On Thu, Jan 26, 2012 at 9:02 PM, Robert Naiman <[email protected]> wrote: > > Well, doesn't standard economic theory say that for a given amount of > social benefit, cash payments are more efficient than commodity > subsidies, because if you just gave the person the cash value of the > subsidy, they would maximize their utility by spending the money any > way they like, rather than on the subsidized commodity, and in > general, unless their demand for the commodity were perfectly > inelastic, their consumption pattern would change, making them better > off for the same amount of money. So (putting implementation > considerations to the side) if you give people the cash value of the > subsidy, you make them better off for the same amount of money. That > doesn't save the government any money, but it does make people better > off. >
You go on to draw logical conclusions from this, but I want to stop you here, because the premise is not quite true in all cases. Take rent subsidies that were replaced with cash vouchers in the U.S. When that replacement happened landlords raised their prices. Because with subsidies, the combination of subsidy and cash paid by the tenant was fixed, whereas with vouchers, landlords were allowed to charge what the market would bear which meant that they were able to tap parts of tenants income they could not touch before. Contributes to homelessness and poverty both. I'm betting (in ignorance, someone who knows can confirm or deny) that Iran took precautions when phasing out the subsidies to make sure that kind of thing did not happen. Of course if a subsidy is phased out in a nation where it was won at great cost, and the balance of power is such that the government is out to transfer income from the poor and working classes to elites, replacing subsidies with vouchers is likely to be an excuse provide miserly vouchers that advance that goal. So you are right that a place like Venezuela, where (whatever its flaws) economic immiseration of the many to benefit the few is not the goal might be a good place for the experiment. But it might be wise to understand why in places like NIgeria (and all over the world) attempts to phase out subsidies have lead to massive popular opposition - often in the form of riots. In Nigeria, for example, fossil fuel subsidies were being eliminated to fund mass transit and other infrastructure projects. The popular movements objected to this on two quite reasonable grounds. One is that the current government are miserable corrupt sons-of-bitches who will steal the money and not actually deliver the projects. The other is that given how long it takes this kind of project to be completed, that even if by some miracle the money is not stolen (unlikely) the suffering will be tremendous until the projects are completed. In short immediate pain is a lousy way to pay for long term infrastructure. I As to your other point (snipped too soon) yes at a highly abstract level economics says the dead of weight of subsidies is great, so that replacing subsidies with vouchers can mean smaller vouchers with equal benefit. But as I pointed out with the rent subsidy example, sometimes non-cash subsidies have their own efficiencies due to ability of a large single purchaser to exercise leverage, and especially the ability of a government to exercise leverage. Even where that is not the case, the difference is not that bi, due to similar causes. Non-cash subsidies mean the government is buying wholesale. Replacing that with cash means people are buying the same thing retail. Even when transaction cost savings exceed that loss, it reduces the difference. So replacing a non-cash benefit with cash may save nothing at all (at last if the aim is to leave people no worse off) l;when it does save something, it is likely to be a tiny. If it is done without leaving the people worse off it is still worth doing. Not keeping polluting stuff artifically cheap is worthwhile not continuing to encourage overuse. But if you really want people not suffer immediate losses from phasing out non-cash subsidies, meaning you really want to provide cash subsidies large enough to leave people no worse off, don't expect much savings compared to the size of the non-cash subsidies. In some case, expect no savings or even slightly increased expenditures. BTW, I can think of one possible obstacle that may have prevented Venezuela trying this. Venezuela has a huge corruption problem, left over from the regime they replaced. Old dictatorial leftists would have mounted a purge to tackle this level of corruption. But the Chavez regime respects democratic norms. And how you get rid of an entrenched corrupt bureaucracy with full civil service protection, while respecting democratic norms is a problem that revolution has not solved. Worse, with such an entrenched corrupt system in place, new hires are mostly recruited into the corrupt system, so there is no generation of "young turks" coming up to gradually solve the problem . So there is a real problem: replacing oil and gas subsidies with cash might result in the cash being stolen by whoever is in charge of doling it out. I don't envy the Chavez regime the corruption problem they face. I have no idea what I would do about corruption in their place, and I don't mean just the specifics of gas subsidies. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
