The Rolls Royce Fallacy

Many of the cant words of politics are simply evasions of reality. A prime example is the notion of making housing, college, health insurance, or other things “affordable.”

Virtually anything can be made more affordable in isolation, simply by transferring resources to it from elsewhere in the economy, and having most of the costs absorbed by the U. S. Treasury.

The federal government could make a Rolls Royce affordable for every American, but we would not be a richer country as a result. We would in fact be a much poorer country, because of all the vast resources transferred from other economic activities to subsidize an extravagant luxury.

Of course it might be nice to be sitting at the wheel of a Rolls Royce, but we might be sitting there in rags and tatters, and gaunt with hunger, after having squandered enormous amounts of labor, capital, and costly materials that could have been put to better use elsewhere. That doesn’t happen in a market economy because most of us take one look at the price tag on a Rolls Royce and decide that it is time for another Toyota.

The very notion of making things affordable misses the key point of a market economy. An economy exists to make trade-offs, and a market economy makes the terms of those trade-offs plain with price tags representing the relative costs of producing different things. To have politicians arbitrarily change the price tags, so that prices no longer represent the real costs, is to defeat the whole purpose.

Reality doesn’t change when the government changes price tags. Talk about “bringing down health care costs” is not aimed at the costly legal environment in which medical science operates, or other sources of needless medical costs. It is aimed at price control, which hides costs rather than reducing them.

Hidden costs continue to take their toll — and it is often a higher toll than when these costs are freely transmitted through the marketplace. Less Supply, poorer quality, and longer waits have been the consequences of price Controls for all sorts of goods and services, in all sorts of societies, and foi thousands of years of human history.

Why would anyone think that price controls on medical care would be any different, except for being more deadly in their consequences?

One of the political excuses for making things affordable is that a particular product or service is a “right.” But this is only explaining one question-begging word with another.

Although it has been proclaimed that “health care is a right, not a privilege,” this neat dichotomy ignores the vast territory in between, where most decisions are made as trade-offs.

If health insurance is a right and not a privilege — and not even a subject of incremental trade-offs — then the same should be even more true of food. History in fact shows all too many instances of governments trying to keep food affordable, usually with disastrous consequences.

Whether in France during the 1790s, the Soviet Union after the Bolshevik revolution, or in newly independent African nations during the past generation, governments have imposed artificially low prices on food. In each case, this led to artificially low supplies of food and artificially high levels of hunger.

People who complain about the “prohibitive” cost of housing, or of going to college, for example, fail to understand that the whole point of costs is to be prohibitive.

Why do we go through this whole rigmarole of passing around dollar bills and writing each other checks, except to force everyone to economize on the country’s inherently limited resources?

What about “basic necessities”? Shouldn’t they be a “right”?

The idea certainly sounds nice. But the very fact that we can seriously entertain such a notion, as if we were God on the first day of creation, instead of mortals constrained by the universe we find in place, shows the utter unreality of failing to understand that we can only make choices among alternatives actually available.

For society as a whole, nothing comes as a “right” to which we are “entitled.” Even bare subsistence has to be produced — and produced at a cost of heavy toil for much of human history.

The only way anyone can have a right to something that has to be produced is to force someone else to produce it for him. The more things are provided as rights, the less the recipients have to work and the more others have to carry their load.

That does not mean more goods are available than under ordinary market production, but less. To believe otherwise is to commit the Rolls Royce fallacy on a more mundane level.

For the government to make some things more affordable is to make other things less affordable — and to destroy people’s freedom to make their own trade-offs as they see fit, in the light of economic realities, rather than political visions. Trade-offs remain inescapable, whether they are made through a market or through politics. The difference is that price tags present all the trade-offs simultaneously, while political “affordability” policies arbitrarily fix on whatever is hot at the moment. That is why cities have been financing all kinds of boondoggles for years, while their bridges rusted and their roadways crumbled.

Thomas Sowell, The Thomas Sowell Reader (New York, NY: Basic Books, 2011), 73-75.

Author: Greg Raven

Free minds and free markets.