All opinions expressed in this article are solely the opinions of the contributors.
The Biden administration recently announced an initiative to cap child care copay expenses for approximately 100,000 low-income working families in the United States. Instead of paying set fees, those families will pay 7% of whatever their total income is as a copay for the government-subsidized daycare program. The program also hopes to fully cover all homeless or severely disabled children at no cost.
Straight Arrow News contributor Tim Carney says that this is just one more bad idea on an already-long list of demand-side subsidies that have failed the American economy for decades. Carney argues that it is exactly these kinds of subsidy programs which inflate the prices of vital goods and services in the first place, and cautions against this approach.
When things in life get expensive, government seems to have only one answer: Subsidize Demand!
It never works, but the government keeps trying it. College tuition is too high? Hand out federal grants and subsidized student loans! Housing costs too much? Give tax breaks for mortgages! And nowadays, the Biden administration wants to subsidize child care, promising they will provide safe, reliable day care for $10 a day.
These proposals all ignore history and basic economics. In the end, subsidizing demand doesn’t make anything more affordable—it does the opposite. Think about it: The price of a thing is determined by supply and demand. This is the most basic fact in economics.
If the government gives people money for the purpose of paying college tuition, then it is increasing those people’s ability to pay for college. Ability to pay is part of demand. So tuition subsidies, mortgage subsidies, and daycare subsidies generally drive up the demand for college, for homes, and for daycare.
College, healthcare and housing are three of the most subsidized products in the American economy, and it’s no coincidence that they have seen the greatest price increases over the past couple of generations.
