Professor Folsom's lecture with YAF discussed the early history of subsidization in the United States. Specifically, he discusses 3 particular industries, the Steam Ship Industry, the Railroad industry, and the Airplane Industry. While there are certainly differences between all three industries, the main song and dance plague all three of the industries when it comes to subsidies. The government is concerned about lagging behind other nations and wants to "jumpstart" the economy which sounds like a great idea. The bad news is that it just does not function well and is a giant waste of resources.
First of all, Dr. Folsom discusses the effects of subsidization on the Stream Ship Industry. In the 1800s, the US was concerned about falling behind England in the Steam Boat industry, so a man named Edward Collins "volunteered" himself to receive a subsidy to start his own steamship company. The company received the subsidy and operated for a year and then returned to Congress to ask for more money because the company was operating at a loss. Then, Cornelius Vanderbilt, another individual in the Steam Ship industry, told Congress that he could do what Collins was doing for half of the price, but congress still voted to give the subsidy to Collins even though it cost twice as much. Despite the setback, Vanderbilt continued with his plan to open a steamship industry and his industry was more profitable than Collins. This continued for several years before Congress finally realized that the free market did a better job at providing services than their subsidized industry ever could.
In addition, Congress also decided to subsidize the railroad industry to create a transcontinental railroad to connect California to the rest of the US in the 1800s. In an attempt to correct their mistake from the Steam Ship error, they decided to "create" competition by giving 2 companies the subsidy instead of one. The Union Pacific and the Central Pacific were both paid by the mile which led the companies to abuse the incentives by having the railroad take longer routes, building the track further than necessary, and even blowing up the other company's tracks. The government was under much scrutiny after this, but they defended it by claiming that it was the only way for them to connect California to the rest of the United States. In contrast, a private railroad company owned by immigrant James Hill built a railroad from St. Paul to Seattle. Funnily enough, Hill's company was much more profitable and more efficient than the two subsidized companies railroad and also destroyed the government's defense of the subsidy. Once again, the free market produced a much better product than the government-subsidized industries.
Finally, the United States began to subsidize the invention of airplanes upon rumors that foreign nations were experimenting with building an aircraft that could threaten the United States. Despite the previous examples, the United States congress was ripe with fear and elected to use subsidies once again to try and invent the airplane giving Samuel Langley a subsidy to invent it. Despite his efforts, Langley was unable to create an airplane that could sustain flight which wasted a bunch of taxpayer money. Many news articles claimed that flight was essentially impossible or too far out of reach. Funnily enough, just 9 days after his second attempt and everyone believing that flight was impossible, the Wright brothers invented the first airplane with a budget of just 2,000 dollars proving once again that free-market entrepreneurs are much more successful than the government at innovation.
In conclusion, it is abundantly clear that subsidies are not the most effective and certainly not the most efficient way to improve a nation. Political entrepreneurs tend to offer significantly less value than market entrepreneurs and this is especially evident by the failures of subsidies in America when compared to their free-market counterparts. This can largely be attributed to America's success during the industrial revolution and the Gilded Age. Sadly, it is extremely unlikely for any American to ever see a day without subsidies in the future, but it would truly be amazing to see what entrepreneurs could accomplish without the billions of dollars that the federal government wastes on corporations every year. Sadly, it is extremely unlikely for any of us to ever see a day without subsidies ever again, but
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