It is entirely obvious that free money is great -- but what's the cost of gaining that free money? That's not as obviously contradictory as you might think either. Other than the extremely rare maniacs who really do throw cash money out the window, there's always something that must be done to gain access to that money being “given” away.
Whatever it is that must be done then becomes that cost of that supposedly free money. Think of grandma ageing away with that pot of money to be passed on after her demise. It's not going to be free to the children now, is it? There's going to have to be a certain amount of calling now and then, turning up for Saturday tiffin as a cost of gaining that inheritance.
So it is with any other potential source of freebies. This being one reason why economists are so upset with the micromanagement of the economy by subsidies, special tax rates, licences, and so on. It's not just because it makes the entire economy less efficient -- really, there is a reason people are politicians and bureaucrats rather than succeeding in business themselves and it's not because of their greater knowledge of how to do business -- but because the seeking of those special deals is itself inefficient.
There's a cost to gaining access to that free money that is. A cost in the soft soaping, being nice to and general importuning of the bureaucrats and politicians who give out those special economic advantages. Of course, no one does directly take a “bribe” as such. Of course not. But that donation to party funds, or the invite to the fashionable party, or in one case I know of (in another country, I hasten to add) the paying of the university fees of the son.
They're all a cost.
Those economists who have studied this go on to say that the costs of that sucking up outweigh the benefits of the special awards. Not because everyone's stupid, but because everyone's competing for them. For those who gain the award it's worth more than it has cost -- politicians do tend to be pretty cheap after all. But, across all those who attempt to gain those specials, the costs are more than those few which are handed out. It's a negative sum game, that is; one that makes us all poorer.
With this basic structure and logic in mind we can now evaluate this current demand: “Foreign Minister AK Abdul Momen has highlighted the importance of enhanced funds for climate change mitigation and adaptation.” This is that much talked about -- but not obviously imminent -- $100 billion that the rich countries are supposed to be paying the poor countries to make up for climate change.
In one sense this looks like free money. Those who put the CO2 into the atmosphere provide that $100bn for free to the poor countries to make up for it. But, as we've noted, free money very rarely is free.
The costs here are going to be twofold. One of the costs of Momen flying around the world -- along with all the other foreign, climate change, and so on ministers -- and asking for that money. That's not, even at first class airfares, going to cost $100bn of course. But the rich countries simply are not going to hand over that pile of cash, even if they do eventually come up with the money.
Instead they're going to attach conditions. That money must be used to pay for this or that or the other. And by definition, what they're going to insist upon must be more expensive to do than what would be done without that $100bn. Otherwise there's no justification at all for the spending.
The cost of the “free money” is going to be building and or subsidising things we wouldn't have built without that $100bn. Things that wouldn't, even shouldn't, be built without the subsidy.
The correct answer therefore is for us to ignore all of that. Just get on with doing the right things that are right for us. Don’t allow the costs of asking for or even getting that free money to be imposed upon us. The net effect of this being that if anything does in fact turn up it will only then really be free.
Tim Worstall is a senior fellow at the Adam Smith Institute in London
