Poverty and Inequality: Caused by Government Favoritism

Published 2015/09/04

The major cause of much poverty and extreme inequality is government favoritism to special
interests, such as corporate subsidies and other government-granted privileges, which distort
the entire economy. That results in higher prices for products and services, and less job
creation, so that with more unemployed people chasing fewer jobs, wages are also bid down
the result is extreme inequality and unnecessary poverty.

The crucial issue of government favoritism needs to be addressed, instead of focusing on
bandaids and distractions that only treat the symptoms instead of dealing with the major root
cause of much poverty, extreme inequality, and other economic problems.

Government favoritism and special privileges given to special interests include such things as:

– giving direct subsidies to corporations;
– laws that favor some companies over others; and laws that restrict the supply of products or
services in order to raise the price;
– tax favoritism for privileged companies, instead of giving others the same deal;
– subsidies to polluters, by allowing them to dump their emissions into the air and water;
– giving big agribusiness major subsidies, which hurts more efficient farmers, and raises the
cost of food; etc.
– subsidies to fossil fuel industries and the nuclear industry;
– the biggest and most harmful example of government favoritism is subsidizing land
speculators and major owners of land and natural resources, by funding infrastructure that
raises their land values and thereby brings unearned profits to those special interests. They can
then use that unearned income to buy more land, or buy up other parts of the economy. As a
result, this distorts the whole economy.

Instead of that government subsidy to land speculators and major owners of land and natural
resources, they should be required to reimburse the government based on how their increased
land values were subsidized.

For example, one approach, as applied in several cities in the U.S., is that they could be
required to pay an annual tax for the value of the locations they are speculating on or hoarding,
while we can then lower taxes on buildings, products, and services, as much as possible, which
would lower the cost of housing, products, and services, because those are produced by labor
and human effort, whereas locations were not produced by any person.

A location value tax along those lines would put a limit on land speculation and land hoarding,
and the revenue could be used to fund public services, including a general social safety net;
perhaps part of it could be used to fund land vouchers to help pay for rent or a mortgage
either way would serve as compensation for being excluded from access to locations and
natural resources.

– favoritism to privileged TV and radio broadcasters, who use the airwaves, which travel through
the air, another natural resource; that subsidy has led to a handful of companies now controlling
over half of the total broadcast market, thereby limiting the range of opinions heard by citizens.

There are thousands of other such examples of corporate subsidies and favoritism to special
interests– that distorts the entire economy, and is the major cause of much poverty and
extreme inequality.

The Democratic Party originally saw corporate subsidies and government favoritism as one of
its major issues (early Democrats used other words for it, such as monopolies caused by
government-granted privileges to special interests, instead of promoting the public interest).

If Democrats would pick up that ball again, and speak out against corporate subsidies and other
favoritism to special interests, then Democratic candidates could easily beat Republicans, who
tend to promote a misleading version of what economic freedom means, while quietly continuing
to allow billions in government favoritism every year, along with various other legislation that
favors special interests instead of the public interest, and distorts the whole economy.

During the Clinton administration, there was a brief period during which Labor Secretary Robert
Reich spoke about cutting corporate favoritism. But soon after Reich raised the issue, it dropped
out of sight.

If we find more Democratic Party candidates who will take a clear stand on moving toward
getting rid of corporate subsidies and favoritism as much as possible, such candidates who will
address that important issue would be ones we would want to consider endorsing, if their other
views are reasonably compatible with the DFC; or in any case, they might be allies, by helping
to promote that crucial issue, which is related to most economic problems.

Addressing the major issue of corporate favoritism in a prominent way could have great
potential, for the DFC and Democratic Party candidates– it would offer an alternative to the
Republican Party’s misleading views about what is meant by economic freedom.

The corporate favoritism issue is included in the DFC’s Principles and Platform