No, It’s Not Free
March 19th, 2022
By Peter Hill
No, It’s Not Free
Yesterday, February 17, 2022, Kentucky Governor Beshear’s Office announced that thousands of “free” doses of Narcan would be distributed to Kentuckians. Narcan is a drug that can save the lives of those who have overdosed on drugs. We might think that is a good policy, or a bad policy. I tend to think it is a good idea. What I object to is the use of the word “free”. Free means there is no cost involved, that no one has to pay the cost. But is Narcan, or anything else, really free? Or is it merely a rhetorical ploy, using a word to use to make a policy sound so much easier, better, more palatable, with no difficulties, bills, or costs to anyone? After all, who could object to “free” stuff?
Well, I do.
I object to it because, on most occasions, it is a misuse of language in an effort to defuse possible objections to the underlying policy, or the consequences of adopting that policy.
Have you heard these ads?
“Buy one burger, get free fries!”
“Buy three tires, get the fourth free!”
“Free drink when you complete our consumer survey!”
“First month is free!”
After thinking for only a few seconds, it occurs to us that these things are not really free. There is a price to be paid. With these commercially available items, we immediately know that the manufacturer or seller or business is picking up the cost of the additional “free” item, and a few seconds later we know that the business can only do this because it is decreasing its revenue and profits, or because doing it is an ad or promotion and thus a business expense, or because it is raising the price for its consumers on the other products being sold. There is no other option. One only gets free fries because the increased price of the burger permits it.
There is no free lunch, right?
But what about free TV, and free internet social media sites? After all, I don’t pay to visit Facebook, so isn’t it free?
No. It isn’t. As an economist colleague of mine explains to his students, “If you are not paying for the service, you are the product. Access to you is being sold to others – those who pay Facebook for access to you. You are merely a fish getting hooked on advertising bait. This is a pay lake, and you are the fish. It’s just that someone else is paying for your “free” service.”
If we understand this, then why do we let the government claim all sorts of things are “free”? Why do we think differently when the government offers something to its consumers for free? If there is no such thing as a free lunch, is there no such thing as a free school lunch?
Politicians do this all the time, and it is not a monopoly of Progressives and socialists, although they are the most egregious violators of economics and common sense in this area. Usually, when they claim something is free, they simply mean someone other than the person getting the “free” item is paying for it. We frequently hear of the following:
Free school lunches. And now, thanks to the government, free school breakfasts and free summer meals!
Free COVID recovery stimulus checks in the amount of $1400.
Free public schools.
Free COVID testing kits.
Free health care.
Free cell phones.
Free EBT/food stamps.
I do not let my students use the word “free” without explanation. Every time they use the word, they must then identify who is actually paying for the ‘free” item or service, with a plausible explanation of how that happens, and what the likely consequences are.
Some are easy. Who pays for “free school lunches”? They are not free. They are provided because someone paid taxes to support the local school system. And also, because so much funding for local expenses does not come from local sources, but from state and federal grants, because someone paid taxes to the state or federal governments, which in turn transferred funds to the local school district after deducting some money to pay for the bureaucracies in Washington, DC, or Frankfort, KY. It is also easy to identify the actual bill payer in some of the other “free” things in the list above.
But at other times, it is harder. The most common, and accurate, answer to the question, “Who is paying for all this free government stuff?” is, a taxpayer. Someone paid for these things, and it is likely the 39% of Americans who paid income taxes in 2020, according to an August 18, 2021 story in CNBC. 61% of Americans paid no federal income taxes in 2020, Tax Policy Center says (cnbc.com) (Note, however, that many more Americans pay payroll taxes, such as social security and Medicare taxes, than income taxes.)
But what of President Biden’s proposed “social infrastructure” bill that would have given away free college, free toddler public school, free day care, free this, and free that? The answer is that much, perhaps most, of this would not have been paid for with taxes. It would have been paid for by the government simply printing money (either on paper or, more likely, electronically generated) to pay these new expenses. That is, through deficit spending. Isn’t that “free”? After all, no one is being taxed for it.
But is it really without a cost? Who pays when government deficit spending causes inflation, as we are facing now? The answer is, “Consumers, everyone who gets an eroded paycheck that does not purchase as much as it did last year, and especially the poor, who are the least able to deal with inflation.” If the government spends $6,000,000,000,000, (yes, that’s a “trillion”) but only takes in $4,000,000,000 in taxes, then there is an extra $2 trillion dollars in circulation chasing the same amount of goods and services we had before. What happens when plenty of additional cash is chasing limited goods or, conversely, the same amount of dollars is chasing a reduced amount of goods? You don’t need to be an economics Ph.D. to conclude that this deficit spending causes inflation.
In the old days we would have called it “debasing the coinage.” Remember that term from your old history classes? It is what happened when kings wanted to stretch their silver pennies, florins, or guilders, without raising taxes. They would start with a 100% silver penny. But they found they could remove 10% of the silver in every penny, dilute the penny with less valuable tin, and issue pennies with only 90% silver. They pocketed the 10% difference in silver and spent it. (The kings would have insisted that they were not spending money, but “investing” the money, just as Progressive Democrats do today.) But people began to understand what was happening. Prices rose so that the same amount of silver would be needed to purchase the bread, saw, or sheep, but it now took 11 pennies instead of 10. Debased coinage. That was medieval government-induced inflation. President Biden does the same thing now by printing money not financed with taxes.
The government only gets to spend money from three sources. It can tax. It can go into debt and issue bonds or Treasury notes (government IOUs) and pay interest on those debt instruments. Or it can simply print or electronically generate money. When the first option is exercised, Americans (or at least those Americans who pay taxes) have less money to spend on other things, whether necessary, such as food, housing, and transportation, or frivolous, such as luxuries. When the second option is exercised, the government has to pay additional interest on the debt it has generated. The more debt, the more interest, just like a credit card. When the third option is exercised, the government causes inflation. The price of everything goes up.
This last option is, in effect, an indirect tax in one sense, because we all have to pay more for our goods and services. (Unlike a tax, however, while the government causes you to spend more money, the money does not go to the government.) We just pay more to the banker, the baker, the gas station, the utility, and anyone else we do business with. We might even blame them for the price increase when it was really the government which was responsible.
Progressive Democrat Joe Biden hit the trifecta. He did all three of these things. In his first months in office, he raised income and other taxes. He borrows more money than we could ever spend. And he simply opened the spigots of the Treasury and debased the coinage by printing trillions of dollars with no silver in them, thereby causing the price of everything to go up.
We can thank President Biden and Progressive Democrats for the highest inflation in 40 years!
When President Biden closes pipelines and wellheads, there are economic consequences. There is less gasoline, so the price goes up as people return to work, shop, and go on vacation. It is a government-induced scarcity of goods which results in higher prices, just as if farmers had less grain to sell for feed for cattle, hogs, and chickens. The same amount of money is chasing fewer goods. When Progressive Democrats spend huge amounts of money (numbers beginning with a “t”) without taxing to pay for it, the result is not getting something for free. The result is increased federal debt or inflation, because trillions of dollars are chasing the same amount of goods and services. President Biden has been in Washington since the 30s (his 30s, it just seems like the 1930s) but has not seemed to learn this yet.
What do you think is the fastest growing federal government expenditure? Defense Department? Medicare? Social security? These are all huge expenses, but the fastest growing expenditure of the federal budget is interest on the national debt. It is now the fourth largest expenditure overall. And that is not paying down the national debt. It is merely paying the interest on the national debt. How well would you be managing your household budget if the fourth largest and fastest growing part of your budget was paying, not your credit card bill, but the interest on your credit card debt?
What operates on a micro level also works on a macro level. We recognize that we are not really getting a free cup of coffee when we buy a breakfast. Either we or someone else is paying for it. Do we think government has some magic that makes its “free” things really free, without cost or consequence? If so, you are probably a Progressive Democrat, like President Biden and nearly all Washington, DC Democrats. But if you don’t really believe the ads, why would you believe Governor Beshear or President Biden or other Progressive Democrats?
The next time a politician claims something is free, figure out who will really pay for it.
If you think the federal government is spending too much money, increasing the national debt too much, causing too much inflation, and is giving away too many “free” things, you just might be a conservative.
© Peter Hill, 18 Feb 22