This blog is not about the recent bailouts, even though they make for a good headline with the S-word on it. It’s not even about the health care plan.
It is about big business’s tendency to suddenly develop amnesia when they happily receive handouts, welfare payments and subsidies at taxpayer expense.
Take the pharmaceutical business. A large chunk of drug and other medical device discoveries are funded entirely by the National Institute of Health (NIH). The discovery work happens for years on end in a myriad series of mundane labs in Universities across the national. Researchers apply for and receive numerous grants to study the minutia of the human body. In rare cases, they stumble onto something useful. Sometimes, that useful discovery can be turned into something really useful that is worth hundreds of millions and in many cases billions of dollars in revenue.
While this is an excellent example of American ingenuity at work, except for one thing. The highest risk capital used to fund this discovery comes from the taxpayer. Unfortunately for us taxpayers, Uncle Sam is not allowed to own any patents. So, the intellectual property then falls into the hands of the University and the researcher combined. A venture capitalist that funds a high-risk early stage discovery worth something would get 90% ownership. The Federal Government gets nothing.
The researcher and the University start a company, financed by venture and public funding and eventually a drug or device gets to market. And that is when the” free market talk” begins. The company charges the same taxpayers a $1,000 a day for this drug and tells us all that free market principles ought to apply here.
Correct, except someone needs to account for the dollars the sucker paying $1,000 per day paid to develop this drug in the first place. And that is when these companies become amnesiacs. The classic example is Amgen, which was founded on a set of discoveries related to erythropoietin at University of Chicago and Columbia University, both NIH funded labs. Amgen now generates over $2 billion a year by selling this discovery back to the people who funded it in the first place – all under the guise of “free market”. The taxpayer who paid to discover it, gets zilch.
Next, consider the oil business. Let’s forget the hundreds of millions the feds pay the oil companies as “incentives” to find oil – even though it reached a record around $140 a barrel. These leaches take the money while preaching “free market” and fight like cats and dogs to keep the subsidy.
Let’s instead focus on the $700 billion defense budget. We would not require this outlandish budget if it were not for oil imports. We could simply abandon the Middle East and it would return to the desert complete with camels and Bedouins in less than 20 years.
Taking a rough approximation that the oil protection racket costs us roughly $500 BILLION in defense spending per year, and dividing it by the roughly 2 billion barrels per year imported from OPEC works out to $200+ subsidy PER BARREL of oil imported from OPEC. Given that oil prices reached a record around $140 per barrel, it’s easy to see what a giant subsidy we give Exxon and every damn fool who wants to drive a giant SUV. In a “free market”, this would get charged to oil consumers in the form of a tax to help pay for obtaining this gunk bought from people who want nothing better than to blow us up. The unsubsidized price works out to roughly $7-9 per gallon of gas (depending on taxes) during a period when it is now selling at the pump for roughly $2.50.
This brings us in much closer to the European price of gas. Turns out, the Europeans are pricing oil much closer to the real cost of obtaining it, and us Americans the ones subsidizing it.
Meanwhile, the free marketers at Exxon lobby against solar panels, calling the 30% tax credit a subsidy. In fact, this is a great deal when compared to the subsidy for oil. Let’s not forget nobody has to die to put those solar panels up.
Were we not to subsidize oil to this extent, our consumption would be dramatically lower, our production substantially higher and a thriving market in alternatives – which would now be viable without any government subsidies.
Like a wise man once said, it’s only socialism when you and I get a benefit. When Exxon, Amgen and Citicorp get something, it’s called the free market.
Disclosure: This blog was first written in Dec 2009 and was on the www.chinetworks.com website briefly
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