The Price of Free

Both political parties are trying to bribe voters with “free” things. There’s Medicare for all. There’s free education and free housing, to name but a few items. We won’t consider how things can go from costing something to being free with the wave of a politician’s hand. Let’s just say that politicians have the power to transfer the cost of medical care, college education, and housing to the government’s pockets instead of the users’ pockets. In other words, the cost is merely transferred from the users to the taxpayers. It’s not really free.

Okay, now the question becomes a matter of paying for these items by the taxpayers. First of all, the money that is currently being raised through taxes is not enough to cover the existing government expenses, let alone additional items. Furthermore, raising taxes on the rich (or everyone for that matter) would not be enough to cover existing debts either. Even if you confiscated all the “wealth” of everyone in the United States, it would not be enough to cover all the U.S. Government’s debts and contingent liabilities. Therefore, we must look elsewhere for the funds.

Perhaps the U.S. Government could borrow the funds from taxpayers, or foreign governments, or foreign investors. But wait a minute, interest rates are at an all-time low with many loans being issued at negative interest rates. If the U.S. Government (the world’s biggest debtor) were to enter the market with additional needs, they might not find the money they need. In fact, China and other large creditors have stopped purchasing U.S. Government debt obligations. Let’s look elsewhere.

Because the U.S. Dollar is the world’s reserve currency, the U.S. Government can get away with things that other countries can’t. For example, if the U.S. Treasury wants more money to fight a war, or give free things to U.S. Citizens, it can simply print more money. Of course it has to jump through one hoop and that is to have the Federal Reserve Bank (the U.S. Central bank, also known as the Fed) issue the money in return for government bonds. While this loads up the Fed’s balance sheet with more debt instruments, the government gets the money it wants for whatever it wants. Sounds great so far. The only problem is that in the long run, printing more money makes each currency unit worth less until one day, the people lose faith in the government’s ability to maintain the value of that money and they find something else to use instead. To see how that works, look at what’s happening in Venezuela and what happened not long ago in Zimbabwe.

When the people lose faith in their currency they either riot in the streets and break stuff, or they get to work and rebuild the broken system with something better. Let’s see what U.S. Citizens do when they realize that things aren’t really “free.”

Robert F. Sennholz

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