All Commentary
Monday, July 1, 1974

There’s No Such Thing as a Free Lunch

Dr. Earl L. Butz is Secretary of Agriculture of the United States. This article is reprinted by permission from the March 1974 issue of The American Farmer. Copyright American Farm Bureau Federation, 1974. All rights reserved.

In the old days the king called in his three wise men to tell them he’d become interested in economics. “But,” he said, “it sounds confusing and complicated. I want you to go out and boil it down for me in a way that I can understand.”

Nine months later they came back and reported they had completed the job. They said they had condensed all of economics into a single book of 200 pages. The king said, “That’s too long. I don’t have time to read that much.”

He had the chairman beheaded, and told the other two: “Now I want it boiled down.”

They came back in 30 days and said they had economics boiled down into a single chapter of 20 pages. The king said, “That’s too long. I don’t have time for it.” He had the chairman beheaded, and turned to the remaining wise man: “You know your job. Now, boil it down.”

“Yes sir, Mr. King!”

This wise man came back in three days: “Mr. King, I think I have it. I have boiled down the entire subject of economics into a single sentence of eight words.”

The king said, “That’s fine. I have time for that. What is it?” “There’s no such thing as a free lunch.”

I tell that story because I think those eight words sum it up pretty well. Economics is a description of what you and I, and others like us, do in order to get our share of the things that are in the real life around us.

Unfortunately, there are a lot of people around — you know them and I know them — who think that there is such a thing as a free lunch.

Take the role of the Federal government — Uncle Sam, if you will. Some people look on him as a kind, benevolent old gentleman who hands out free gifts. They look on him as a child might look at a grandfather.

Take most any state or local project. If there’s work or money involved, it’s easy to say: “Let’s have the Federal government do it.” You see this happening all the time. Maybe it’s a new courthouse in the county seat, or a sewage plant, or just one of many things: “Let Washington do it.”

There’s only one way the government can do anything — that’s with your money. The government is not a form of voluntary giving; it is a form of compulsory giving. You lose your home or your land if you don’t pay your taxes. There’s nothing benevolent about old Uncle Sam when it comes to you paying the tax bill. There’s no such thing as a free lunch.

The next time you see a headline saying that the Congress has voted a $1 billion project, just figure that on the average this is about $5 out of your pocket and out of the pocket of every other member of your family.

“But,” somebody says, “we’re just talking about our own little community project. If we don’t get that Federal money, somebody else will use the money. This project costs only a few thousand dollars. That’s a drop in the bucket compared with what the Federal government spends on other things.” You’ve heard that, or something like that, many times, I’m sure.

Fact is, most everything the government does is, of itself, a drop in the bucket. However, when you add up all the little drops, it makes quite a bucketful. And the bucket is spilling over.

We’re already spending about 34 per cent of our gross national product for government — Federal, state or local. That means that we have given to the government one-third of the decision-making power over how our money is spent.

A Drop at a Time Builds to a Flood

There are many things that we want and need to have the government do. The problem develops when it seems so painless and easy to add “just one more.” That’s how we got the 34 per cent — by adding “just one more.” We have direct control over the dollars that we spend individually; however, we lose direct control over our dollars when we pay them out as taxes. The control then becomes diffused and political and hard for any one of us as an individual to do very much about.

If you don’t think so, pick up the newspaper almost any day. Chances are you can read one to several stories about this or that proposal to launch a government project of some kind. Each one is a proposal to spend more of your money. Some are worthy causes, but how much “say” do you have in deciding whether you want to pay more for each of these projects?

The farther away from your local government the decision gets, the harder it is for you to exercise control. That’s why the Federal budget has been balanced only 4 of the past 20 years. That’s why inflation is eating us up. That’s why we ought to reverse the trend in this country and return more government to local decision-making. That’s why we should ask about every public project, “Is it worth what it costs if we had to pay for it directly?”

Even then there are problems. If your local government is making a capital improvement of some kind, you’ll probably find you can’t save tax dollars in the budget ahead of time and pay cash. You’ll probably have to borrow, float bonds, build up a debt and pay for the project twice through interest payments. There’s no such thing as a free lunch.

When the Rich Are Gone

All right, but we run out of the rich pretty quick. The great bulk of the tax load comes out of the pockets of ordinary people. There’s no other way. If we held every rich guy by his heels and shook out all his money, it would still be a drop in the bucket.

Tax the corporations? When you tax them, they have to get the money somewhere, since it is strictly illegal for them to manufacture money. When the corporation is taxed, the corporation tacks the cost onto the price of the article you buy. When you buy Corporation X,Y,Z’s handy dandy little gizmo, you pay the corporation’s tax.

A corporation, then, is a tax collection agent for Uncle Sam. That kind, benevolent old gentleman is a wily old cuss who has his hand in your pocket in a way and at times when you don’t suspect it.

There’s no such thing as a free lunch.

Take ceilings on prices. We’ve heard a lot about them in the last few months. Inflation has been chasing prices of many things up the trees. It happened on food last summer. Housewives not only complained; some of them became activists and picketed. They demanded that “something be done.”

Well, the government is also a listening post. When somebody in political office hears the chant loud and clear from back home, he figures he’d better do something or he won’t be around to hear the chant the next time. The urge for personal survival in Washington is a powerful instinct. It’s the primary political instinct, you might say.

Last summer, in response to the cry from back home, controls were put on food. All of a sudden, the market was telling farmers not to produce as much. The market after all is nothing more than a sounding board for the desires of people. You might call it an echo chamber. Each day people all around the country, by spending their money, say, “I want more of that.” The price goes up. Or they say, “I want less of that.” The price comes down.

Each person, including you and me, whispers something to the market each time we make even a little decision about how we spend our money. Those little whispers, billions of them a day, echo back from the market echo chamber. It shouts back that nationally we want more of this, or more of that, or less of it.

Stock markets reverberate. Corporations shake. The little store down at the corner quivers. All before the loud echo of those billions of little decisions that we make every day.

Let’s say the market thunders that it wants more of something—the price goes up. But the housewife fusses that “It’s already too high priced.” So the government puts on a ceiling. Well, that doesn’t make any more of the product. We go right on making all those little decisions, each of us, that put the price up in the first place. Now that the price isn’t going up any more, as a result of the ceiling, we buy even more of it.

Pretty soon, there’s not enough to go around. We keep right on buying—but the fellow who makes it is getting a wrong signal. The market is telling him not to produce as much. The price isn’t attractive any more. His costs keep climbing, but the price for what he makes doesn’t. So he quits. Or his hanker makes him quit. There is less of the product around.

Controls Substitute Ration Stamps for Money

There’s only one thing you can do then — ration the product with ration stamps. If you don’t, there won’t be any of it down at the store when you get there. People don’t like that. What good is a controlled price if the product isn’t there to buy?

What controls do is substitute government ration stamps for our dollar bill ration stamps. Instead of you and me setting the price by our own decisions with the way we spend our dollar bills, we let the government make the decisions by parceling out ration stamps to us — so many for each one of us. The same for each. That’s the bureaucratic way of being fair.

So controls, then, which set out to do us a favor, end up discouraging production, instead of encouraging it. The ration stamp cure for the disease of low supply makes more of the disease by discouraging production.

There’s no such thing as a free lunch.

Another common principle is that most everything has a cost-benefit ratio to it. The item has a benefit, or we don’t want it. And it has a cost, or we can’t get it. That’s the way it is with anything where there isn’t enough to go around.

You can walk out and look at the moon. It’s pretty on a clear, crisp night, and you can take in all of the scene you want to; it doesn’t cost you a cent. Unless maybe you wear glasses, which I do. Then even looking at the moon isn’t free.

The point is, if something is scarce, and practically everything is, it has a cost. Whether you pay that cost or not depends on how you look at the benefit and whether you have the money to pay.

Most everything has a cost-benefit ratio. You can’t escape it. Are we going to have completely clear air and not enough energy? Are we going to poison coyotes — and maybe some birds while we’re at it — and have enough wool and lamb; or are we going to listen to the howl of more coyotes at the cost of less lamb?

Are we going to feed DES to cattle and perhaps have a residue in some beef livers in an infinitesimal amount which has never been known to harm anyone’s health; or are we going to avoid even one particle of DES per trillion in beef liver and pay more for beef, since it costs more to raise it without DES?

Are we going to disrupt a narrow strip of tundra and disturb some wildlife in remote parts of Alaska, while tapping the rich oil supplies there, or are we going to have gas rationing? Are we going to have well-planned forest harvests and reforestation, or are we going to look at the undisturbed wilderness and hoard resources? For every benefit, there is an offsetting cost.

There’s no such thing as a free lunch!