Spending Liberally

"Yo ho ho and a bottle of rum!"

Imagine you own an icecream stand. You sell icecream for $2.50 and just barely get by with a small profit. One day a government study on the importance of dairy products for child nutrition is released. The government acts, saying that it takes very seriously the need of children to get enough dairy. In its infinite wisdom the government introduces a $10 subsidy to be spent on icecream as it's the easiest way to get milk into kids. You now have two choices, keep selling your icecream at $2.50 or charge $12.50 and retire after 10 years. Overnight the price of icecream skyrockets but there's no extra supply, no more icecream vans appear, the subsidy has simply been absorbed as profit by icecream sellers. Of course this is hardly surprising if you're familiar with capitalism. Incredibly:

$100 a day - the child care dilemma

By Andrew Clark and Stephanie Peatling
October 1, 2005

The cost of child care has passed the $100 a day mark - a price surge that could force many mothers out of the workforce.

Wages for child-care workers, rent and a shortage of places are pushing fees up much more quickly than overall consumer prices, prompting the Federal Opposition to call on the Government to link the child-care benefit to the cost of care.

Simply giving more money to people who select the best childcare would have no effect on price because everyone wants the best childcare they can get, providers will realise that if they hike up their prices then they'll get a bigger piece of the subsidy pie and will act accordingly.

The Herald has established that one child-care centre in Bondi Junction, Junction Juniors, recently raised its rates from $90 a day to $105 - almost as much as the after-tax income of a parent on average earnings.

SMH

Of course it is, what the government has done is artificially inflate the market price of child care with a clumsy, ill thought out intervention. I'd call it socialist but that would be unfairly harsh on socialism. A socialist would build government owned child care facilities with public money, which would actually reduce the cost of child care and increase its availability. It would be hideously expensive but not nearly as expensive as the current 'solution' of dumping money into the market and hoping it works out. Another solution, an actual conservative solution, would be to avoid intervention and see if demand itself is enough to increase the number of childcare places. Of course it would be an unpopular policy, seeing as how Australians seem to elect 'conservative' governments and then demand socialist policies from them.