NCPA - National Center for Policy Analysis

Beware Subsidies for Wartime "Capacity"

October 16, 2001

Lobbyists for certain industries are scrambling to get their chunk of the wartime subsidies Washington is suddenly so eager to hand out. The catchword justifying the claims on taxpayers' money is the need for "capacity" -- as in: the nation needs capacity in our industry to fight the war on terrorism.

But some economists are pointing out that the attacks of Sept. 11 didn't suddenly reduce capacity. Other than the four jetliners that crashed, we still have the same number of airplanes, the same amount of steel and the same amount of agricultural output.

  • The nation's airline industry was the first to be bailed out -- with a price tag exceeding the combined market value of United, American, Delta, Northwest, U.S. Airways, America West and Continental.
  • The steel industry claims foreign producers are competing unfairly and the nation needs domestic steel to fight the war -- even though at the height of the Vietnam War steel deliveries to the American military accounted for only 1.9 percent of total U.S. capacity.
  • The insurance sector is not seeking compensation for terrorist-induced losses so far -- but it does want protection against possible future claims so large and unpredictable as to be difficult, it claims, to assess in advance.
  • Farmers claim to be vitally tied to the war effort and in need of even greater subsidies -- but agriculture suffers from overcapacity and subsidies will only stimulate more overproduction, inflate land values, and make it more difficult for developing nations to export food to us, perpetuating world poverty.

It is being suggested that -- in lieu of subsidies -- weak companies be allowed to go bankrupt. That would allow them to reorganize or, as a last resort, sell off assets. Bankruptcy doesn't destroy capacity, but redistributes it. The physical assets get distributed to new owners who should be in a better position to utilize them to the nation's benefit.

Source: Robert B. Reich (Brandeis University), "Subsidies Aren't a Wartime Necessity," Wall Street Journal, October 16, 2001.

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