Cui Bono? And Who is Boned?

Just a quick observation about Douthat's column today.  Douthat writes about the tendency of government spending to go to the politically powerful rather than to those who need it most.  Douthat writes:

In reality, our government isn’t running trillion-dollar deficits because we’re letting the working class get away with not paying its fair share. We’re running those deficits because too many powerful interest groups have a stake in making sure the party doesn’t stop.

There is plenty of truth to this, of course, but it is worth noting an unfortunate aspect of government subsidies: often when you remove them, you are taking them away from people who never really benefited from them. This is because the subsidies become "priced in" to the underlying asset. The party was long over by the time the current subsidy-recipients arrived on the scene.

So for instance, imagine that the government lavishes subsidies on corn-growers. Then corn-growing land will become more valuable, since it generates more income per acre. As farms changes hands over the years, the buyers are paying a higher price than they would have absent the subsidies. (And of course the sellers are receiving a higher price.)

Then if you remove the subsidies, land prices will fall. For a farmer who recently bought his land, this could amount to a major loss of wealth. And he may have never really benefited: even when he was receiving subsidized payments for his corn, he had already paid for those payments when he bought the land. Maybe prices don't perfectly reflect discounted future earnings, but his benefit from the subsidies shouldn't be much more than zero (unless the path of subsidies was different from the expected path at the time he purchased the land).

This isn't to say subsidies are a good idea. It's just that when you take them away, you are making a lot of people poorer who were never really benefiting from them in the first place. I'm not crying too hard for these guys: just as the subsidies were priced in, so was the risk that they would end. But you can see why these guys don't feel as though they are riding high on the hog just because they receive a lot of money from the government every year. The real beneficiaries were the owners of assets at the time the subsidies were announced, and they may be long gone by the time the government cuts off the tap. This is something that needs to be considered at the inception of the subsidy, because when it comes time to consider terminating it, there will be plenty of unfairness to go around.