<p>An underlying question is which approach is best and then what that means for policy. I’ve been hearing since the rise of the New South that low wages / low taxes (meaning a non-progressive tax system) is the best economic approach. That argument rapidly devolves into side show arguments but we can say without a doubt - because we have this tax and spending data - that the more liberal states, particularly those in the north and on the west coast - have been subsidizing the social and economic experiment of low wages / regressive state tax policies. Or in blunter words, the liberal, mostly northern states have paid the conservative, mostly southern states to maintain a system which seems to generate a continuing amount of poverty when compared to the subsidizing states. </p>
<p>I don’t say this means anything. I find it humorous. Take the calls for secession from states like South Carolina. They receive a very large subsidy over their tax payments. I assume that without this subsidy some thing would change. Maybe they’d have to change tax regimes to mollify their citizenry - which is now in substantial part being mollified by my tax money flowing out of MA. Maybe they’d stick to their guns and maybe that would lead to an exodus of people. I don’t know. But without the subsidy, they would be confronted by the reality that they have been able to maintain a tax and social policy using the support of others. Without that support, they would need to change taxes dramatically just to match what they currently provide using this subsidy.</p>
<p>I think about the cost of subsidy fairly often. For example, analysis of conflicts has shown that subsidy perpetuates violence. It was only when subsidy was removed, for example, that fighting in Cyprus died down. </p>
<p>The interesting thing is we engage in subsidy without awareness. Most Americans don’t realize we pay to maintain Hamas’ conflict with Israel - and to a lesser degree Hizbollah, but that is more complicated. Hamas is a government. It runs a place. A government normally has to provide basics like food, healthcare, education and security. But Hamas is relieved from a large portion of those responsibilities because the UN has UNRWA, the only organization devoted to a permanent class labeled “refugees”. UNRWA provides food, healthcare and education and other social services - not security - and that means Hamas does not have to do this. They can use their resources for other things, from weaponry and oppression of their own people to other education (some good, some bad) and other healthcare. We make them look good because they have the money and time to do works that reflect well on them, even as we make them more powerful. And by how much? We paid UNRWA $239 million in 2011. Some of that went to Lebanon, some - not sure how much may have gone into Syria but I don’t know given the situation - and some went into the West Bank. But a large number of millions of dollars is a subsidy for Hamas. And we don’t even think about that.</p>
<p>The issue is really not one of liberal or conservative but of whether subsidy distorts behavior in ways you don’t want. When we subsidize regressive taxation by Mississippi, aren’t we encouraging policies at the state level that penalize poor people? But beyond that, aren’t we enabling the people of Mississippi to avoid dealing with their own problems? Shouldn’t they deal with them? By the same token, when we subsidize UNRWA, we encourage all sorts of behaviors that lead to violence, from the literal freeing of money and time for weaponry and militarism to the encouragement of more children. Remember, without subsidy, the actual cost of bearing children would be born by families. With the subsidy, they can rely on our money so they have no incentive to reduce the number. Every study of conflict shows the “hotness” directly correlates to the number of young men available to die.</p>
<p>This is an irony I find delicious: the mostly Southern states want to reduce the amounts spent on the poor - cut Medicaid, food stamps, etc. - and yet they can make that argument because they are subsidized to a level and they don’t want to spend more beyond that. If they had to bear the actual cost of the benefits now provided - and as has been provided - what would they do? So the real complaint is “the subsidy isn’t big enough to induce me to change my tax and social policies”. It’s like saying, “I want more of your money.”</p>