When they spend tax money, politicians love to say that they are 'investing' in the economy. But how do they know that their 'investments' are meeting customers' most important needs?
On Monday, President Biden announced that the country would get $42 billion to build internet infrastructure. The plan is for every American to be connected to the internet by 2030. The White House was happy to say that this is the "largest funding announcement for the internet in history." They compared it to FDR's Rural Electrification Act of 1936, which gave government loans to help bring electricity to rural areas of the US.
The program is called the Broadband Equity Access and Deployment (BEAD) program, and its goal is to bring high-speed internet to about 8.5 million homes and small businesses that still don't have it. "High-speed internet is no longer a luxury," said the White House. "It is important for Americans to be able to do their jobs, go to school, get health care, and stay in touch with their family and friends."
Even though it's easy to see why more people should have access to the internet, the cost to taxes isn't exactly low. Rep. Thomas Massie did the math and found that it will cost about $4,941 to connect each family to the internet. Elon Musk's Starlink, on the other hand, can do the job for $599 per family, he said.
Today Biden announced $42 billion to get 8.5 million families broadband by 2030.
Come on man! That’s $4,941 per family, to be taken from those families and other families in taxes.@elonmusk’s Starlink can do it for $599 per family, and you don’t have to wait 7 years! pic.twitter.com/vUdS5eBgD0
— Thomas Massie (@RepThomasMassie) June 28, 2023
Aside from questions about how to implement it, it's important to ask if this is a good strategy. Is it usually a good idea for the government to spend money on these sorts of projects? I guess it depends on what we mean when we say "good." If "good" means giving money to groups that want it, which is what most government spending is for, then yes, it will do that quite well. But if it means helping people in general, there are good reasons to think that spending money on projects like this hurts that goal rather than helping it.
To figure out why, we need to talk a bit about money.
The ‘Miracle’ Unmasked
The idea of shortage is one of the most important ideas in economics. Because we want more than we have, there will always be trade-offs. When money is spent on one thing, it can't be spent on something else. You can't get something for nothing.
This is true for everything, even how the government spends money. Even though it's easy to focus on the benefits—in this case, the internet infrastructure that would be built—a good economist trains himself to see the hidden costs, the lost opportunities, and the things that could have been funded and built if the money hadn't been spent on the project in question.
In his book Economics in One Lesson, Henry Hazlitt emphasized this point. "Either right away or in the long run," he wrote, "every dollar the government spends must be paid for by a dollar in taxes. When we see things this way, the claimed miracles of government spending will look different.
Even though everyone agrees that you can't get something for nothing, this seems to be forgotten as soon as the topic of government spending comes up. People might ask, "How could you be against internet infrastructure?" "Don't you care about having internet access?" Of course I do. But I also know that money spent on internet access is money that can't be spent on food, health care, schooling, or housing. And, unlike the people who support these programs, I don't think I know what customers need the most.
If people can get by without the internet but are desperate for more healthcare services, spending money on more internet when that money could have been used for more healthcare isn't really helping. To give an extreme example, I could spend billions of dollars on pineapple infrastructure if I thought people really needed more pineapples. And it's true that pineapples would be much easier to get. But what a lot of waste! So many more important things could have been made with those funds, but the most important needs aren't being met because some official thought pineapples were more important than anything else.
So, the question is not whether access to the internet is important. The question is whether it is more important than the other options. Just because there is a gain doesn't mean anything. Costs must be less than the benefits. It has to be more important than the other things you give up to get it.
So, how do we figure out in a systematic way which uses of resources give customers the most value? This can't happen with the government. Ludwig von Mises, an economist, said it best when he said that politicians and managers are "groping in the dark." Sure, they have a lot of statistics, but those figures only give a vague idea of how consumers' needs compare to each other.
There is an option, though, and that is the market. On the market, profits and losses show business owners how much different goods and services are worth to customers. Because of these signs, there is a very good match between what people want and what gets made. Even though it's not perfect, there is at least a way to make sure that the most important wants of consumers are met as best as possible.
At best, spending by the government is a zero-sum game. It means that resources that could have been used for one thing are instead used for something else. In reality, though, it's almost always worse than that, because the market tends to better meet people's wants than government allocations. So, government spending will always waste resources by sending them to things like the pineapple business instead of the things people need most.
And it's not like this problem could be solved by just getting better management. It's not the bosses' fault. The trouble is the way things are set up. In his book Power and Market, economist Murray Rothbard wrote, "The well-known inefficiencies of how government works are not empirical accidents, perhaps caused by the lack of a civil-service practice. They are a part of everything the government does."
Capitalists: Informed Humanitarians
When people who believe in the free market disagree with government spending programs like the new Internet access program, they are often told that they are "against" whatever the program is trying to do. In this situation, people are likely to say that we are "against internet access." Here, Biden is trying to do something nice to help American citizens, but we just want to stop him, probably because we are selfish people who hate paying taxes and don't care about other people's well-being.
But this is just a story told by the left that has little to do with truth. In his book The Law, published in 1850, Frédéric Bastiat criticized this way of thought.
“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.”
The truth is that people who support the free market do care about people. In fact, we don't want the government to spend money because we care. The question is not whether or not to have government-funded programs or just let people suffer. The question is whether or not to let the government or the market decide how to use resources.
We think that a good knowledge of economics shows that market allocations tend to be better for everyone's well-being than government allocations. So, our resistance to government spending is not because we don't care about people. Instead, it comes from the same concern for people's welfare that the left thinks they have a monopoly on.
