Nothing's Free; R. Roberts

The Pursuit of Happiness Nothing's Free M y brother and I have a game we play from time to time. He calls me with a can't-miss investment opportunity, and my job is to figure out what's wrong with it. There is always something wrong with it. In fact, the better it looks on the outside, the worse it looks on the inside when you take a closer look. That doesn't necessarily make it a bad investment. But it's never the bargain it appears to be at first. Such is the economist's burden and bless ing. There is no free lunch. The bigger the bargain, the more likely it is that something worrisome lurks beneath the surface that needs to be examined. There's always a catch. Usually it's easy to discover: the bargain is of questionable quality; the bargain has a hidden payment that comes later; the bargain involves an unforeseen risk. But every once in a while a bargain comes along that looks so good, you wonder if it might actually be a genuine bargain. This should make you espe cially nervous .. For that means the catch is especially hard to see. So look carefully before you leap, then look some more.

State Lotteries So it is with the "free" education that is being offered in some states with lotteries. In Georgia, for example, any student with a sufRussell Roberts (roberts@mail.olin.wustl.edu) is director of the Management Center at the John M. Olin School ofBusiness at Washington University in St. Louis. He is the author of The Choice: A Fable of Free Trade and Protectionism (Prentice Hall). 63 by Russell Roberts ficiently high grade point average gets "free" education at any public Georgia college. The funds come from sales of lottery tickets. It sounds like the ultimate bargain. Who can quarrel with free education? Let's take a closer look. There are many senses in which a University of Georgia edu cation is not free. Resources get used up to provide it. Those resources could have provid ed something else of value. But who provides those resources? If the education is not really free, someone must be paying. It would seem to be the losers in the lottery. And that's why the education seems free. We know there have to be losers in the lottery. They help pay for education. Sounds great. And besides, no one forces anyone to play the lottery, so the whole thing is more like a voluntary contribution than a tax.

To see the flaw, suppose the government decided to fund free education by opening a chain of dry-cleaning stores. Profits from the store are used to pay for "free" education. To make sure the stores are sufficiently prof itable, the government decides to charge a dollar more per shirt than dry cleaners cur rently in operation. And to keep those private ly run stores from attracting customers at lower prices, the government decides to ban all private competition and enjoy a monopoly. We would all understand that in this world the "free" education is being paid for by peo ple who enjoy pressed and clean clothes. Such people would be paying in two senses. The first sense is literal: they fund the education with their excess payments above the compet64 THE FREEMAN/IDEAS ON LIBERTY • JUNE 1999 itive prices that would prevail without a gov ernment monopoly. They also pay in the sense of having their clothes cleaned less often than they would under a private system. Given the higher prices, some people are going to do less dry cleaning and some are going to do none at all. Under such a system, it would be ludicrous to claim that the education is free.

It's clearly being paid for by the users of dry cleaning services. Funding education from the pockets of dry-cleaning customers also raises a question of morality. Why should the burden of funding education fall arbitrarily on those who like clean clothes? Government Monopoly Now, let's return to the state lotteries. About 55 percent of the receipts go to prizes, 10 per cent to expenses, and 35 percent to education or some similar unimpeachable cause. Because 35 percent goes to neither winners nor losers, the real cost of the lottery is that you win less often and the prizes are smaller than would be the case without a government monopoly. If government allowed competi tion or made gambling legal, people who like to gamble would have a higher chance of win ning and there would be more money distrib uted to winners. So lottery-funded education is not free after all. Subsidizing education out of lottery pro ceeds punishes people who like to gamble.

Those tum out on average to be people who are relatively poor with less education. Can you think of a more immoral solution for funding education than to take the money from those with the least.education? People like to defend the lottery by saying it's voluntary. After all, you don't have to play. It's also true you can avoid the income tax by not working. So I guess that's voluntary, too. But it's hard to argue that the lottery is a vol untary tax when the government has a monop oly. Can you imagine how many people would play state lotteries if there were competing private lotteries that paid 90 percent of the proceeds in prizes instead of the typical 55 percent? Under a private, competitive lottery system, the prizes would be bigger and the odds of winning would be higher. It would be a better world than the one we now live in, where peo ple. in search of hope are forced to pay a 35 percent tax to finance the college education of mostly upper-class children. That's why I like my dry-cleaning proposal. Sure it's unfair.

But it's better than using the money from a government lottery. D I July 1999 Ideas On Liberty Vol. 49, No.7 8 8 1 12 16 21 23 26 30 32 137 43 48 81 THOUGHTS on FREEDOM-Outside the Limits by Donald J. Boudreaux Immoral, Unconstitutional War by David N Mayer The Kosovo Tangle by Gary Dempsey Remembering and Inventing: A Short History of the Balkans by Peter Mentzel POTOMAC PRINCIPLES-Warmongering for Peace by Doug Bandow Isolationism by Frank Chodorov How War Amplified Federal Power in the Twentieth Century by Robert Higgs Another Place, Another War by Michael Palmer War's Other Casualty by Wendy McElroy Spontaneous Order by Nigel Ashford Storm Trooping to Equality by James Bovard Croaking Frogs by Brian Doherty Noah Smithwick: Pioneer Texan and Monetary Critic by Joseph R. Stromberg 38 41 148 54 63 IDEAS and CONSEQUENCES-Clinton versus Cleveland and Coolidge on Taxes by Lawrence W. Reed THE THERAPEUTICSTATE-Suicide as a Moral Issue by Thomas Szasz ECONOMIC NOTIONS-In the Absence of Private Property Rights by Dwight R. Lee ECONOMICS on TRIAL-Dismal Scientists Score Another Win by Mark Skousen THE PURSUIT of HAPPINESS-Ignorance Is Bliss-Maybe by Walter Williams 2 4 58 Perspective-Operation Legacy by Sheldon Richman Tax Cuts Are Unfair? It Just Ain't So! by David Kelley Book Reviews Overcoming Welfare: Expecting More from the Poor and Ourselves by James L. Payne, reviewed by Robert Batemarco; Coolidge: An American Enigma by Robert Sobel and The Presidency of Calvin Coolidge by Robert Ferrell, reviewed by Raymond 1. Keating; H. L. Mencken Revisited by William H. A. Williams, reviewed by George C. Leef; Eat the Rich: A Treatise on Economics by P. J. O'Rourke, reviewed by William H. Peterson; Cyber Rights: Defending Free Speech in the Digital Age by Mike Godwin, reviewed by Royce Van Tassell.