Skip to main content

Hats off to economists Steve H. Hanke and Stephen J.K. Walters for a brilliant op-ed in the Wall Street Journal on the true cost of "free" government programs.

Lying Prices Keep America Hooked on Spendingby Hanke and Walters

This is written in guest post format, but it is an excerpt.

When politicians hide the cost of government, ‘free college’ and ‘Medicare for all’ sound like bargains.

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%.

It is foolish to hope that the Democratic Party will join in reversing this trend any time soon. As it has moved left, it has embraced ever more deceptive prices for reforms to government services, labor (Fight for $15!), health care, higher ed, housing and much else.

This is a cynical strategy, and it creates a dangerous political feedback loop. First, progressive thinking leads to bigger, debt-financed government. But debt-financed government, and the lying prices it embodies, also can lead to more progressive thinking. Absent honest signals about government’s full costs, more voters are likely to shrug and assume it’s a good buy.

The late economist William Niskanen documented the relationship between deficits and spending, showing that attempts to “starve the beast” of big government via tax cuts don’t work: As tax receipts decrease, spending rises. In his words, “a tolerance for deficits leads to increased government spending.” Polls confirm this trend. Since 2011 the proportion of voters who worry “a great deal” about federal spending and deficits has fallen from 64% to 51%, while the national debt has risen 45%.

Before such tolerance for debt and a concomitant fondness for “freebies” afflicts a majority of the electorate, it would be wise for the party of Lincoln to seize the political, fiscal and moral high ground, steer clear of lying prices, and rebrand: Goodbye, Grand Old Party, and hello “Honest Abe Party.” Attempting to out-lie the Democrats is, in the long run, unlikely to be successful politically, and certain to be disastrous economically.

Steve H. Hanke and Stephen J.K. Walters

Mr. Hanke is a professor of applied economics at the Johns Hopkins University. Mr. Walters is a professor of economics at Loyola University Maryland.

Scroll to Continue


Mish Comments - Easy to Believe Lies

Socialists spout too good to be true nonsense. People believe economic nonsense for one simple reason: It is precisely what they want to believe.

The ideas get loonier and loonier. For example, ponder the Green New Deal by newly elected progressive illiterate Alexandria Ocasio-Cortez.

The radical plan would force families to pay more to heat, cool and provide electricity to their homes. It would raise the same costs for businesses, farmers, government and organizations, driving up their operating costs – and raising the prices for just about all the good and services Americans buy.

Under the Green New Deal, Americans would have to power their homes with renewable energy, such as wind and solar power. Every home and business in the United States would have to be “upgraded” for “state-of-the-art energy efficiency, comfort and safety.” And a slew of massive government social programs and mandates would be created.

Although no one knows exactly how much the Green New Deal would cost, a very conservative estimate is $40 trillion in its first 10 to 15 years. The Mercatus Center estimates the single-payer health-care proposal supported by Ocasio-Cortez would, on its own, cost more than $32 trillion.

Ocasio-Cortez has suggested one way to pay for these gigantic government programs would be to increase the income tax rate for America’s wealthiest earners as high as 70 percent, but even that radical move would fail to fund the Green New Deal.

Estimate vs Reality

The cost estimate to "save the planet" is $1 trillion. The reality is something like $40 trillion. Yet the Green New Deal has garnered significant attention and support from some members of the media, Congress, and even prominent senators considering 2020 presidential runs: Cory Booker, D-N.J.; Bernie Sanders, I-Vt.; and Elizabeth Warren, D-Mass.

This is precisely the kind of too good to be true nonsense that people want to believe. The message is powerful. We need to "save the planet".

The idea is so absurd that even Pelosi can't stand it. She put it on the back burner. But there is really only one reason Pelosi did so.

The plan is so idiotic that any Democrat running for president on that platform would lose.

Mike "Mish" Shedlock