Misconceptions of Subsidies

I notice that there are so many misconceptions on subsidies. When they are supported by Nobel prize winners, we should know that this is an extremely serious issue.

There are 2 basic misconceptions. One is that any grant from the government is a subsidy. Although true in some aspects but should another word "subsidy" be invented if it has exactly the same meaning as grants. Yes, subsidies are forms of grants but not all grants are subsidies, for example universal basic income. Subsidies are only partial payments but the effects of Subsidies increase with the percentage of Subsidies given.

Second, subsidies are specific to the targeted objectives, and not general, which is why universal basic income or usual unemployment benefits cannot be considered as subsidies.

The reason why we need to separate subsidies from universal basic income is that subsidies have bad effects on the economy of the nation. Universal basic income has none of those bad effects.

To give an example is the wage subsidy proposed by Phelps, a Nobel prize winner. https://en.m.wikipedia.org/wiki/Wage_subsidy

"A wage subsidy is a payment to workers by the state, made either directly or through their employers. Its purposes are to redistribute income and to obviate the welfare trap attributed to other forms of relief, thereby reducing unemployment. It is most naturally implemented as a modification to the income tax system.

The wage subsidy was proposed by A. C. Pigou in his 1933 book The Theory of Unemployment.^[1] It was subsequently advocated by American economists Edmund Phelps^[2] and Scott Sumner,^[3] by American policy advisor Oren Cass,^[4] and by British economist Tony Atkinson under the name of participation income.^[5] "

^{Any subsidy is bad and should be balanced against the objective of the subsidy. The aim of the wage subsidy is to reduce unemployment. Indeed it will reduce unemployment but it will lead to the reduction of the GDP of the nation as a whole. What is the point of reducing unemployment when the whole nation becomes poor as what had happened to all nations that spend heavily on subsidies instead of cash handouts? You cannot argue with facts.} 

^{Supporters of Subsidies, such as Phelps, argue that wage subsidies is superior to minimum wage enforcements. While minimum wage will certainly reduce employments but at least it will not enslave citizens by being paying below the poverty rate.}

^{Unemployment is caused by structural weaknesses of the nation. Subsidies do not remove these weaknesses but make the weaknesses worse by allowing inefficient employers to thrive. Let market forces determine the most efficient employers by not giving out any subsidy to them. There will be a lot of unemployments in the short term but residents must not be made to suffer or else social ills will incur costs to the nation.}

^{By supporting residents so that they are above the poverty level, using cash handouts, their economic activities will stimulate the economy while allowing them to develop themselves to face the challenges ahead. Structural weaknesses in the nation can only be resolved by productive workers. Workers can only improve their productivity if they can improve themselves by being paid above the minimum salary.}

^{Universal basic income(UBI) is more fair because every citizen is given cash assistance regardless of status. However, it reduces the amount given to the poorest so that they may not escape poverty. UBI reduces the incentive to not look for employment or business venture to the minimum if no effort were made to identify needs.}

^{An alternative is to provide minimum income to those who are unemployed provided they can provide evidences that they have tried their best to look for work as is done in Belgium. However, this method is not foolproof because it creates bureaucracy that cost money and cause delays. It should be backed up by unconditional survival assistance such as free meals and accommodation.}