Do oil companies need federal subsidies? Probably not. The big oil companies have done very well and the need for government subsidies to support their operations seems rather nonsensical.

Before you jump to the conclusion that oil subsidies have some form of depressing effect on renewable energy subsidies consider that renewable energy subsidies have outstripped fossil fuel subsidies by more than $2 billion over the past decade.

energy subsidies

If all federal oil subsidies were eliminated only the largest oil companies, the ones raking in billions of dollars, would survive. Smaller oil companies aren’t seen by the public as they sell their products to the oil refineries who in turn deliver the refined product to the large companies that have the retail outlets to deliver the product to the consumer. Small oil companies don’t have the resources to cover the cost of exploration, especially failed drilling operations; without subsidies most would simply fold up shop. While we don’t hear much about these companies the loss of production would be felt in every person’s wallet.

So rather than providing subsidies for the big guys, why not just give subsidies to the small operations? Politics. The small petroleum exploration companies cannot afford their own K-Street lobbyists and cannot afford the huge political contributions the big guys dish up.

Subsidies Interfere With Market Forces

There’s another consideration and that’s the entire concept of subsidies. If politicians are allowed to choose winners and losers based on their contributors market forces are obstructed. A free market only works when consumers dictate which companies thrive and while fail. Apple Computer, the world’s largest corporation, prospers because they produce a product the public wants. Imagine if the federal government subsidized a company that produced a product that wasn’t popular, but because of the subsidies provided by the government could offer their product at a price the successful companies could not compete with; your tax dollars would be going to bolster a product taxpayers didn’t want. This action punishes the innovators and though you might be glad you can buy a less popular product at a reduced cost the effect is that it skews the market in favor of those politically connected.

Ralph Waldo Emerson famously said, “Build a better mousetrap and the world will beat a path to your door.” Government subsidies don’t lead to better mousetraps, they leads to larger political donations.

While it would be easy to point fingers, the fact is that both political parties are awash with big money donors hoping to promote their companies. These same companies promote free market economics while sliding bundles of cash towards their favored politicians producing anything but a free market.

Subsidies, government back loans and preferential regulations all put the politicians in a position to alter market forces and the ultimate loser is the same consumers they claim to be representing; this was never envisioned nor would’ve been tolerated by the founders of this country.

A free market rewards those that produce a product that consumers need or want at an acceptable price. Subsidies effectively compel consumers into technology or products that are immature, faulty or not cost-effective. Government has no place taking a position in the free market.

It’s time we end all subsidies. Let the market drive business and not political favors.