This election you have a lot of people talking about “free” things. Free healthcare. Free college. Surely free food and clothing should be coming soon since they are basic human needs.
Really, however, it isn’t a matter of getting things for free versus needing to pay for them. It is a matter of control over the acquisition process.
You see, the government isn’t some huge pool of money that can magically acquire and distribute things. It is just a bunch of offices and buildings that direct the flow of things – mostly money. They do not actually make anything. They don’t provide healthcare. They don’t teach classes. They don’t grow food or make clothing.
They do have the ability to force people to give them a portion of their money, which they can then distribute to others so that they can buy things. The people who have money that they can take, however, are generally the same people who are making the things that people want. They could take money from a college professor, for example, that he was paid for his efforts in producing a class and a set of lecture notes. If they then take that money and give it to students who took his class, they have essentially made the professor give his class for free to those students. Because the professor needs to eat and have a roof over his head, if the money he makes is taken away too often, he’ll find other things to do rather than teach classes. He may even just decide to grow food for himself and spend his time building and maintaining his own shelter if taxes are too high. If you try to provide free stuff through high taxes, which is the same thing as requiring people to provide things for free or at least at a lower price than they are worth, all but the most noble people will stop providing the services.
So really what happens when you ask the government to provide something for you is that 1) you create the wealth needed for the things they are providing (by using your time producing useful things for others so that they are willing to provide the goods and services you are asking the government for), 2)you give the wealth you created to the government through your taxes, and 3) then the government decides how to acquire the thing for you, buys it (or hires a contractor to buy it), and then decides how to provide it to you (generally through you needing to fill out forms and jump through hoops). You do this rather than just buying the thing yourself.
The reason that I don’t like to have the government provide most things for me, particularly basic needs like food and healthcare, is threefold: 1)I lose the ability to choose what is provided, 2)it costs more, 3) there tends to be corruption.
1.Loss of Choice
If you go out and buy your own food or pay for your own college, you have the ability to choose what you want. If someone else buys these things for you, you rely upon them to listen to you to provide what you want. Because people in the government are far removed from the citizens (do you even know who to talk to about which college you would like to attend), it is very difficult to get them to hear and understand your needs, even if they have a desire to do so. Often people in such positions decide that since they have the power to do so, they’ll make the decisions on what you’ll get without any input. You’re probably seen as an annoyance to many of them. Even if you have input, because they need to provide things for so many different people, they can’t possibly customize for your particular needs. You therefore generally get “one-size-fits-all” solutions unless you have some special connections.
If you don’t like the choice provided, you need to find the money to pay for something else yourself. Because you’ve already paid the government to provide for the need, you end up paying twice. For example, most people will say that they can’t afford to send their children to private schools, but would if they had the choice. The amount they pay for public schools per child, however, is more than the tuition for many private schools. This means that many people send their children to public schools not because that is their choice but because the government is providing the schools “for free.” If the government were not providing the free school but provided the money instead, they would have more choices in schools.
2. Higher Costs
If you just go out and buy things, you only need to pay the person who created the goods and maybe a couple of middle-men who brought the item to market and placed it in a place where you could find it. If you add the government, you now add a whole layer of people who are not needed. It would be different if they actually produced the goods or at least brought them to market, but what they generally do is just hire a contractor to bring things to you and monitor and pay the contractor (with your money). These extra people and offices cost lots of money, which adds to the cost of things. Plus, because you are forced to pay their salaries and have no other choice, they have no need to be efficient, so they often are not. Ever go to the DMV and felt like your experience doing business with them was their primary concern? Ever go down to the DMV just for fun? Probably not, because they know you have no other choice.
These extra people and offices cost lots of money, which adds to the cost of things. Plus, because you are forced to pay their salaries and have no other choice, they have no need to be efficient, so they often are not. They have no reason to be efficient since they won’t lose their job if things cost more – they just ask for more tax money. In fact, they often spend a lot of time trying to protect themselves in case things go wrong, which adds to the cost. I would rather just buy from people directly and avoid these costs.
3. There is always corruption
Whenever you bring a lot of money into one place – for example, the money that people spend on healthcare – you’ll attract corrupt people. Creating power by forcing people to ask for things they need from a few people also attracts corrupt people. Having inefficient systems where you need to wait a long time to get things you really need also creates corruption as people bribe officials and use connections to get to the front of the line. I prefer to avoid central control since it always creates corruption It also provides incentives to make things less efficient since that leads to more bribes.
There are some things like national defense that you need to government to provide. There will be inefficiencies (as anyone who has ever been in the military will tell you), higher costs, and corruption, but in some cases you have little choice. Minimizing the amount of things that the government provides, however, is always the better choice, even if that means you’ll get less “free” stuff.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
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Follow on Twitter to get news about new articles. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
