Social Services and the Free Lunch Fallacy

Americans love fine-sounding expensive social welfare programs. In New York City, where I live, it is almost axiomatic that government should build ever more affordable housing, force "greedy" landlords to subsidize tenants, supply shelters for the homeless and just about any nostrum that would somehow "help" the needy. Such addiction is even worse nationally where the public clamors for "free" medical care, non-stop "investing" in children, and guaranteeing millions of children free meals no matter how obese. Economists insist that there's no free lunch but don't broach that unpleasant reality to millions of American parents.

The key to understanding this rapacious appetite is the public imperviousness to costs. It is not that Americans cannot grasp costs. Millions do it every day -- a shopper knows that a half gallon of 2% milk for $1.99 is a bargain but he is unlikely to buy ten gallons regardless of the deal. Splurging on the cheap milk means less money left over for other groceries, consuming ten gallons may take months and thereby risks spoilage, and ten containers will fill the entire refrigerator while transporting all them home may be difficult.

To illustrate this dangerous disconnect between ordinary consumer behavior and cravings for government benefits consider one popular proposal that infused New York City's recent mayoral election: universal "free" pre-kindergarten care to every New York City youngster. It was the signature proposal endorsed by the progressive and landslide winner Bill de Blasio, who plans to fund it by raising taxes on the rich. Not to be outdone, his supposedly tight-fisted GOP rival likewise backed it, but insisted that he would enact the program without a tax hike. End of debate.

According to de Blasio, the cost would "only" be around $530 million for the city's 68,000 low income children, but increased taxes aside, "This is a prerequisite today to the kind of education that can succeed in the modern economy." And if that is not sufficiently persuasive, universal pre-school is, supposedly, a quick antidote to inequality.

Tellingly, dishonesty existed from the get-go. As mayor, de Blasio cannot unilaterally raise the necessary taxes. Only the state has this power, and the consensus is that the state will not acquiesce, especially given the need to stop wealthy tax-payers from fleeing New York to lower tax Connecticut or Florida. Mr. de Blasio also grievously misrepresented his solution. It is not "universal" pre-school; only the poor would benefit, and most are already in such programs either full or part-time, and at a cost one-third what de Blasio wants to spend.  Nor is it simple to entice all those eligible to enroll in this educational crusade to end inequality (recall Washington's failed effort to supply "free" after school tutoring). The city's Department of Education has long tried to attract youngsters to its pre-school programs with limited success and many parents undoubtedly prefer more convenient but less visible childcare with nearby babysitters or local churches.

Moreover, the record of past over-runs suggests that even de Blasio's extravagant cost estimates may be deceptive. Obama's vision of 'quality" pre-school will be paramount and this means money for additional training and, inescapably, more bureaucracy. Most of all, this is mission impossible: the overwhelming evidence from programs like Head Start is that they don't work, but in today's upside down world, failure only encourages yet more spending.

More generally, the public's inability to price unfamiliar but alluring goodies is breathtaking and, here's the important point, the addiction is incurable. Numbers like a $100 million, let alone half a billion may be incomprehensible. It is as if people have two brains -- a smart one for everyday shopping and stupid one for grasping hugely expensive promised government miracles.

To demonstrate this reality, I conducted a national survey in 2000 asking about President Clinton's proposal for Washington to fund hiring of 100,000 new teachers to reduce class size. Predictably, everybody loved the idea. The Clinton administration put the price tag at $20.8 billion for reducing class size, though $20. 8 billion was undoubtedly on the low side.

Seldom do polls soliciting views of these "good ideas" ask what respondents think it will cost. I did and respondents nearly all grievously under-estimated cost (18% could not even hazard a guess). The vast majority said "a billion or less" and virtually nobody got the supposed correct answer (minimally $20.8 billion). A mere 5% got it half correct -- $10 billion -- but almost nobody came even close. Total ignorance of cost was equally true for supporters and opponents of the hiring proposal.    

Worse, I asked respondents to think of any non-financial cost of Washington subsidizing 100,000 new teachers and half of all respondents could not think of a single downside. At best, when prodded between a quarter and a third of all respondents could think of some down side, liabilities like aggrandizing Washington's control over education or increasing union power. That smaller classes meant hiring more inexperienced teachers and building more schools seemed beyond respondents.

This thirst for yet more government benefits is easy to grasp. Why not? Nobody has to click "proceed to check-out" and hardly anybody could autonomously establish cost or envision non-financial liabilities. And why should disconcerting scientific evidence stand in the way of helping people (see here for example)?  In my study respondents also struggled when asked about trade-offs between this goodie and alternative uses of the same money (including cutting taxes). No wonder government endlessly expands -- that's what people say they want, and isn't democracy about acquiescing to their longings?  

The bad news is that any candidate rejecting these alluring programs invites being labeled a scrooge, mean-spirited and, worse of all, impervious to the democratic voice of the people. Just look at the current demonization of small government Tea Party folk. That these demands, despite their compassion, are a recipe for ruin matters not.  No wonder that elections typically resemble a pandering competition -- nobody knows the real costs, "somebody else pays," downsides are never mentioned, everything works as promised and everybody will live happily ever afterward. Indeed, a recent New York Times story deceptively headlined "Under Health Care Act, Millions Eligible for Free Policies" as if this tax-funded gift were cost-free. What about a more honest, "Millions will get health care paid for by others"?

Can the American public be weaned from these unhealthy appetites before it's too late?  Probably not -- self restraint is impossible when you can freely borrow or print up money. In fact, President Obama just reiterated his infatuation with doomed-to-fail "high quality" pre-school programs (another $75 million this time), a sure sign that he suffers a learning disorder. This unpleasant addictive reality acknowledged, the only safe solution is recourse to institutionalized impediments to public rapaciousness, the equivalent of putting super-glue in the printing presses. The Founders recognized this addiction and so rather than complain that something is broken in Washington, let's celebrate gridlock, obstruction and all the other mechanisms to impede our collective desire to "do good."

Americans love fine-sounding expensive social welfare programs. In New York City, where I live, it is almost axiomatic that government should build ever more affordable housing, force "greedy" landlords to subsidize tenants, supply shelters for the homeless and just about any nostrum that would somehow "help" the needy. Such addiction is even worse nationally where the public clamors for "free" medical care, non-stop "investing" in children, and guaranteeing millions of children free meals no matter how obese. Economists insist that there's no free lunch but don't broach that unpleasant reality to millions of American parents.

The key to understanding this rapacious appetite is the public imperviousness to costs. It is not that Americans cannot grasp costs. Millions do it every day -- a shopper knows that a half gallon of 2% milk for $1.99 is a bargain but he is unlikely to buy ten gallons regardless of the deal. Splurging on the cheap milk means less money left over for other groceries, consuming ten gallons may take months and thereby risks spoilage, and ten containers will fill the entire refrigerator while transporting all them home may be difficult.

To illustrate this dangerous disconnect between ordinary consumer behavior and cravings for government benefits consider one popular proposal that infused New York City's recent mayoral election: universal "free" pre-kindergarten care to every New York City youngster. It was the signature proposal endorsed by the progressive and landslide winner Bill de Blasio, who plans to fund it by raising taxes on the rich. Not to be outdone, his supposedly tight-fisted GOP rival likewise backed it, but insisted that he would enact the program without a tax hike. End of debate.

According to de Blasio, the cost would "only" be around $530 million for the city's 68,000 low income children, but increased taxes aside, "This is a prerequisite today to the kind of education that can succeed in the modern economy." And if that is not sufficiently persuasive, universal pre-school is, supposedly, a quick antidote to inequality.

Tellingly, dishonesty existed from the get-go. As mayor, de Blasio cannot unilaterally raise the necessary taxes. Only the state has this power, and the consensus is that the state will not acquiesce, especially given the need to stop wealthy tax-payers from fleeing New York to lower tax Connecticut or Florida. Mr. de Blasio also grievously misrepresented his solution. It is not "universal" pre-school; only the poor would benefit, and most are already in such programs either full or part-time, and at a cost one-third what de Blasio wants to spend.  Nor is it simple to entice all those eligible to enroll in this educational crusade to end inequality (recall Washington's failed effort to supply "free" after school tutoring). The city's Department of Education has long tried to attract youngsters to its pre-school programs with limited success and many parents undoubtedly prefer more convenient but less visible childcare with nearby babysitters or local churches.

Moreover, the record of past over-runs suggests that even de Blasio's extravagant cost estimates may be deceptive. Obama's vision of 'quality" pre-school will be paramount and this means money for additional training and, inescapably, more bureaucracy. Most of all, this is mission impossible: the overwhelming evidence from programs like Head Start is that they don't work, but in today's upside down world, failure only encourages yet more spending.

More generally, the public's inability to price unfamiliar but alluring goodies is breathtaking and, here's the important point, the addiction is incurable. Numbers like a $100 million, let alone half a billion may be incomprehensible. It is as if people have two brains -- a smart one for everyday shopping and stupid one for grasping hugely expensive promised government miracles.

To demonstrate this reality, I conducted a national survey in 2000 asking about President Clinton's proposal for Washington to fund hiring of 100,000 new teachers to reduce class size. Predictably, everybody loved the idea. The Clinton administration put the price tag at $20.8 billion for reducing class size, though $20. 8 billion was undoubtedly on the low side.

Seldom do polls soliciting views of these "good ideas" ask what respondents think it will cost. I did and respondents nearly all grievously under-estimated cost (18% could not even hazard a guess). The vast majority said "a billion or less" and virtually nobody got the supposed correct answer (minimally $20.8 billion). A mere 5% got it half correct -- $10 billion -- but almost nobody came even close. Total ignorance of cost was equally true for supporters and opponents of the hiring proposal.    

Worse, I asked respondents to think of any non-financial cost of Washington subsidizing 100,000 new teachers and half of all respondents could not think of a single downside. At best, when prodded between a quarter and a third of all respondents could think of some down side, liabilities like aggrandizing Washington's control over education or increasing union power. That smaller classes meant hiring more inexperienced teachers and building more schools seemed beyond respondents.

This thirst for yet more government benefits is easy to grasp. Why not? Nobody has to click "proceed to check-out" and hardly anybody could autonomously establish cost or envision non-financial liabilities. And why should disconcerting scientific evidence stand in the way of helping people (see here for example)?  In my study respondents also struggled when asked about trade-offs between this goodie and alternative uses of the same money (including cutting taxes). No wonder government endlessly expands -- that's what people say they want, and isn't democracy about acquiescing to their longings?  

The bad news is that any candidate rejecting these alluring programs invites being labeled a scrooge, mean-spirited and, worse of all, impervious to the democratic voice of the people. Just look at the current demonization of small government Tea Party folk. That these demands, despite their compassion, are a recipe for ruin matters not.  No wonder that elections typically resemble a pandering competition -- nobody knows the real costs, "somebody else pays," downsides are never mentioned, everything works as promised and everybody will live happily ever afterward. Indeed, a recent New York Times story deceptively headlined "Under Health Care Act, Millions Eligible for Free Policies" as if this tax-funded gift were cost-free. What about a more honest, "Millions will get health care paid for by others"?

Can the American public be weaned from these unhealthy appetites before it's too late?  Probably not -- self restraint is impossible when you can freely borrow or print up money. In fact, President Obama just reiterated his infatuation with doomed-to-fail "high quality" pre-school programs (another $75 million this time), a sure sign that he suffers a learning disorder. This unpleasant addictive reality acknowledged, the only safe solution is recourse to institutionalized impediments to public rapaciousness, the equivalent of putting super-glue in the printing presses. The Founders recognized this addiction and so rather than complain that something is broken in Washington, let's celebrate gridlock, obstruction and all the other mechanisms to impede our collective desire to "do good."