Industry subsidies exist because industries have a lot of political clout, and because politicians who bring the bacon home to their districts in the form of subsidies tend to be re-elected.
Remember the old saying: MY subsidy is critical to the health of the nation. YOUR subsidy is pork.
The U.S. is particularly susceptible to pork-barrel politics because of the nature of the government. Each Senator and Congressman goes to Washington to represent their own states. So when the Federal government collects taxes and doles out favors, the inevitable result is a frantic battle between politicians to carve up the pie and cart it home. In this, they are aided and abetted by lobbyists and other special interests.
So the question to be asked is not, “Are subsidies good for America?” From the standpoint of an individual politician, the question to be asked is, “Given that a trillion dollars is going to be shoveled out to the various states, is my state better off if I stand on principle and refuse subsidies while our competing, neighboring states get them, or would it be better for my state if I jam my nose in to the trough and start squealing with the rest of them?”
The incentives of individual politicians are not aligned with the welfare of the country as a whole. And so, a lot of stupid crap happens.
Subsidies are bad for the country as a whole. The arguments for it (like the ‘excess food supply’ argument above) are mostly bunk or over-stated. Of course, there are a lot of high-priced consultants to industry who spend a lot of time thinking up new rationales for their pork, but that doesn’t make their arguments right, even when repeated by politicians on your side of the fence.
New Zealand subsidized agriculture heavily. It subsidized fertilizer - so people over-fertilized and polluted the rivers. It subsidized sheep by offering money per pound. So farmers grew fat sheep that no one wanted. It subsidized grazing land, so farmers used land for grazing which was ill-suited to the task. The result was high cost, an industry dependent on the whims of politicians, and, because the profit of farmers was increasingly divorced from the demands of the marketplace, an agriculture industry that was becoming increasingly non-competitive on world markets.
When New Zealand eliminated all the subsidies, farmers screamed. They said that New Zealand farming would be destroyed and a way of life lost. They claimed there would be high unemployment, and the cost of food would skyrocket. They made all the standard claims for maintaining subsidies that you hear here. And yet, the subsidies were removed, primarily because the government ran out of money.
The result? The farmers had to compete. They made their farms more efficient. The focused on the quality of their veal instead of weight. They utilized their land better. In a reasonably short period of time, farm profits went up, and the whole sector became healthier and more competitive. Today, when you ask many farmers in New Zealand about subsidies, they’ll tell you that they’re a bad idea that made them lazy and sloppy, and removing them was ultimately good for farmers and for New Zealand.