Feature Article: Every ‘free’ lunch has its unavoidable trade-offs

SOUTH Africa is the Garden of Eden, the land of milk and honey, a dreamland of free lunches. We enjoy free consumer protection, education, welfare, healthcare and services. We are promised lavish infrastructure, beneficiation and a healthy tobacco-free planet by 2040.

The Free Market Foundation is considering awarding doctorates in economics to people who spot the error. All they need to know and apply is one word, tanstaafl: the acronym for "there ain’t no such thing as a free lunch", coined by economists during the Great Depression to counteract the disastrous myth that government benefits are free. Even illustrious professors of economics have difficulty remembering something so elementary. That benefits have costs is the greatest insight of economics, superficially simple, hard to grasp, on a par with Charles Darwin’s evolution and Albert Einstein’s relativity.

That there are no benefits without disadvantages is close to impossible to internalise. I tried explaining tanstaafl to a very bright celebrity friend over a conspicuously far-from-free lunch and got short shrift for my pains. Do-gooders — pretty much all of us — babble forth like stuck records about what "they" should do without bothering to say at what cost or whose trade-off. Teachers should earn "decent salaries"; we need "more better paid police"; rhinos should be "better protected"; workers deserve "decent jobs"; we should "beneficiate minerals". Incidentally, most of what’s espoused is not "at taxpayer expense", a common misconception about public funds. When governments waste billions on such follies as South African Airways, or pay procurement premiums to favoured bidders, they don’t collect more tax; they divert resources from whatever else governments provide, usually services for "the poorest of the poor": the trade-off.

What the "no free lunch" axiom tells us is that there are always costs, including secondary "unintended" consequences. Instead of saying "they should fix potholes", add "by diverting resources from such-and-such". Never say mineworkers "deserve" more without adding how much more unemployment, destitution and indignity you want inflicted on job-seekers. Less executive pay means inferior management, job-hopping, brain drain and capital flight. The inconvenient truth of such lofty ideals as better government housing and services is worse schools, hospitals and presidential palaces for others. Talk is cheap; implementation is costly.

A recent foray into free-lunch fantasy land is the putative Consumer Protection Act, which curtails consumer freedom and imposes higher prices. It should be renamed the Consumer Obligation Act because that is what it does: obliges consumers to pay more, with no choice. The consumer pays — always. And, as always, it is the poor who carry the burden; the rich just pay anyway. Cheap products have been made illegal by a law that insists that every product now carries a warranty and the poorest consumers cannot find cheap (legal) goods to buy. It forces consumers to buy what parades as free. Consumers were always free to buy whatever protection they desired but are now forced surreptitiously to buy such luxuries as protection against defects and are denied the right to lower voetstoots prices. Being forced to buy superfluous guarantees has a disproportionate effect on the poorest in society. Obligatory warranties on used pumps for peasant farmers, or used stoves for a shack-dweller, are prohibitively expensive.

Before responding to Marikana by saying workers "deserve" more and executives less, we should identify and quantify trade-offs, which is hard. How many workers, how much more for each, how many mines and jobs will higher costs sacrifice, how many executives, how much less for each, what acumen and investment lost, how much less growth and prosperity? Since there are few managers and many workers, the high cost of "greater equality" for some is a negligible benefit for others. How much poorer will a little more for workers lucky enough to be employed make those without jobs? Should we divert resources from dying children, rape victims, dysfunctional courts, the arts, or from those presidential palaces?

Source: This article was first published in Business Day on 24 October 2012.This article may be republished without prior consent but with acknowledgement to the author.The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

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