When the Texas Legislature meets every other year, its most important task is to devise a budget for state government. At the same time, advocates for government programs descend on Austin to noisily make their cases for ever-increased funding.
Perhaps the line most often heard from those who advocate for existing programs is that they need more money because costs are going up fast – faster than inflation in general.
It is accurate that costs in many areas of the economy where government spends taxpayer money are, indeed, going up faster than costs in areas where government is not a major spender. Public education costs certainly have gone up faster than inflation, judging by the rate expenditures have increased over the last few decades. The same is true of higher education. Even more obvious is the increase in the costs of health care, now the single biggest general area of expenditure in the Texas state budget, when higher education and public education are separated.
The list of government endeavors whose costs go up faster than inflation includes roads, the penal system, and virtually any other major function. But why does this happen? Is government just somehow unlucky? How is it that everything government touches seems to become so financially burdensome? Surely there must be an answer.
“Costs” are another way to say “prices.” When people say costs are going up, they mean the prices of inputs are increasing. The real issue is found in asking why do prices associated with government programs rise so quickly?
There are only two reasons the price of something rises: either demand increases, or supply decreases. That is, those who would like to buy something decide they want a lot more of it, thereby pushing up the price. Or, for some reason those who would be willing to sell something become less willing to do so, and have to be induced to sell by being offered a higher price.
Economic reasoning therefore says one of these two circumstances must be occurring with the inputs to government programs, and it has to be occurring to a greater degree than in the economy as a whole.
Government’s demand is unlimited. For any given program, no matter how generous, someone can be found who would benefit if the program was even more generously funded.
Every time government increases funding in a particular area, it simply encourages the behavior that brought about the rising costs the new funding was supposed to offset in the first place! Thus, the higher-than-average inflation in government programming feeds on itself.
There will never be enough money for most government programs. Government’s own demand pushes up costs. Then, when funding is increased to compensate, the costs just go up that much faster. The problem is compounded by the fact that people who benefit from these programs have no incentive to use them wisely, and so they demand even more of the programs, pushing costs up all the more.
The ideal of big-government advocates – no one lacks for anything because government always fills the gaps – is unreachable. It is as unreachable as the dream of someone who steps off a building intending to defy the law of gravity; only doom awaits him.
The laws of economics, and the dire consequences of ignoring them, are just as certain.
Hopefully, our elected leaders will learn to discern when their actions are causing the very problems they intended to solve. More importantly, hopefully they will learn to just say “no” to the advocates who see taxpayers’ wallets as a bottomless pit to be endlessly mined.
Byron Schlomach, Ph.D., is the chief economist for the Texas Public Policy Foundation, a non-profit, non-partisan research institute based in Austin.