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Commentary

Commentary: A Culture Of Subsidies Inflates Costs
Steven Pearlstein, Washington Post, 12-1-04

What do college education, health care, and housing have in common? Mr. Pearlstein’s answer: rapidly rising costs that constantly outstrip the rate of inflation, and massive government subsidies.

The problem is that subsidies, in the form of federal student loans, tax deductions for employer provided health care, or mortgage deductions, all shield consumers from the full cost of the services or commodities they use. For instance, generous college loans allow colleges to raise tuition at a rapid clip year after year because the government will just bump up student subsidies to keep tuition “affordable”.

Pearlstein says that “these well-intentioned subsidies have the perverse effect of shielding colleges from the kind of market discipline that would have forced them to hold down prices by constantly improving their productivity and efficiency, as happens in just about every other industry.”

Government subsidies fuel a vicious cycle of rising demand and rising prices until costs threaten to bankrupt consumers and government alike. Until we bring real market discipline to these sectors, we can expect more of the same.



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