No Such Thing as a Free Lunch

It is easy to get caught up in the minutiae when it comes to economic policy. With the state facing a $400 million deficit and budget cuts in the offing, every special interest is busy coming up with their own economic analyses explaining why subsidies or regulations that serve their own interest will really benefit the public at large.

The fact is that more often than not, simple logic is more useful than complex economic studies that are ultimately designed to justify a predetermined policy.

This logic can be best summarized as “There is no such thing as a free lunch.” Specifically, I’m referring to the fact that government’s taxing one citizen’s hard-earned money and transferring it to another, preferred group, does not increase our economic prosperity.

Advocates for continued subsidies for New Mexico’s film industry have flatly refused to accept this reality. Advocates for the film industry which receives a 25% rebate on all spending done in the state would have us believe otherwise.

According to them, we need to keep pouring tax money into the industry lest it pick up and move to another state that offers even more generous incentives. This makes no sense whatsoever. Taking money from New Mexico taxpayers at large and giving it to one particular industry is not sound economic policy. While many industries and various groups receive exemptions in the tax code, no other industry actually receives tax revenue out of the pockets of hard-working New Mexicans.

Further muddying the waters is the use of inflated “economic impact” numbers. A few points are not discussed, however.

1. Why shouldn’t all industries in New Mexico receive a 25% credit? How would that impact the budget?
2. If the film industry is so economically-important, why can’t it survive if the subsidy is cut from 25% to 15%?
3. What programs should be cut to continue the program?

Of course, the film industry is not the only group making wild economic claims. The environmentalists who are hoping to protect their carbon cap plan from the vagaries of voters and political representation (preferring instead unelected bodies like the Environmental Improvement Board), have repeatedly claimed that jobs and economic growth will be the inevitable result of the carbon cap.

Again, this defies logic. While government could easily create “jobs” by mandating that all construction projects be done by hand shovels – or better yet by spoon – it is hard to argue that government regulations can drive economic growth.

If wind, solar, and geothermal were economically-viable on a massive scale in New Mexico, then the government would not need to force them upon producers and consumers alike. At this point in time, it would seem that natural gas may be the future of “clean energy,” but making this move on a massive scale nationwide will cost billions of dollars. The market, made up of millions of individuals and businesses, will move in this direction if it is economically-viable.

These are just two controversial policies that will be points of discussion during the legislative session and beyond. Ultimately, however, we at the Rio Grande Foundation hope to convince ever-larger numbers of New Mexicans that they, not those industries with the best lobbyists, are the best stewards of resources in the economy. This is not easy when massive, well-funded public relations campaigns are carried out to convince us otherwise, but we’ll keep trying.

As the Legislature grapples with a budget deficit and the need to generate economic growth, the fact that there are no “free lunches” and that government must prioritize and make tough decisions is the most basic of economic principles that must guide all parties involved.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.