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Do Subsidies Doled Out by Foreign Governments Harm the Domestic Economy?

Here’s a letter that I sent today to the New York Times:

Richard Michalski insists that European-governments’ subsidies to Airbus harm Americans economically (Letters, Sept. 18).  Not so.  These subsidies are an economic burden, not to Americans, but to Europeans.

If your neighbor’s rich aunt gives him $100 a month to buy the lemons he uses to make lemonade for sale in his lemonade stand, he’ll be able to cut his prices and sell more lemonade than he would without his aunt’s largess.  You and the rest of your neighbor’s customers will enjoy less-expensive lemonade and less-expensive other goods and services made possible by some of his competitors quitting the lemonade trade and finding other productive uses of their talents and resources.  These benefits are real, and they arise all because of the generosity of your neighbor’s aunt.

Of course, your neighbor’s cousins – out of whose inheritance the aunt takes the money used to finance your neighbor’s lemonade business – are harmed.

Donald J. Boudreaux