No Free Lunch

“There’s no such thing as a free lunch.”

The phrase dates back to the nineteenth century, when bar owners would offer free lunches to patrons to boost drink sales. Of course, as with any promotional offer, there’s typically a catch.  In the case of a “free” lunch, the cost to the business would be offset by slightly higher drink prices or customers simply ordering more to wash down salty food.

The Nobel Prize winner Milton Friedman famously used the phrase to explain the concept of opportunity cost – that for any choice you make, you must forego something else. Even a supposedly “free lunch” will have some cost associated with it, even if that cost is not obvious.

Friedman also went on to coin the “free lunch myth”, which he described as “the belief that government can provide goods and services at no one's expense.” Unfortunately, this myth seems alive well with our current government.

There have been a number of troubling decisions made by the government that demonstrate they’ve forgotten, or are unaware, that lunches do not come free. In too many cases, the government seems to be operating under the assumption that there is a vast, unlimited supply of money out there that can be tapped into without any unintended negative effects; too often, they wrongly think that costs are only incurred by those they intend to target.

We know this simply isn’t true. We know that, for instance, drastically raising taxes in the midst of a recession further shrinks the economy.  We know that this tax revenue must come from somewhere, and that it must necessarily fall on the backs of Albertans.  The contractionary effect of taxation impacts us all.

And very recently, we’ve seen more clear examples of the free lunch myth in action.

The government’s insistence on charging utility providers such as Calgary-owned ENMAX massively higher taxes led to these companies invoking a contractual clause to terminate their purchase agreements. In response, the government decided to sue itself to invalidate the 16 year old deals, claiming they did not know about the potential impacts and that they do not like the way they were written.

Regardless of the outcome of this bizarre spectacle, the fact remains that the government’s decisions come with a cost (in ENMAX’s case, the changes to the levy would result in a tenfold increase) and this cost must be borne by someone. Whether the cost will be incurred by taxpayers or by ratepayers, the cost exists all the same and it must be paid.  Albertans will pay.

Meanwhile, in another example, the government’s insistence on charging ahead with large minimum wage increases again reveals they are tempted by the appeal of the free lunch myth, seeming to be under the mistaken impression that there are vast reserves of free money that organizations could use to meet the new minimum wage requirements.

However, just the other day, I spoke to a local non-profit facing the prospect of lay-offs or even having to close because of this policy change. The minimum wage is a cost, and costs must be paid.  In this case, with the organization’s available funds limited, the costs are ultimately paid by employees in the form of unemployment.

Time and time again, reality meets the myth and the error of the myth is revealed. Government cannot create without first taking.  You can’t get something for nothing, and goods and services cannot be created at no one’s expense.

Try as they might, the government cannot conjure up a free lunch.