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The Cost of “Free”

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Dan Bongino

Dan Bongino

The following was taken from the Facebook wall of Dan Bongino, a former United States Secret Service agent who was the Republican Party nominee for Maryland’s 6th Congressional District in the 2014 elections to the U.S. House of Representatives.  We all know nothing is ever really free.  These posed questions are a great starting point to discuss what happens when government decides to be “generous”.

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The President, and the congressional Democrats, keep referring to products and services that should be “free” for us. Their latest “free” offer is free community-college. Community-college joins “free” healthcare, sick leave, and energy, as a new entrant to the hit parade of products and services that liberalism has made the costs of, magically disappear. Of course that is not the case and the costs of these products haven’t gone anywhere.

As a young adult I developed a passion for economics. I could never quite understand why extremely smart people, with legions of advanced degrees, couldn’t agree on what sound economics policy was, so I dove into the books and haven’t stopped since. While I won’t bore you with unnecessary details, I wanted to take a moment to describe why personal economic decisions, made by you, will almost always be superior to economic decisions made for you, by government bureaucrats.

Here are just some of the variables that are crucial to efficient decision-making and why governments consistently fail on the policy front:

1) Who is making the decisions?
This is the simplest variable to comprehend, yet it frequently perplexes liberal economists. People who spend money, which they have worked to acquire, have a vested interest in making wise spending decisions and should be the ones who feel the consequences of poor decision-making. Rewarding or punishing others, for the decisions of individuals, is a senseless exercise that teaches people how to manipulate the system rather than to engage in better decision-making.

2) Is the money traveling through a bureaucracy?
When money is taken from you, in the form of taxes, and spent on you, to acquire the very same product or service that you could have bought yourself, much is lost. The dollar you spend on yourself, or your family, is a dollar. The dollar taken from you, and spent on you, is not a dollar, it is about 60 cents. As your dollar passes from you, through the government bureaucracy, and back to you in the form of a service or product, about 40 cents of it is lost due to the cost of the government bureaucracy at each level.

3) What are the incentives for you?
When “free” products or services are provided to you by government, there is no incentive for you to care about the cost of the product or service because the amount you have paid for it through taxes is typically a minuscule portion. It is not a coincidence that these types of services, with heavy government-involvement, are also those whose costs are spiraling out-of-control (i.e. student loans and healthcare).

4) What are the incentives for the product or service provider?
When product or service providers are paid for their services, not by you, but by the government, the government is their master, not you. Again, it is no coincidence that you are more than 90% more likely to die after surgery as a Medicaid recipient than someone who utilizes private insurance. Another unfortunate side effect of government as a third-party payer is the massive growth of administrative budgets for the product or service providers, as they must bring on new staff to comply with the government regulations.

5) What are the incentives for the government?
The government officials primary concern is reelection. Bottom-line is that they will lie to your face about the costs of a new program if they think that a) you are not paying attention b) you believe their nonsense c) it doesn’t negatively impact their donors.

6) Who has the appropriate information necessary to make the decision?
Finally, this variable is extremely important. The information we need to make smart decisions with our money is not available to government. Government officials have no idea how hard you have worked for your money, how much, or how little, you are willing to pay for that hip-replacement surgery or, how much that new car or college education means to you. This information is available in a free market because all of our information is signaled publicly in the form of prices. When prices go up, it signals producers to make more because the product or service is desired or is in short-supply. And when prices go down, it signals that this product or service is in abundance or is not as appealing as planned or designed.

This is obviously not meant to be a graduate level thesis, or to insult your intelligence, but to explain some rather simple, common-sense principles of resource allocation that demonstrate just how ridiculous some of these politicians sound when they offer you “free” stuff. As P.J. O’Rourke once said, “If you think health care is expensive now, wait until you see what it costs when it’s free.”
-Dan

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