Free Republic

EXCERPT ‘‘We are putting colleges on notice,’’ Obama said. ‘‘You can’t assume that you'll just jack up tuition every single year. If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.’’

When governments want to encourage what they believe is beneficial behavior, they subsidize it. Sounds like good public policy. But there can be problems. Behavior that is beneficial for most people may not be so for everybody. And government subsidies can go too far. Subsidies create incentives for what economists call rent-seeking behavior. Providers of supposedly beneficial goods or services try to sop up as much of the subsidy money as they can by raising prices. After all, their customers are paying with money supplied by the government. Bubble money, as it turns out. And sooner or later, bubbles burst....