My Subsidy, Your Subsidy

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When a challenge is made to the recipient of a subsidy, or the petitioner

for one – “Why should you get a subsidy?” – the challenge is on the axis of fairness. “No special rules for you.” The reply, almost always, is on the same axis: “Look at those people over there. They get a subsidy; I should have one too.” This is the argument for subsidizing everything from export finance to light rail – and, in this case, biodiesel.

In my state an alliance of greens and farmers – not a usual alliance – is clamoring for subsidies to start an industry to produce diesel fuel from oilseeds. It is technically possible to do this, without a subsidy, for about double the market price of petroleum diesel. On the surface, the argument for subsidy hangs on replacing foreign oil and creating a new industry, both of them attractive propositions. But challenge the idea of subsidy, and the reply you get is that petroleum is subsidized, too. The biodiesel industry has to “level the playing field.”

This is asserted in a tone that suggests that if you disagree, maybe you work for Exxon. But poke it for particulars – what subsidy? – and you get the battleship argument. It is

only to protect the sources and flow of oil that the United States has a great Navy, and Army, and has occupied Iraq, and all of these military expenditures really are subsidies that ought to be included on the social income statement of petroleum. We pay for them in the federal income tax, but really we should pay for them at the gas station.

Hearing that, I think there is’some truth to it, but how would you know how much? How much of the Navy is necessary to protect trade, and how much is it for oil specifically, and what would it mean to start allocating and charging costs of protection in the way this question suggests? If Americans reduced their use of foreign oil by 10% by substituting biodie- sel, could the Navy be reduced by 10% on account of that? 5%? Any? Where does this line of thinking get us? I think where it gets us is to subsidized biodiesel, which was the intent. And the intent ends there.

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