New analysis performed by Iowa Watchdog discovered that at least 44 businesses owe the state’s taxpayers roughly $8 million for loans they had received from officials. The loans were granted due to a promise that the funds would yield 1,388 new jobs, but only 21 employment opportunities were produced.
The report had found that the Hawkeye State wrote off $2.7 million in bad loans to 16 enterprises at the end of June last year. The remaining firms will now either face lawsuits or be ordered by a court to return the funds. The remaining money will be left to state taxpayers to pay off the debt.
Even with heightened efforts made by the Iowa Economic Development Authority to protect the pool of money, Iowa cities lost out on nearly $200 million on capital investments. If the investments would have been deemed successful then it would have generated new tax revenue in state and local coffers.
It was confirmed by the economic group that the loans accounted for about 2.5 percent of all aid given to businesses in the state.
A number of excuses are starting to roll in, such as blaming the economic downturn for not creating those 1,388 new jobs. Due to the Great Recession, Iowa lawmakers granted the companies that received these loans an additional six months to one year to pay off the loans.
This isn’t the first time that Iowa has subsidized private companies. It was recently reported that the state doled out $200 million to Orascom Construction Industries, an Egyptian firm that is looking to construct a $1.4 billion fertilizer plant in Iowa. However, it went public that the company’s subsidiary, Contrack International, had been accused of defrauding United States taxpayers for $332 million in construction contracts in Egypt.
The failure of government subsidies has been quite ubiquitous as of late. Economic Collapse News reported in November that the U.S. taxpayers were on the hook for $2.6 billion in bankrupt green energy companies. Some of the top energy companies were also subsidized by state and local governments.
Akin to the Iowa case, and other forms of subsidies found across the country, all of these companies were given subsidies in the name of job creation.
The topic of subsidies has been meticulously examined by many Austrian theorists and libertarian thinkers, who make the case that it’s nothing but a “grand illusion,” as Gary North, adjunct scholar at the Mises Institute, said in a piece he wrote in 2006.
Subsidies can also hurt the market as a whole and deter actual free market competition because some companies are being favored over others and have a distinct advantage. Meanwhile, subsidies can be the culprit of high prices, which is why the cost of education and healthcare is so high.
Another aspect of subsidies is that the policy will eventually lead to failure, even if it may experience short-term growth, because (quote from Milton Friedman):
“When a man spends his own money to buy something for himself, he is very careful about how much he spends and how he spends it. When a man spends his own money to buy something for someone else, he is still very careful about how much he spends, but somewhat less what he spends it on. When a man spends someone else’s money to buy something for himself, he is very careful about what he buys, but doesn’t care at all how much he spends. And when a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.”
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