The basic truths about free money

Aaaaargh. Someone just brought in a lavish welfare policy that cost way more than expected and people are stroking their long grey beards and wondering how it could have happened. Allow me to explain … again: if you build it they will come.

I worry a great deal that it is still necessary to make this point. Partly I worry about government finances after a half-century of the full-blown welfare state that has consistently cost way more than was projected under the bizarre assumption that changing incentives drastically would not change behaviour much.

Seriously. Why do you think the United States runs deficits totalling hundreds of billions in a good year? Defence? Hoo hah. It’s the social programs. Social Security, socialized medicine and so on cost Washington about $2 trillion a year.

It certainly isn’t defence putting Queen’s Park so deeply in hock. Or the federal government, currently spending under 0.9 per cent of GDP on the military. Nor is it gold-plated paper clips. It’s the social programs. Everywhere.

So I mostly worry that we seem wilfully unable to grasp why it happens. In part it’s a competitive auction to buy votes. But mostly the bill is always higher than expected because, please try to follow me here all you intellectuals and bureaucratic high flyers, if you pay people to do something, more will do it than if it you don’t. And the more you pay, the more they will do it.

Can there be a person alive who does not grasp this truth in principle? Not even the NDP, which toward year-end routinely urges me to contribute now and take advantage of tax credits. But is there a person alive who grasps it in practice when the issue is, say, making EI more generous?

Apparently not. Instead we don a thick cement helmet, forget everything we ever knew about EI fostering dependency in Atlantic Canada from the moment the other Trudeau Liberals turned on the money tap, and relax the eligibility rules. benefits. And no, it’s not the Atlantic provinces; it was a program to prevent labour market adjustments to low energy prices in Ontario and the West. I guess it worked. Depending on your goal.

The Post, reporting this dismaying result, quoted a professor that “labour markets evolved in a way that was weaker than expected.” I say the social program evolved in ways that were more robust than expected. But why was it not expected?

Can anybody name one social program that didn’t explode like this or, if you like intergenerational dependence on government, blossom? Under Lyndon Johnson’s “Great Society,” for instance, Medicare was projected to cost $3.2 billion a year. It cost $4.2 billion the first year, 1965, and $7.1 billion by 1970. By 2015 it was $646.2 billion, more by itself than defence.

Under some circumstances such costs might be defensible. But failing to foresee them is not. So reading such stories I am reduced to hoping, as with rent control in Ontario, that the people in charge are cynics not fools, grasping the economic harm involved but gambling that public ignorance or cupidity will make it a political winner.

The alternative is that they are too stupid to understand basic truths. In which case, winning the battle of ideas is an empty victory.

Conservatives surely did on economics in most respects 30 years ago, on everything from deficits to complicated tax codes to, yes, rent control. We didn’t on social policy, partly by default. I claim we mostly did on security when Reagan, instead of starting the Third World War, stood smirking as the Soviet Union collapsed in a heap of contaminated rust. But we clearly did on economics.

Who by the late 1980s did not proclaim themselves socially liberal but fiscally conservative? Yet today, I see little evidence that this victory mattered. Across the board, actual policy is hardly better than when sideburns and big glasses were sexy. Thinking about it is worse.

We dramatically increase the rewards of not working and reel back stunned as the program cost shoots up. We have not merely failed to learn. We seem unteachable even in the school of hard knocks that just wrote a big F on the Liberals’ latest plan in red ink.