highlighted a study that shows that simply eliminating inefficient fossil fuel subsidies could achieve half the world’s carbon reduction goals. This is yet another example of how government tends to do more harm than good when it intervenes in the economy.

When government tries to fix one problem, it tends to cause another problem elsewhere. Unfortunately, we see this all too frequently. For example, agricultural subsidies lead to higher rates of obesity. Similarly, government incentives for corn ethanol production lead to higher rates of deforestation and higher prices for commodities and fuel. As I've highlighted previously on PolicyMic,renewable energy subsidies discourage innovation for more viable energy technologies.

Government should consider “the big picture” instead of only one group of people when forming policy that affects everyone. The economist Henry Hazlitt thinks that this concept is so important that this is his “one lesson," which is the following:

"The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

Economists like Hazlitt and Frederic Bastiat warn that it is dangerous to ignore the hidden costs that affect everybody. If policy makers had considered the effect of fossil subsidies on the environment before enacting the policy, then the environment would be better off. 

Government should not focus on the benefits of subsidizing the energy du jour and ignore the cost of the program to the environment and taxpayers. Like many problems we face, the carbon problem is government-created, and the better solution is less government, not more. 

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