Social Justice and the Free-Rider Problem

Lead image Source: cse.hkust.edu.uk

This blog picks up on prior entries on the tragedy of the commons, rational actors, regulatory capture, and rent-seeking. For reference, see these blogs:

• • The Tragedy of the Commons: The Political Commons
  • The Tragedy of the Commons: Rational Actors
  • The Tragedy of the Commons: Wicked Logic
  • Is Social Justice the Liberal Equivalent of Rent-Seeking Behavior?
  • Regulatory Capture and Other Bureaucratic Problems
  • Defending the Republic: Scenario 1 Regulatory Capture

Free rider is a term introduced into this analysis, but they relate it to the commons and rent-seeking. It is like rent-seeking, except it is perhaps more nuanced and eventually discourages the effective use of public goods found in the political commons.

I remember when I was a young adult and my wife, Cyndi, and I went out with a group of people. My father warned me that if the group splits the bill evenly, we could wind up paying for other people’s dinner. We were pressed for cash, so we ordered frugally. Sure enough, the group decided to just split the total cost evenly and Cyndi and I wound up paying far more than we ordered. It was an expensive lesson.

After more education and research, I found the effect has a name: free riders.

The Khan Academy, writing about the Free Rider Problem and public goods, wrote:

The best way to pay for public goods is to find a way of ensuring that everyone will make a contribution, thus preventing free riders. For example, if people come together through the political process and agree to pay taxes and make group decisions about the quantity of public goods, they can defeat the free rider problem by requiring—through the law—that everyone contribute.

They define a free rider as:

A free rider is someone who wants others to pay for a public good but plans to use the good themselves; if many people act as free riders, the public good may never be provided.

Free rider, rent-seeking, regulatory capture, and the political commons are tightly related and need to be considered holistically. For simplicity’s sake, let us assume corporations engage in regulatory control and rent-seeking and individuals primarily engage in free rider behavior. That is not a perfect division. For example, high net worth individuals may engage in all three behaviors, while corporations can engage in free riding as well, particularly in inter-corporate deals.

As I discussed in the rent-seeking blog, the combination is powerful for the social justice movement. Let us look at a few examples. While I am not saying we should not use these programs, they do have their risks and downsides and we need to tread carefully. Most free riders and rent-seekers want more, not less. I suspect it is addictive, and even more so when social justice advocates push them.

• Taxation. Social Justice advocates constantly talk about wealthy paying their far share. What they rarely mention is that means that many in the protected classes pay little or no income taxes. This is a classic example of free riding, at least in theory. What the social justice movement does not tell you, though, is that corporate taxes are a highly regressive tax. Corporations do not pay taxes. They incorporate their taxes into the prices they charge for their goods and services.
• Healthcare. 1 in 5 Americans uses Medicaid for their healthcare. That means nearly 20% are free riders in the healthcare system. Another large portion of the population is uninsured. But the problem is even more significant. Those that do not pay for healthcare often use more or more expensive healthcare. This is one reason, although perhaps not the primary reason, healthcare is rising so fast. Regulatory capture in healthcare, particularly in pharmaceuticals, is perhaps the main reason. The Center on Budget and Policy Priorities (CBPP) states: “Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and Affordable Care Act (ACA) marketplace health insurance subsidies — together account for 25 percent of the budget in 2022, or $1.4 trillion.”
• Social Services. By definition, most of the recipients of social services are free riders. Many pay little or no income tax at any level. CBPP states that 11% of the federal budget supports economic security programs.
• Illegal immigrants. Under our current policy—either formal or informal—illegal immigrants are free riders from the moment they step foot in the country. We house them, feed them, and give them a stipend for living expenses. We send their children to our schools, where they often add enormous costs because most speak little or no English and are ill-prepared for school. According to Erin Dwinell at the Heritage Foundation, illegal immigration costs $4.5B in education costs alone in Illinois, Texas, and California. Now add in New York and other states, and the other costs, and we have a serious issue at a time when we continually need to raise the debt ceiling.
• Food programs. We started with food stamps and food warehouses. The social justice advocates decided these approaches stole people’s dignity, so social services developed special debit cards that are automatically replenished. This change and others opened the gates for large fraud. Even the NY Times reports the “F.B.I. sees ‘Massive Fraud’ in Group’s Food Programs for Needy Children. The Star Tribune reports “Fraud has plagued federal meals program for years”.

But even the massive costs potentially pale compared to the longer-term issues. These include a seemingly endlessly increasing appetite for freebies and increasing numbers of free riders and donor fatigue. Will the government replace charitable activities? Will we reach a point with the programs where we can no longer afford them, and if so, what happens with the programs’ addicts go cold turkey?

This is truly a wicked problem. We need to create actionable knowledge and engage in critical thinking to find sustainable ways to help our citizens in distress while projecting the problems from deliberate free riders, rent seekers and regulatory capture.