Subsidies and Sports: How Government Picks Winners and Distorts the Game

How Government Interference Skews the Economic Playing Field

We are excited to share the writing of our summer interns. They each picked and researched a topic of interest to them. This first piece is by Cameron Ewine, a rising Junior Economics Major at University of Maryland.

Subsidies are frequently championed as tools to stimulate innovation, strengthen industries, or correct market “failures.” In practice, however, they distort competition, misallocate resources, and create winners not through merit, but through political selection. Like rigged referees in a sporting event, governments that subsidize specific firms or sectors undermine the very market principles that make economic progress possible.

Advocates of subsidies often argue that they serve vital economic and social functions. Subsidies are seen as tools to jump-start emerging industries, protect jobs, counteract foreign competition, or correct so-called “market failures” where private incentives may not align with public benefits. In theory, government intervention can accelerate growth of technologies like clean energy, preserve critical supply chains, or ensure access to essential goods and services. These goals are well intentioned. Therefore, the problem lies not in the intentions that motivate subsidies, but in the results that follow: unintended consequences, distorted incentives, and a political system that rewards connections over competition.

This post uses familiar analogies from sports and competition to show how subsidies, even when well intentioned, compromise the integrity of market processes. While the comparison between economic systems and athletic contests isn't perfect, the aim is not to create a technical blueprint but to avoid economic jargon that can confuse the reader. I aim to use simple sports analogies to move past the intentions and shift attention to the actual outcomes of subsidies. From swimming lanes to medieval tournaments and NBA drafts to NFL salary caps, the pattern is consistent: Subsidized actors gain unfair advantages that crowd out superior, unsubsidized competitors, and lead to stagnation rather than innovation.

The Swimming Race: How Subsidies Slow the Strongest Competitors

Imagine a swimming race where each swimmer represents a firm competing to deliver the best product or service. In a fair race, the fastest and most capable swimmer wins. But suppose some swimmers are given inflatable inner tubes by the race officials — ostensibly to help them.

These tubes keep the swimmers afloat but also slow them down. Worse, the tubes obstruct the lanes of competitors trying to pass. The result: a slower race, an unfair outcome, and a distorted sense of who the best athlete truly is.

This scenario mirrors the market-distorting effects of subsidies. Far from catalyzing efficiency, government aid often props up underperforming or politically connected industries. The corn ethanol industry is a clear example. For decades, the corn industry has received tax credits, mandates, and subsidies. According to Vermont Law and Graduate School, the federal and state subsidies totaled at least $22.875 billion between 1999 and 2008. Yet cleaner, more promising alternatives remain underfunded and overlooked. Replanting corn year after year damages the soil, eventually rendering the land unusable.

Meanwhile, other biofuel options — such as sugarcane, algae or other biomass sources — hold greater promise. Sugarcane-based ethanol in particular boasts higher energy efficiency and superior environmental friendliness when compared to corn. This isn’t to suggest that sugarcane or algae should be subsidized instead, but rather that no biofuel source should be artificially elevated through political favoritism. Corn-based ethanol’s market position is not the result of inherent superiority, but of sustained government buoyancy.

The NFL Thought Experiment: When Leagues Pick the Champion

In another example, imagine if the NFL gave the New England Patriots a higher salary cap than every other team simply because of the team’s past success. (A salary cap is an upper limit teams are allowed to spend on player salaries.) With more resources to recruit top talent, the Patriots’ dominance would become all but inevitable.

But over time, this advantage wouldn’t necessarily make the Patriots better — it would foster complacency and waste, reducing the pressure to make smart decisions. What starts as favoritism soon creates a classic moral hazard — a situation where bad decisions are rewarded because someone else bears the cost. And the damage wouldn’t be limited to one team; the entire league would suffer.

The thrill of sports comes from competition, from the uncertainty of outcomes. Tilt the playing field, and fans lose interest. The game loses meaning.

Just as tilted rules erode trust in a sport, government favoritism does the same in the economy. When the government subsidizes certain firms, especially already-dominant ones, it picks winners, often regardless of future performance.

The bailouts of large financial institutions during the 2008 financial crisis, most notably through the Troubled Asset Relief Program (TARP), exemplify this distortion. These interventions insulated major banks from the consequences of their actions, creating a classic moral hazard by encouraging future risk-taking under the assumption of taxpayer protection.

In the lead-up to the crisis, the federal government, through agencies and central bank mechanisms, extended guarantees and backstops to highly leveraged banks and investors. When the housing bubble burst and loan defaults surged, these guarantees left taxpayers exposed to massive liabilities. Meanwhile, smaller, prudent firms faced heightened regulatory burdens and no guarantees of protection.

Such special privileges not only concentrate market power but also erodes trust in the system. Like an NFL that rewards its favorite team, a marketplace manipulated by subsidies discourages effort, rewards political connections, and stifles new entrants. Just like in sports, true economic vitality requires a level field — and the courage to let failure play its role.

The Draft Pick That Never Had to Try: Rent-Seeking and Cronyism

Imagine an NBA team that uses its first-round draft pick on a flashy but unproven rookie, who happens to be the league commissioner’s son. Before the season even starts, the league guarantees the player a spot in the All-Star Game — regardless of performance. No matter how many turnovers he commits, how many shots he misses, or how poorly he practices, the league has already declared him a star.

Now ask yourself: What incentive does he have to improve? How does that affect the teammates who must work harder for the same recognition? What does that signal to fans and up-and-coming players about what really matters — talent, or favoritism?

This is the sports equivalent of Solyndra. The company was heavily hyped, thanks to the founders’ connections in the White House, then backed with nearly $535 million in government guarantees and held up as a green-tech leader before proving its commercial viability. The result was predictable: poor performance, little discipline, and an eventual collapse. All paid for by taxpayers — not the investors who should have borne the risk.

The Solyndra scandal remains a striking illustration of how subsidies can divert capital away from sound investments and toward politically connected firms. Solyndra’s collapse was not merely a case of bad luck; it was a foreseeable outcome. Internal warnings about market viability and solvency were ignored in favor of political urgency. Despite clear financial red flags, including a B+ credit rating from Fitch and a “fair” designation from Dun & Bradstreet, Solyndra secured the $535 million government loan guarantee. The company ultimately filed for bankruptcy in 2011, leaving taxpayers to absorb the loss. Notably, Solyndra spent nearly $1.8 million on lobbying during the loan application process, underscoring how political access, rather than economic value, often determines who receives government backing.

Just like the rookie guaranteed a spot in the All-Star Game, Solyndra never had to earn its place in the market. It didn’t compete; it coasted, shielded by political preference and propped up with public money. And just like fans would lose faith in a league where stars are chosen by politics rather than performance, so too investors, innovators, and taxpayers lose trust in an economy where outcomes are rigged. The result isn't just wasted resources — it’s a system that sidelines talent, demoralizes effort, and sacrifices long-term growth for short-term appearances.

The Medieval Arena: Subsidies As Hidden Advantages

Now let’s step back from our modern age to medieval times. Picture a sword-fighting tournament where each knight appears to receive the same weapon. But a newer competitor, an unproven challenger, is secretly handed a sword sharpened by the officiating lord. Unbeknownst to the crowd, this challenger knight had dined with the king the evening before and struck a quiet deal to supply troops to the crown. Match after match, the crowd roars as this knight lands glancing blows that score victories. The crowd does not realize that he’s not winning on merit, but through favoritism.

The knight goes on to win the tournament and, as promised, secures the royal contract to supply the king’s army. But when a neighboring lord invades in the fall, the truth is laid bare: The favored knight’s forces are ill-prepared and ineffective. The king loses his territory—not because his kingdom lacked strength, but because he wagered everything on a cheater’s charm instead of real capability.

This is increasingly how many renewable energy subsidies operate. Tools such as tax credits for wind and solar production, investment guarantees, accelerated depreciation schedules, and state-mandated purchase requirements act as hidden advantages — not earned through market competition, but granted by policymakers eager to accelerate a transition. While well-intentioned to curb environmental pollution, these tools promote favoritism that can sideline better long-term investments — such as next-generation nuclear or geothermal — and reward scale over innovation. Instead of cultivating a competitive energy marketplace, subsidies risk substituting one form of market distortion for another.

Just as oil and gas once benefited from century-long special treatment, today’s renewables are often fast-tracked through regulatory review, shielded from grid cost responsibilities, and propped up by mandates that crowd out more reliable or experimental technologies. In fact, noting that the vast majority of subsidies are embedded in the tax code, Adam Michel of the Cato Institute found that 94 percent of the fiscal cost of energy-related subsidies is directed toward green energy technologies.

Subsidies like the Production Tax Credit (PTC) and Investment Tax Credit (ITC) were originally designed as temporary scaffolding to help renewables gain market traction. But over time, they have become permanent fixtures, extended repeatedly under political pressure and increasingly detached from real need. These credits now divert taxpayer dollars toward projects that likely would have been built anyway. The result is not support for innovation, but a misallocation of public funds. Taxpayers should be free to invest their own money as they see fit — not have their choices overridden by government planners picking winners in the energy market.

The skewing of incentives affects more than just balance sheets. It shapes the energy landscape in ways that may hinder reliability, investment diversity, and innovation. By flooding capital into a few politically favored technologies, we risk building an energy future based not on resilience or efficiency, but on feel-good narratives and lobbying strength. Even good intentions, when codified into permanent advantage, can blunt the competitive edge of the marketplace.

Market Signals vs. Political Judgment

Subsidies don’t just misallocate resources; they replace the wisdom of market signals with the guesswork of politics. In functioning markets, prices convey critical information about supply, demand, and consumer preferences. These signals allow firms to allocate resources efficiently. Subsidies, by contrast, replace market signals with political judgment.

Government actors, no matter how well-intentioned, operate with limited knowledge and distorted incentives. As Friedrich Hayek — a prominent 20th-century free-market economist — warned, central planners lack the dispersed, tacit knowledge embedded in market prices and thus make poor economic decisions. They are not punished for failures, nor rewarded for prudent spending. Unlike private investors, who lose capital when bets go wrong, policymakers shift the costs onto taxpayers.

Even in cases where subsidies might be justified, such as early-stage public infrastructure or research, the track record of federal intervention reveals that these programs rarely remain temporary. Sunset clauses, often included to limit the duration of subsidies, are routinely ignored or postponed under political pressure. Instead, subsidies often become permanent fixtures of the political economy, shielded from reform by vested interests. Once introduced, subsidies rarely fade. They become entrenched, defended by powerful interest groups who profit from their permanence. Even those considered popular or “successful” conceal deeper inefficiencies.

Consider Amtrak, established in 1971 to preserve basic intercity passenger rail service as private railroads exited the market. The intent was to create a publicly funded, self-sustaining enterprise that would eventually operate without ongoing federal support. Yet, more than fifty years later, Amtrak remains chronically unprofitable, heavily subsidized, and riddled with systemic inefficiencies.

Amtrak fares often exceed those of air travel, particularly on long-distance routes. As of this writing, a one-way Amtrak ticket from New York City to Los Angeles, booked two days in advance, costs approximately $1,412. The cheapest plane ticket I found was $432, nearly $1,000 less for a journey that takes a fraction of the time.

Compounding the problem, many of Amtrak’s trains run on freight-owned tracks, which suffer from poor maintenance standards and frequent delays. Outside of select corridors like the Northeast, service remains infrequent and geographically sparse, making Amtrak an unreliable option for most Americans.

Far from achieving operational independence, Amtrak exemplifies how government support, once introduced, becomes less about delivering value and more about sustaining a politically protected institution, regardless of performance.

A Call for Neutral Rules and Market Integrity

Subsidies, whether for energy, finance, agriculture, or manufacturing, all share the same flaw: They inject politics into what should be a competitive, merit-driven process. Rather than enhancing innovation, they entrench incumbents. Rather than supporting growth, they cultivate dependency. And rather than strengthening the economy, they erode its dynamism.

As Frédéric Bastiat famously observed, “The state is the great fiction through which everyone endeavors to live at the expense of everyone else.” In a world of subsidies, success often depends less on satisfying customers than on satisfying legislators. Talented entrepreneurs divert their energy away from innovation to influence-peddling. Entire industries adapt not to win in the marketplace, but to win in Washington.

Policymakers who wish to foster entrepreneurship and technological progress should begin not by asking which industries deserve help, but by asking why the government is trying to decide that in the first place. A level playing field, like a fair sporting contest, is essential for markets to function. That means eliminating subsidies, not refining them.

Removing these artificial advantages allows real competitors to rise and fall based on merit. The result will not only be more just — it will be more prosperous.

After all, no one wants to watch a swimming race where the slowest athletes wear floatation devices, a sword fight where one knight carries a hidden edge, an NFL that artificially gives the best team the most money, or a basketball league where All-Stars are chosen by politics and connections instead of performance. Just as no sports league can survive rigged games and biased referees, no economy can thrive under the weight of government-ordained champions.