A free lunch for you is a painful cost for someone else

by Dave

Special interest groups lobby politicians to receive benefits from the governmental treasury while diffusing costs on societies. Politicians are happy to comply since their elections and re-elections usually depend on funding from these groups.

In rich countries or regions, they can get away with economically unsound policies. (EU’s CAP) But, in countries like India and others in LatAm these types of policies have disastrous social consequences. In India, many farmers have access to free electricity. So, they leave irrigation pumps pumps on all the time draining the water table and depriving others in the same region of water.

Also, special interests like farmers can quickly rally their members say by blockading roads and driving their tractors around the state and country capitals if there is any hint of reducing subsidies to their cause. This makes for compelling TV and governments typically recant on any reduction or elimination of the subsidy. Fish do not vote for sushi bars.

This quote attributed to Alex Tytler is telling: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.”
Times Online

Children live in a fantastical world where Barbie dolls and trips to the zoo can be delivered without depriving their parents of something they might have enjoyed, such as a bottle of wine or a few extra hours off work.

Learning that cost-free transfers are impossible is an important part of growing up, and parents usually make sure it happens quickly. Most of us learn that there is no such thing as a free lunch long before we have ever picked up a bill.

Except when it comes to public policy. Encouraged by politicians, many adults indulge the infantile fantasy that the Government can bestow gifts on us while imposing costs on no one.

When it comes to bearing costs, there are no companies or markets or other aggregations of people. Costs are always borne by individuals.

Markets are another, increasingly popular, fantastical bearer of costs. The current financial crisis, we are told, was caused by “unfettered markets”. Fetter them! Alas, you cannot fetter a market. Markets are nothing but places (sometimes “virtual” places) where people enter into voluntary transactions. You can fetter a market only by fettering those who participate in it. You must dictate the terms on which they may do business with each other or conditions they must meet to participate in the market.

Market fetterists claim their shackles protect the vulnerable. That sounds plausible only if you ignore the effects on individual market participants. Complying with regulations imposes a fixed cost on businesses. It thus disadvantages small firms, creates a barrier to market entry and stifles the competition that delivers the best deal for consumers. In short, it shafts the little guy. That is why large incumbent firms lobby politicians to increase market regulation.

Markets and companies may be fashionable sources of economic and moral delusion but society is the perennial favourite. Its imagined godlike power as the provider relieves its secular supplicants of any shame. For example, no one believes that, just because they live next door, the neighbours owe them £70,000. But almost everyone believes that society owes their children an education, despite a state education costing £70,000 and society being nothing but a collection of neighbours.

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