It’s alarming how the following article written by Steve H. Hanke and Stephen J.K. Walters that appeared in the January 8, 2019, print edition of The Wall Street Journal is as relevant today as it was at the time of publication:
“When politicians hide the cost of government, ‘free college’ and ‘Medicare for all’ sound like bargains.”
“Margaret Thatcher famously said the problem with socialism is that you “always run out of other people’s money.” The trouble with resisting socialism is that until the money runs out, free-spending progressive policies are remarkably seductive. Their appeal comes from what economists call lying prices: advertised prices that don’t reflect the full cost of what you’re buying.
When prices lie, people make bad choices—especially when they think something is free. Take rush-hour commutes. We jump in our cars hoping for a quick trip only to find the streets clogged; with access priced at zero, demand exceeds supply. Absent a price signal to encourage carpooling or other alternatives, we creep, beep and waste huge amounts of time and fuel. Transportation consulting firm Inrix tallied up the cost of this waste in a study last year, calculating that $305 billion of value was burned in traffic across the U.S. in 2016, with the typical Los Angeleno wasting more than $2,800
For many politicians, lying prices are actually a goal. Policies that set dishonest prices or fudge budgets can fuel the growth of government and lure voters leftward. Sen. Bernie Sanders and his socialist followers use such sleight of hand to obscure the vast costs of proposals for “free college” and “Medicare for all.”
Recent history demonstrates that the price of each new government program rarely tells the whole story. In the past decade taxpayers were charged $27.2 trillion for federal services that cost $35.6 trillion, adding more than $9 trillion to the national debt. Our tax bills told us that Uncle Sam’s good works were about 26% cheaper than their real cost.
And Sam’s nose is growing thanks to rising deficit projections and the unfunded future costs of entitlements like Social Security and Medicare. Official projections put the present value of these two unfunded liabilities at $50 trillion over the next 75 years. Boston University economist Laurence Kotlikoff calculates that the total U.S. fiscal gap is more than four times that amount and that closing it would require a tax hike of more than 60%.
Many Americans pay a minimal share of even the apparent cost of government, so it’s no surprise that socialist ideas are becoming more popular. Big government looks like a bargain.
Escalating debt will bring predictable consequences, which include crushing interest payments that crowd out other spending and misallocation of capital, which saps productivity. Yet most politicians continue to put voters at ease by advertising lying prices for
current and future spending. Even many Republicans seem content to pile on debt and spend their children’s money. How’s that for “taxation without representation”?
Is there a way out of this moral and fiscal quagmire? In the 1980s Milton Friedman championed a balanced-budget amendment to the Constitution. One version passed overwhelmingly in the Senate in 1982 but failed to secure the necessary two-thirds majority
in the House. That was as close as Friedman’s dream would get to reality. Economists John Merrifield and Barry Poulson have called for a limited constitutional convention to propose a
balanced-budget amendment. Twenty-eight states have standing calls for such a convention —six shy of the needed 34.
In the past decade taxpayers were charged $27.2 trillion for federal services that cost $35.6 trillion, adding more than $9 trillion to the national debt. Our tax bills told us that Uncle Sam’s good works were about 26% cheaper than their real cost.
And Sam’s nose is growing thanks to rising deficit projections and the unfunded future costs of entitlements like Social Security and Medicare. Official projections put the present value of
these two unfunded liabilities at $50 trillion over the next 75 years. Boston University economist Laurence Kotlikoff calculates that the total U.S. fiscal gap is more than four times that amount and that closing it would require a tax hike of more than 60%.
Many Americans pay a minimal share of even the apparent cost of government, so it’s no surprise that socialist ideas are becoming more popular. Big government looks like a bargain.
Escalating debt will bring predictable consequences, which include crushing interest payments that crowd out other spending and misallocation of capital, which saps productivity. Yet most politicians continue to put voters at ease by advertising lying prices for
current and future spending. Even many Republicans seem content to pile on debt and spend their children’s money. How’s that for “taxation without representation”?
Is there a way out of this moral and fiscal quagmire? In the 1980s Milton Friedman championed a balanced-budget amendment to the Constitution. One version passed overwhelmingly in the Senate in 1982 but failed to secure the necessary two-thirds majority
in the House. That was as close as Friedman’s dream would get to reality. Economists John Merrifield and Barry Poulson have called for a limited constitutional convention to propose a
balanced-budget amendment. Twenty-eight states have standing calls for such a convention —six shy of the needed 34*.
It’s tempting to think that such an amendment would make an honest republic of us and deprive the spreading socialist grass fire of oxygen. Politicians seeking Medicare for all, free college, subsidized housing and guaranteed jobs would be forced to convince taxpayers to pony up $40 trillion according to the Center on Budget and Policy Priorities. Good luck with that. “Free” sells itself, but honest prices get a hard look.
Notes:
Dr. Barry Poulson and Professor Steve Hanke are members of the Federal Fiscal Sustainability Board
Recent research of applications submitted to Congress may prove that the 34-state requirement has been achieved.