Let’s face it. Everyone likes “free” stuff. But an important question is: Are there hidden costs lurking below the surface? The Titanic was said to be unsinkable. Until it met the disemboweling ice below the waves.
I speak here of the $3.5- to $5-trillion government “human infrastructure” bill currently before Congress. Put to one side the first Congressional bill, aimed in part on building and fixing roads, bridges, seaports and airports. Those types of capital improvements (physical structures) help move people and products more efficiently to their destination. Tools that can foster future economic growth, creating jobs and opportunities for Americans.
Let’s focus on the second, the social welfare bill. It has some good. We all want to help neighbors and stretch safety nets. But that’s a lot of money! Where will it come from? To sell this package, the Washington players say “don’t worry” there are no real costs, because it will be “paid for” by other provisions in the 10,000-page bill. You know, tax those slacker rich guys and big corporations. None of you little guys making less than $400,000 will be taxed. Really?
Does that mean it is essentially cost-free? Don’t believe it? Look, for example, at the “economic tax” imposed by Covid supply disruptions.
Have you been to the store lately or filled up your car with gas? Inflation has already begun to land. The $5 slab of bacon costs $10, the package of ground beef is priced like filet mignon, and your gas tank drank an extra $8 this week. Watch out for those growing utility bills and house prices.
Why is that? Basic economics.
Inflation is an indirect tax. It hits everyone regardless of income. In a world of limited dollars, a dollar spent to increase productivity tends to reduce costs over time. That’s the nature of investment. Money just handed out under expanded, well-meaning programs may juice consumer spending for a while, but it detracts from overall productivity over time. Stuff costs more. Your raise (or higher minimum wage) gets eaten up by higher bills. And, if the government just prints more money, it devalues. Eventually, a bushel basket full buys only a loaf of bread.
Think about it. If X Company pays out more of its revenue to the tax collector (to pay for all this free stuff), it has less money to raise wages, hire additional workers or invest in that more efficient machine or building. In a world of competitive pricing, stuff coming from other, lower-cost countries ultimately ends up in shopping carts. You do it every day. Some guy or gal in Bangladesh or Vietnam made the clothes on your back. You may drive a foreign car – one not carrying expensive “legacy” costs. Local jobs and businesses suffer. Some will retreat overseas to lower expenses to remain competitive. And, if a “generous” government just keeps printing money to fund an over-broad wish list, dollars will buy less.
Be wary of the iceberg. The true danger may be lurking under the surface.
Nick Della Volpe is a lawyer, a gardener and a former member of Knoxville City Council.