I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.- Thomas Jefferson.

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Tuesday, June 8, 2010

The government masks the true cost of goods and services through hidden subsidies

Thomas F. Schaller
June 1, 2010

Two weeks ago in this space I scoffed at alarmists warning about socialism on the rise in America. In this column, I examine a rather insidious form of government behavior that is never called socialism but by the current standards of debate ought to be. It's so insidious, in fact, that despite affecting almost every one of us almost every day, we hardly notice it.

I speak, of course, about supermarket socialism.

Presuming you drive your car to the supermarket, the automobile, the gas that powers it and most of the food you piled into your trunk were subsidized to some degree by one government program or another. Put another way, what you paid to run that errand is less than what it cost because some portion of what otherwise would be unfettered market prices for cars, gas and food is hidden.

Let's start with food, specifically corn, the dominant monoculture crop grown in the United States. If you've seen the documentaries "Food, Inc." or "King Corn," you already know that corn byproducts are found in hundreds of supermarket products, from cereals and soda to laundry detergent and even batteries.

American corn growers benefit from a variety of government subsidies that allow them to sell corn below market price. According to statistics compiled by the Environmental Working Group, those subsidies totaled $78 billion between 1995 and 2009, or more than $5 billion annually. If priced accurately, corn would cost more — and so would everything made from it. And that's just corn subsidies.

Then we pile our subsidized food products into our automobiles. The government now runs General Motors and Chrysler, thus ending any discussion of whether the retail prices of cars made by these two automakers reflect true market prices.

But even before the recent takeovers, and even for non-GM or non-Chrysler models, the invisible hand of government was at work. There are the higher labor costs because of unionized wages and pensions. And as Slate's Daniel Gross estimated a few years ago, we must also include government spending on highways and bridges, plus various permanent or temporary tax incentives like mileage deductions or last year's tax break for new car purchases, which Mr. Shafer estimates at more than $100 billion annually.

Finally, there's gasoline, easily the most subsidized commodity of the three. Estimates here vary widely, depending upon how the military and diplomatic costs of securing Middle East supplies and shipping routes are estimated, and whether and to what degree the costs of environmental damages from fuel consumption are included. Some studies claim the true price of a gallon of gas would be as high as $8 or $10 per gallon, although these estimates include economic impacts of lost jobs and federal or state income tax revenues, and a variety of other costs.

But even a conservative estimate would add about $1 to the retail cost of a gallon of gas. A recent study conducted for Congress by University of Maryland economist Maureen Cropper and her colleagues at the National Research Council concluded that non-climate health and environmental costs of oil consumption in 2005 totaled $56 billion. That translates into an estimated 1.2 to 1.7 cents per vehicle mile traveled, or 23 cents to 38 cents per gallon. Not counting war costs, the Defense Department spends another $50 billion annually to secure Persian Gulf shipping lanes, adding probably another 30 cents to 35 cents per gallon.

If we grant that the low-end estimate of hidden costs per gallon is $1, that means filling a typical car's gas tank costs about $15 more than the total paid at the pump.

Any national conversation about the costs of government and the supposed perils of creeping "socialism" must include the myriad and often overlooked ways in which government hides some part of the price of everyday purchases, thereby fooling us into believing our capitalist system is producing goods and services cheaper than it really is. The difference between the retail price and true cost doesn't disappear: You can still find it right there in the federal and state income tax withholding boxes of your paystub.

That said, maybe liberals and conservatives can agree that if retail prices more accurately reflected true costs, we could make better-informed consumer decisions. Liberals would be buoyed by the prospect that Americans would think twice about how much gas they guzzle, conservatives would be cheered to have the true cost of union-made automobiles fully revealed, and people across the ideological spectrum — since we all eat — might re-think their diets. Whatever the behavioral changes, greater price transparency would make all of us reconsider what, and how much, we consume.

Thomas F. Schaller teaches political science at UMBC. His column appears regularly. His e-mail is schaller67@gmail.com.

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