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September 2, 2010

The Impossible Notion of Something for Nothing

Economics Professor Walter E. Williams of George Mason University provides a very simple explanation for the complex interaction of scarcity and cost and, specifically, the idea that we can get something for nothing. In his Townhall column entitled “Something for Nothing,” Dr. Williams identifies scarcity as existing “whenever human wants exceed the means to satisfy those wants.”

The concept of scarcity is complicated by many factors including the constraints of time and the laws of physics — after all, we cannot occupy two places at the same time. However complicated it may be, Dr. Williams reduces the issues down to a simple thought: “Scarcity means there’s no free lunch. Having more of one thing requires having less of another.” He explains these ramifications using an example of reading his “free” column when you could have chosen a different activity for that time slot:

You’re reading my column for a zero price but you’re not doing so at zero cost. You have to sacrifice something. There are zero-price services such as “free libraries,” “free public schools,” “free transportation” and free whatever. It doesn’t mean that costs are not being borne by somebody.

Dr. Williams continues with another example that our government has used to make taxation more palatable — the notion of an “employer portion” of payroll taxes. He continues:

A congressional hoax that’s flourished for seven decades is the Social Security hoax that half of the Social Security tax (6.2 percent) is paid by employers, the other half (6.2 percent) paid by employees. The law says that if you are self-employed, you get to pay both halves. The fact of the matter is whether you’re self-employed or not, you pay both halves of the Social Security tax that totals 12.4 percent. Let’s look at it.

Suppose you hire me and our agreed-upon weekly salary is $500. From that $500, you’re going to deduct $31 as my share of the Social Security tax and you’re going to add $31 as the so-called employer’s share, sending a total of $62 to the IRS. Here’s the question: What is the weekly cost for you to hire me? I hope you answered $531.

The next question is: In order to make hiring me profitable, what must be the minimum dollar value of my contribution to your total output? If you said $531, go to the head of the class because if the value of my contribution to total output is only our agreed-upon salary of $500, you’re making losses hiring me and you’re going to be out of business soon. Therefore, if I am producing $531 worth of value per week, it is I who’s paying the so-called employer as well as the employee share. The reason why Congress created the fiction of the employer share was to deceive us into thinking that we’re paying fewer taxes than we in fact are.

So, the next time a politician says he wants to give you something from the government, remember that what he is “giving” you costs someone else. Put another way, “government has nothing to give anyone except what it first takes from someone else.” The same can be said whenever the government wants to levy more taxes on businesses or corporations. In order for these entities to remain profitable (and remember, they are in business to make a profit) they must ultimately shift these costs onto the consumer in the form of higher prices. It’s that simple.

For additional insight from Dr. Walter E. Williams, see his book entitled More Liberty Means Less Government: Our Founders Knew This Well.¬† On the “something for nothing” issue, though, Dr. Williams sums up his column with the following warning:

The bottom line lesson is that if you think you’re getting something for nothing, or somebody else is paying for something you receive, you’d better give it another look.

As Americans, we would be wise to heed Dr. Williams’ warning. Either way a tax still costs us personally whether it comes directly out of our pocket or from what would have been in our pocket if the government had not intervened. We cannot get something for nothing, therefore, let us reject government bribes that herd us into the high-tax slaughterhouse of the American Dream.

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