Mises Wire

Social Justice and the Free-Rider Problem

Free rider is a term related to the political 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.

When I was a young adult, my wife, Cyndi, and I went out with a group of people. My father warned me that if the group split 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 that this situation has a name: free riding.

Regarding the free rider problem and public goods, the Khan Academy 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 “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 riders, rent seeking, regulatory capture, and the political commons are tightly related and need to be considered holistically. For simplicity’s sake, let us assume that 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 intercorporate deals.

The combination of these behaviors is powerful for the social justice movement. Let us look at a few examples, including government programs. 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, even more so when social justice advocates push them.

  • Taxation. Social justice advocates constantly talk about the wealthy paying their fair share of taxes. 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 also does not tell you 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. One in five Americans uses Medicaid for their healthcare. That means nearly 20 percent of the population are free riders in the healthcare system. Another large portion of the population is uninsured. However, the problem is even more significant. Those that do not pay for healthcare often use healthcare more often or more expensive healthcare. This is one reason, although perhaps not the primary reason, healthcare costs are 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 percent of the federal budget supports economic security programs.
  • Illegal immigrants. Under the current policy of the United States—either formal or informal—illegal immigrants are free riders from the moment they step foot in the country. Taxpayers house them, feed them, and give them a stipend for living expenses. The children of illegal immigrants are sent to public 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 $4.6 billion in in Illinois, $8.9 billion in Texas, and $21.8 billion in California. Now, add in all the other states, and this becomes a serious issue at a time when the US continually needs to raise the debt ceiling.
  • Food programs. The US 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 amounts of fraud. Even the New York Times reports the “F.B.I. Sees ‘Massive Fraud’ in Groups’ Food Programs for Needy Children.” The Star Tribune reports that “Fraud has plagued federal meals program for years.”

However, even these massive costs potentially pale compared to the longer-term issues. These include a seemingly endlessly increasing appetite for freebies, increasing numbers of free riders, and donor fatigue. Will the government replace charitable activities? Will there reach a point with these programs when they are no longer affordable, and if so, what happens when 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 citizens in distress while reducing the problems from deliberate free riders, rent seekers, and regulatory capture.

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