“Free” Stuff

Here’s an explainer, which will go over the heads of Democrat presidential hopefuls and most Democrats:

Getting “free” stuff reduces the recipient’s need to work.

Therefore, giving out “free” stuff means that recipients work less than they would otherwise work, where “less” often means “not at all”.

But “free” stuff isn’t really free; someone has to produce it (i.e., work). (The work may be done by machines and computerized systems, but someone has to invent, build, operate, monitor, etc., those machines and computerized systems; and someone has to do some kind of work in order to generate the wherewithal for the invention, construction, and purchase of machines and computerized systems.)

As long as productivity rises fast enough, workers can continue to produce “free” stuff while maintaining or improving their own standard of living.

But if the value of “free” stuff rises faster than the value of the extra output afforded by productivity increases, something has to give. If the something is the real income of workers — what they get after providing “free” stuff for others — they will work less (though they may do so in ways that disguise the slowdown).

Some will argue that workers will just work more in order to maintain their standard of living. But just as companies will offer fewer goods and services as prices decline, so will workers work less as their real wages decline. The ability to buy stuff is an incentive to work, but there are other things to do with one’s time, so if a given amount of work buys less stuff, those other things look more attractive. (Greg Mankiw gives an economist’s explanation here.)

At some point, if productivity doesn’t rise enough (and it has been declining for a long time), while government continues to hand out more “free” stuff, enough workers will have reduced their output (in response to decreases in real wages) that the real (inflation-adjusted) value of total output will decline.

A kind of death-spiral will ensue: lower real wages leads to lower total output which leads to lower real wages (unless the “free” stuff is reduced drastically), etc., etc., etc. In the end, workers will do just enough work to afford a subsistence standard of living, and the actual value of the “free” stuff given to non-workers will be about the same as it is for workers. (In the USSR, most people were nominally employed (though not very productively), but there was so much “free” stuff being handed out — especially to the commissars and their favorites — that the result was the same: low real output and a low standard of living — by Western standards — even for the commissars and their favorites.)

Equality, ain’t it wonderful?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: