Why Government Subsidies Always Make Things More Expensive
The American People need a refresher in Economics 101 in order to save our Economy.
If you’ve been following the news lately, you’ve probably heard politicians wringing their hands about the “affordability crisis” in healthcare, education, and housing. The solution they always propose? More government subsidies. More “help” for struggling Americans. More taxpayer dollars pumped into these sectors to make them “affordable.”
Here’s what they won’t tell you: Government subsidies are the reason these things became unaffordable in the first place.
I know, I know. That sounds backwards. How can giving people money to buy something make it MORE expensive? Shouldn’t subsidies make things cheaper? That’s certainly what the politicians selling these programs want you to believe. But if you look at the actual data—not the campaign promises, not the feel-good talking points, but the real numbers—you’ll see a pattern that’s impossible to ignore.
Every single time the government decides to “help” people afford something by subsidizing demand, prices go up. Not down. Up. And the more they subsidize, the worse it gets.
Let me walk you through the evidence, explain the economics, and show you why understanding this principle matters for every decision you make as a consumer, voter, and citizen.
THE ECONOMIC THEORY
Before we dive into the real-world carnage, let’s understand the basic economics. And don’t worry, I’m going to keep this simple. If you would like to have a more in depth chat about subsides, or anything else, scroll to the bottom to send me a message and let’s chat.
There are two types of subsidies: Supply-Side and Demand-Side.
Supply-side subsidies give money to producers to make more of something. In theory, these can lower prices by increasing supply. Think of subsidies to farmers to grow more wheat, more wheat means lower bread prices (though even these subsidies create their own problems, which we’ll save for another day).
Demand-side subsidies give money to buyers to purchase more of something. These are the subsidies we’re talking about today. Student loans, healthcare premium subsidies, housing assistance programs, these all put more money in buyers’ pockets specifically earmarked for purchasing a particular good or service.
Here’s the problem: When you give buyers more money to spend on something, demand goes up. That’s Econ 101. But here’s what they don’t teach you in most economics classes: If supply can’t keep up with that increased demand, prices rise to match the new purchasing power.
Think of it this way: You’re at an auction for a rare baseball card. There are 10 bidders, and everyone has $100 in their pocket. The bidding might stop at $95. Now imagine the government shows up and hands every bidder an extra $500, but there’s still only one baseball card. What happens to the price? It doesn’t stay at $95. It shoots up to match the new purchasing power in the room, maybe $550, $600, or more.
The baseball card didn’t get any better. Supply didn’t increase. But the price skyrocketed because everyone suddenly had more money to bid with.
That’s exactly what happens with demand-side subsidies in healthcare, education, and housing. The government floods the market with subsidized dollars, and sellers simply raise their prices to capture that money. Economists call this “subsidy capture” or “the Bennett Hypothesis” (named after Reagan’s Education Secretary who first articulated it for college tuition).
The result? Prices rise to absorb the subsidies, leaving consumers back where they started, or worse, because now they’re dependent on government support just to afford what used to be a reasonable market price.
EXHIBIT A: HEALTHCARE
Let’s start with the disaster unfolding right now with Affordable Care Act (ACA) subsidies.
In 2021, the federal government massively expanded premium subsidies for ACA marketplace insurance. They called these “enhanced subsidies,” and the goal was to make insurance “affordable.” These enhanced subsidies covered the full cost of benchmark premiums for people earning between 100-150% of the federal poverty level, and capped premiums at 8.5% of income for everyone else, removing the previous 400% income limit entirely.
So what happened?
Insurance premiums exploded.
According to research from the Mercatus Center at George Mason University, the enhanced subsidies correlated with a 15-20% premium spike in states that expanded these programs. Health insurers raised their rates by an average of 26% for 2026 (our increase was 35%), with analysts citing the enhanced subsidies as a key driver. Why? Because insurers knew the government would pick up the tab.
When the Kaiser Family Foundation (KFF) analyzed premium increases for 2026, they found that only 4 percentage points of the 18-20% average increase was due to actual medical inflation and utilization. The rest? Healthcare system bloat, provider consolidation squeezing reimbursements, and, you guessed it, insurers pricing for a subsidized market.
Now the enhanced subsidies are set to expire at the end of 2025, and suddenly everyone’s shocked that premiums are “skyrocketing.” But here’s what’s really happening: Premiums aren’t skyrocketing—the subsidies are going away, revealing the true cost that was always there.
According to KFF, the average subsidized enrollee paid $888 per year in premiums in 2025. Without the enhanced subsidies in 2026, that jumps to $1,904 or a 114% increase. Politicians are calling this a crisis. I call it the bill coming due.
The subsidies didn’t make insurance more affordable. They temporarily masked the cost while giving insurers a blank check to raise prices. And now millions of Americans who were lured onto the marketplace with promises of “$0 premiums” are about to learn what those plans actually cost.
Want to know the real kicker? When FHA cut mortgage insurance premiums in 2015 to “help” homebuyers, the exact same thing happened...
EXHIBIT B: HOUSING
In January 2015, the Federal Housing Administration cut its mortgage insurance premium (MIP) by 50 basis points. The government predicted this would bring 250,000 new first-time homebuyers into the market over three years and save each FHA buyer $900 annually.
Sounds great, right? More people achieving the American Dream of homeownership.
Here’s what actually happened: Home prices in FHA-dominated neighborhoods increased 2.5 percentage points faster than in comparable markets. Only 17,000 additional first-time buyers entered the market, far short of the projection. And the $900 in “savings”? It vanished into higher home prices.
A 2025 analysis by National Mortgage News put it bluntly: “When demand-side subsidies are introduced in a tight housing market, they get capitalized into higher prices, reducing affordability rather than increasing it.”
Think about the mechanism here. Sellers and their agents know that FHA buyers are getting subsidized. They know buyers can suddenly “afford” more because the government reduced their upfront costs. So what do they do? They price homes higher to capture that subsidy. The buyer doesn’t benefit, they just pay the subsidy amount in the form of a higher purchase price.
The National Mortgage News study concluded that cutting the MIP “is effectively a wealth transfer from FHA’s capital reserve fund, which is meant to protect taxpayers, to existing homeowners and real estate agents.”
Read that again. The policy enriched sellers and agents by inflating prices.
And here we are in 2025, with housing affordability at crisis levels, and some politicians are calling for... you guessed it... MORE housing subsidies. Down payment assistance. Expanded FHA loan limits. Buyer tax credits. 50 year mortgages. All policies that will dump more subsidized dollars into the market and drive prices even higher.
If you want to know why Cherokee County’s median home price has jumped dramatically in recent years, look no further than the flood of cheap money and subsidized mortgages that have pumped demand without increasing supply.
EXHIBIT C: COLLEGE TUITION
The poster child for subsidy-driven price inflation is higher education. This one’s been going on for decades, and the evidence is overwhelming.
In 1987, Education Secretary William Bennett wrote an op-ed titled “Our Greedy Colleges,” arguing that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”
Researchers have been testing the “Bennett Hypothesis” ever since, and the results are damning.
A 2015 study by the Federal Reserve Bank of New York found that when subsidized federal student loan limits increased, colleges raised tuition by 60 cents for every dollar of increased borrowing capacity. Unsubsidized loans led to tuition increases of 40 cents on the dollar.
Let that sink in. For every additional dollar students could borrow, colleges captured up to 60 cents through higher tuition. The students didn’t get more education. The facilities didn’t get better. The teaching didn’t improve. The college just... charged more.
A separate study found that for-profit institutions eligible for federal financial aid charged tuition 78% higher than comparable for-profit institutions that weren’t eligible for federal aid. Same education, same costs, but one could tap into federal subsidies and the other couldn’t. Guess which one had higher prices?
Since 1991-92, federal student aid has increased 295%. During that same period, inflation-adjusted tuition and fees roughly doubled. The correlation is impossible to ignore.
Here’s the mechanism at work: Colleges see that students can borrow more money through federal loan programs. They know students will take those loans because everyone says you “need” a college degree. So colleges raise tuition, add administrators, build luxury dorms and recreation centers, and students foot the bill through larger loans. The college gets the subsidy money. The student gets the debt.
The result? Americans now carry $1.75 trillion in student loan debt. Average borrowers owe $30,000-40,000, and many professional degree holders owe six figures. All for an education that didn’t get substantially better, it just got substantially more expensive because the government made it easy to borrow.
WHY IT KEEPS HAPPENING
You might be asking: If subsidies clearly drive up prices, why do politicians keep pushing them?
Three reasons:
They sound compassionate. “We’re helping struggling families afford healthcare!” plays better in a soundbite than “We’re distorting market signals and creating dependency cycles.”
The costs are hidden and delayed. When you hand someone a subsidy check today, they feel helped. When prices rise next year because of market distortions, they don’t connect the dots. Politicians get credit for the benefit and avoid blame for the costs.
It creates constituencies who fight to keep the subsidies. Once people are dependent on subsidies, they vote to keep them. Once industries are addicted to subsidy money, they lobby to maintain it. Everyone has an incentive to keep the gravy train running—except the taxpayers footing the bill and the consumers getting squeezed by inflated prices.
The tragedy is that these subsidies end up hurting the very people they’re supposed to help. Young people take on massive student debt. Families can’t afford homes even with “assistance.” Healthcare premiums spiral out of control. And everyone ends up dependent on government support just to access things that used to be affordable.
THE SUPPLY SIDE MATTERS TOO
Now, to be fair, part of why subsidies cause such dramatic price increases is because supply can’t adjust quickly in these markets.
You can’t just build a new hospital overnight. Medical schools have enrollment limits. It takes years to train doctors and nurses.
You can’t snap your fingers and create new housing. Zoning laws, building codes, permitting delays, and NIMBY resistance all constrain supply.
Universities have limited seats, and building new colleges is expensive and time-consuming.
But here’s the thing: Government policy often restricts supply while subsidizing demand. That’s the worst possible combination. It’s like standing on the gas and the brake at the same time, and wondering why your car isn’t moving.
Want to make healthcare affordable? Reduce the barriers to becoming a doctor. Allow more foreign-trained physicians to practice here. Eliminate certificate-of-need laws that prevent new hospitals from opening. Let nurse practitioners do more. Allow price transparency so consumers can actually shop around.
Want to fix housing? Reform zoning to allow more density. Streamline permitting. Reduce building costs through regulatory reform. Stop subsidizing demand through tax policy (like the mortgage interest deduction) that just inflates prices.
Want to address college costs? Eliminate the federal student loan program entirely and watch tuition plummet as colleges adjust to what students can actually afford to pay. Or at least cap loans at reasonable levels so colleges can’t just keep raising prices knowing students will borrow whatever it costs.
The pattern is clear: Subsidize demand + restrict supply = skyrocketing prices.
My unCommon Sense
When we let government subsidize our healthcare, education, and housing, we give up control. We become dependent on political decisions about subsidy levels. We lose the ability to demand better value because someone else is paying (or appears to be paying). We stop asking tough questions about why things cost what they do.
And worst of all, we train ourselves to think we CAN’T afford these things without government help—even though government help is exactly what made them unaffordable in the first place.
This is what I call the dependency trap. Once you’re reliant on subsidies, you’ll fight to keep them, even if they’re making your situation worse in the long run. You become a political pawn, voting to maintain a system that serves politicians and connected industries, not your actual interests.
Real prosperity comes from free people making free choices in free markets. Not from government bureaucrats deciding how much “help” you need and which connected industries should receive your tax dollars.
Here’s what I’d like to see, and what you should demand from anyone asking for your vote:
End the subsidy addiction. Let ACA subsidies expire. Stop expanding federal student loan programs. Eliminate down payment assistance and other housing subsidies. Yes, there will be short-term pain as prices adjust downward to meet actual market demand. But that’s the cure, not the disease.
Remove supply restrictions. If we’re going to do anything, focus on removing barriers that prevent supply from meeting demand. Reform medical licensing. Gut zoning restrictions. Streamline building permits. Open up land for development. Make it easy for competitors to enter these markets and drive prices down through competition.
Demand price transparency. You know what would help more than subsidies? Being able to actually see what things cost. Make hospitals publish real prices. Make colleges disclose the true total cost and average debt load for graduates. Make housing markets publish all-cash comps so buyers can see what properties actually sell for without leverage games.
Take personal responsibility. Stop waiting for government to “fix” affordability. Live below your means. Choose the state school over the fancy private college. Consider community college for the first two years. Buy a starter home instead of stretching for your dream house. Pay cash for healthcare when you can (like I do for my insulin) and negotiate directly with providers.
Vote with your feet and your wallet. Don’t attend overpriced universities. Don’t buy overpriced homes. Don’t accept overpriced insurance plans. When enough people refuse to pay inflated prices, the market will adjust. But as long as subsidies hide the true costs, the price spiral continues.
I’ve seen this pattern my entire adult life. I watched insulin prices triple between 2002-2013, partly because the system became so opaque and subsidy-dependent that nobody knew what anything actually cost anymore. I watched college tuition explode as federal loans became easier to get. I watched housing prices soar in Cherokee County as cheap money flooded the market.
And I’ve watched politicians from both parties promise to “fix” these problems with more of the same policies that created them.
We deserve better. We deserve an economy where prices reflect actual supply and demand, not political manipulation. Where hard work and saving can actually build wealth, instead of just keeping up with subsidy-inflated prices. Where our kids can afford college, healthcare, and homes without becoming indentured servants to debt and government dependency.
That starts with understanding the economics. Government subsidies don’t make things affordable. They make things expensive, then make you dependent on subsidies to afford the inflated prices. It’s a racket, and it’s time to call it what it is.
Want actual affordability? Get government out of the way, let markets work, and watch prices fall as competition and innovation do what they’ve always done in free markets: create abundance.
The choice is yours: subsidy savior or self-reliance rally? I know which one I’m choosing.
If you want to have a constructive conversation about this or anything else, message me at dan@thrailkill.us, and let’s grab coffee or a beer.
Have a good one,
Dan