There are no pros or advantages for subsidies. The apparent pros are illusions only. There are only cons.
The overall impact of subsidies is to make the rich richer and the poor poorer. It may be a pro for the rich but it is not good for the rich overall. Compare the rich in Malaysia versus the rich in Singapore. These are ideal countries to compare because they used to be the same country. The wealth of the rich in Malaysia is still lower than in Singapore. Also, Singapore is not a true developed nation because its income gap is still very high, so you can see the effects of subsidies for both countries.
Let us start with the cons:
- subsidies favour the rich much more than the poor because the rich consume more. It is true for all forms of subsidies, including education and health;
- subsidies encourage waste. Education and health may appear to be exceptions because excessive education and health are beneficial but these extra benefits are not certain and not really essentials, so can be considered as wastage;
- subsidies stiffle production because it is cheaper to consume than produce;
- subsidies favour non citizens more. It may appear to allow more exports but these exports are not beneficial to the citizens and therefore a wastage of the nation's resources. Subsidies therefore allow the nation to be exploited by outsiders;
- subsidies lower salaries of workers because their living expenses are lower so workers are satisfied with lower salaries;
- lower salaries cause brain drain because skilled and valuable workers are enticed by nations with higher salaries despite the higher cost of living for those countries with lesser subsidies;
- lower salaries and lower prices for export goods and other products reduce gross national product making the nation poorer;
- lower national production and lower wealth reduces the strength of the nation and therefore exposes the nation to military attacks;
- the larger number of poor people increases social ills and diseases that will impact on the quality of life of the rich as well. For example, the rich will be targets for crimes;
- lower salaries also encourage more corruption and thus reduces securities of the nation even more;
- subsidies create shortages as demand increases because of the artificially lowered price. The lack of petrol in Sri Lanka in 2022 is not due to unwillingness of petrol suppliers to supply petrol, but because the government of Sri Lanka cannot supply enough subsidised petrol to all the demand. If there is no subsidy for petrol, people can get petrol but at market prices, but there is no possibility of any shortage of any item, as long as the customers have the money to pay for petrol. Customers who cannot afford the offer prices cannot be considered as true demand any more , but more of a charity;
- subsidies allow the rich to buy the most subsidised items and export them for even more gains. After all, the rich have been exporting their items at subsidised rate anyway.
- Subsidies only reduce half of inflation because the subsidy money goes to the producers also: http://www.sanandres.esc.edu.ar/secondary/economics%20packs/microeconomics/page_22.htm . It is therefore better to just give cash to consumers.
The apparent pros of subsidies:
- subsidies lower the cost of living for those who have some work. If you have no income at all, you will get zero assistance from subsidies. In reality, despite various efforts, many citizens still cannot get jobs, so face acute poverty. The least suffering is that they get some assistance from the subsidies but not enough to lift them out of poverty. Most of the subsidy money goes to the rich who can afford to consume more and thus get more money from the subsidies;
- rich become richer simply by exporting subsidised items at lower prices. This is only apparent because lower costs translate to lower revenues so the overall gain cannot match those in nations that have taxes instead of subsidies. Because the poor becomes poorer, with many in abject and desperate poverty, crimes and corruptions are rampant and these cost money to overcome eating into export revenue;
- the subsidies enhance the targeted items. Wage subsidies encourage more jobs to be created. Educational subsidies create more education for people. Subsidies on essential items allow more people to buy essentials. This appear to be a pro but actually a con. People are steered into wasting these good things. More of good things can be harmful;
- subsidies reduce inflation. In the short term, yes. In the long term, subsidies create more inflation as shown by Malaysia in comparison with Singapore.
- Real inflation is caused by problems in production so nothing much can be done about it except to increase production. False inflation is caused by over production of money. Subsidies cause the overproduction of money because of its inefficiencies, and even cause the lower production of items, making real inflation worse instead of solving it in the long term.
- Subsidies increases demand for the subsidised item because prices are lower. Increasing demand causes prices to rise. That is why subsidies will increase prices unless there is price control and supply is sufficient. Making supply sufficient is difficult because subsidies make producing less profitable because they have to compete with subsidised items.
- In some cases, deflation is bad and inflation is good because inflation stimulates the economy. Buy property and then sell later at higher prices. Industries also use buildings as collaterals in loans to expand businesses;
- subsidies allow experts to control the economy by manipulating demand. In most cases human experts cannot match the speed and effectiveness of market forces. However, there may be cases where expert intervention is required for certain objectives such as during wars, national competition for survival or prestige, e.g. race to the moon. Race to MARS and reduction of global warming.
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