The Luxembourgish government prides itself in its education policy, which, on a practical level, attempts make every aspect surrounding education “free”. Children starting school this month will be the first to have access to school books free at the point of use. They also benefit from 20 “free hours” of pre-school and “free” public transport (which also includes students). How exactly the government can make goods and services free remains the question because, of course, someone did have to pay for them in the first place. Be it VAT, excise tax, income tax, taxes in interests or petrol tax, everyone in the Grand Duchy is a taxpayer and contributes to the system that nourishes the welfare state. The question of whether that is a fruitful investment is a debate in and of itself, but the idea that minister of family affairs Corinne Cahen is correct in saying parents are getting “free” pre-school care is pure political semantics.
The Nobel Prize winner and American economist Milton Friedman popularised the so-called Free Lunch Myth by dispelling the notion that anything the government provides is free because mere government spending is a tax itself. Not all inhabitants of the Grand Duchy pay income tax – in fact, only a minority of residents do. But even those who don’t are affected by the government’s spending, borrowing and inflating the currency. The pre-school hours, books and buses have already been paid for by those who consider them “free”.
Two problems arise from this situation.
On one hand, it distorts real market prices, meaning consumers don’t actually know what their goods and services are worth. Should a short-term public transport ticket in Luxembourg cost €2? Since ticket prices do not cover the cost of the service, it’s safe to say that, if the ticket incorporated all the expenses, it would be much more expensive. But how is that, for €2, you get from Luxembourg’s central station to the airport when you could just as easily get to Strasbourg, which is more than 250 km away, with a private bus operator for €12? If we take into account the actual prices of government goods and services, we quickly recognise we’re being ripped off – and that the idea these services are “social goods” doesn’t really reflect the price citizens must pay for them.
The second problem is the notion children learn that certain goods and services need to be free. If mom and dad explain to a child going to school that nobody is paying for the books, the bus and the teachers, then that child will be raised with a sense of entitlement. “Why should I pay for basic services if I really need them?” This is the precise reason student representatives continuously demand increased subsidies for higher education: for them, education should be viewed as a necessity. They shouldn’t need to work for their own education.
Raising children by making them dependent on handouts cannot possibly create responsible adults. In essence, the question is really: what is a complementary good or service today that will be considered a basic need in a couple of years’ time? What about the right to a free phone, which, in the age of information, is absolutely necessary? That list could get very long.
The Free Lunch Myth didn’t start as a theory on public policy. In the US of the 1930s, restaurants would serve “free” lunches to continue having drinking customers who padi for their drinks. At least back in those days, restaurants would make more than they would have otherwise. It does not take an economics degree to understand that the price of the food was tucked into the price of the pint or the glass of wine. The same goes for free books and buses.
The bottom line is this – whether or not you consider goods and services surrounding education to be so important they need to be free is a debate that needs to take place. But before then, everyone should agree that all of these subsidies need to be examined for their causes and effects. The government should only be able to put “free” services on the table if it has evidence that it can provide the service cheaper than it would be on the market otherwise, all costs taken into account.
Luxembourgers fond of saying “Vu näischt kënnt näischt” (“Nothing comes from nothing”) should know this best. Let’s hope they teach it to their children.
This article was first published by the Luxembourg Times.
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