Many people are familiar with the sentiment voiced by Milton Friedman that “There is no such thing as a free lunch.”  However, there is an endemic trend among federal, state, and local government entities to sell promises of a ‘free lunch’ to become elected and gain power.  The fundamental problem with this mathematical problem is that everybody cannot live at the expense of everybody else.

Consider that the government cannot create resources out of thin air.  The only way that a state entity can provide resources for you is to take them from somebody else.  This can be done overtly through taxes, it can be pushed to future generations with debt, or it can be done silently through printing money and causing inflation.  In addition to this, all government programs require overhead and management.  This means that the total amount redistributed is considerably less than the total amount that is extracted from the economy.  Simple arithmetic shows that one of two outcomes can result from this ‘devils bargain’ of buying votes with other people’s money.

The first outcome is where the costs of purchasing favor with the electorate are concentrated on a small segment of the population by assessing high tax rates.  This is necessarily the population segment that generates the highest economic output.  As the burden of taxes increase, the incentives to expand an invest decrease.  This frequently results in a slowing of economic growth as investment is suppressed at the margin because of a desire by investors to avoid burdensome taxes and regulation.  When economic growth slows or stops, it shrinks the tax base for government revenue and suppresses employment growth, thereby increasing the need for government services.

This phenomenon was written about by Ayn Rand in her novel “Atlas Shrugged” where the top producers of society “went on strike” against the government.

The second outcome is when the cost of purchasing favor is shifted to future generations through debt or extracted from the overall population through inflation.  In this scenario, the ‘free lunch’ being promised to the electorate is actually being paid for by the very people who are targeted by government programs in the first place.

Consider who will be impacted when the national debt grows so high that it forces up interest rates?  What will happen to the mortgage rates for the poor and middle class when interest rates spike upward?  Who will be pushed out of their homes into apartments?  What is really being accomplished by borrowing money to ‘help’ these people with government programs?

Consider what will happen when the purchasing power of the US dollar falls by 10%+ per year?  What will happen to the working class families that are dependent on the wages of a primary income earner?  What will happen to the retiree who is living on a fixed-income pension?  What will happen to people who depend on government assistance to take care of their families?  How much will these people be helped when the government devalues the currency to finance its spending obligations?

In the end, the only person whom you can completely trust to take care of you is you.  It is certainly possible that people will help along the way.  It is also possible that some of these people may be politicians, but honestly ask yourself who the politicians will take care of first . . . themselves or you?  If politicians are more likely to take care of themselves first and are extracting your wealth to fund their initiatives, how much do you think will be left over to fund programs that you benefit from?