Bigger Government Brings Bigger Costs

By Matthew Nicaud
December 14, 2021

It is a basic economic principle that when taxpayer dollars are injected into a sector of the economy, there is an imbalance in the free-market forces of competition and supply that help keep prices low and quality high. This shows true as the growing government has contributed to the problem of increased costs for health and higher-education.

In order to understand the context of rising education and healthcare costs, it is important first to consider the extent of these rising costs. Rather than being isolated incidences, higher education and healthcare have seen a consistent pattern of cost increase.

The American Enterprise Institute looked at the history of costs for multiple sectors using the Consumer Price Index from 2000 to 2020. The analysis attempted to consider the top cost increases in light of inflation and other factors. The report found that while overall inflation led to a 60 percent increase in costs, college tuition and fees increased by over 170 percent. Meanwhile, hospital costs increased by over 200 percent.

The increases in higher education costs tie directly into the amount of government funding that has flowed into the higher education system. According to U.S. News and World Report, the average in-state tuition at national universities was $5,775 in 2002 (adjusted for inflation to 2021 dollars). In 2021, the average in-state tuition was estimated at $11,631. So, in simple terms, college tuition has more than doubled.

Such increases are not isolated to the last 20 years either. Over 30 years ago, in 1987, some were already sounding the alarm that expanded government involvement in higher education brought about in the 1970s was causing tuition increases. Many universities jumped at the chance for more government dollars through grants and “subsidized” loans. Such circumstances eventually led the Federal Reserve to conclude in 2017 that every dollar of student aid would ultimately lead to an average tuition increase of 60 cents. This trend has continued to hold true. While college tuition slightly decreased in the wake of Covid, the long-term increased student and government debt and higher long-term tuition costs will likely be felt for years to come.

The same principle of harmful government intervention applies to much of the government’s health care funding as well. In 1970, the average American had $1,848 (in 2019 dollars, adjusted for inflation) in annual healthcare costs. By 2019, the annual healthcare cost per person had risen to $11,582. This reflects a six-fold increase. Granted, the factors that tie into healthcare costs and increases are complex and numerous. But a review of the impact of government healthcare spending demonstrates a real impact that affected Americans across the country.

For instance, according to the Heritage Foundation, the Affordable Care Act more than doubled the cost of health insurance in the individual market from 2013-2019. This was no less true in Mississippi. Average monthly premiums increased by 149 percent, from $214 to $532, reflecting an annual increase of $3,816. Citizens could be using such funds to put in savings, invest in the economy, or simply increase their quality of life. Instead, they have to put that income towards healthcare.

While the advocates of big government often make politically driven promises of “free” education and “free” healthcare, history and current experience continue to undermine such claims. Sure, some may perceive the government paying for higher education and healthcare as a way to help citizens save money. But the increases in cost caused by these “free” programs make the government’s “free” money a little better than just a high-interest loan -only in this case, payback comes in the form of higher costs for everyone.

Free market economics and common-sense mathematics reject the concept of government inflating healthcare and education by its false promises of “free” funding. If someone gave Johnny $10,000 to use towards his college or healthcare, and it caused all the hospitals and schools to raise their costs by at least $10,000 in response, then that wouldn’t truly be “free money.” Yet somehow, the lessons of this basic scenario are discounted if the giver’s name happens to be Uncle Sam and, worse, if the “giver” got the funds by taxation from others rather than his own benevolence. As demonstrated by healthcare and higher education, this scenario has played out in the real world.

Government funds always carry a price tag that usually begins and ends with the wallets of the taxpayers. As Americans watch the increase in healthcare and education costs, they might do well to recall that the promises of “free” money from gushing politicians have seldom stood the test of time. Rather than going back to the failed model of redistributing wealth, government policy should return to the free-market principles that have a track record of prosperity.  


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