Monday, December 1, 2008
Good Government is a Myth, Part 1: Efficiency
Monday, December 01, 2008 | 
Posted by
Chris Waner
I will take as a given that the private sector, even with excessive government intervention by way of subsidies, price controls, taxes, and tariffs, is more efficient than government could ever dream of being. Not only do I consider government inefficiency to be generally agreed upon by most Americans, but when I encounter individuals who disagree with this premise, I'm usually completely satisfied in proving the point by asking him or her to simply name any government department or agency that they believe stands as a model of efficiency. Indeed, Social Security is bankrupt, Medicare and Medicaid are vastly overextended along with the other entitlement programs, our public education system slips further behind the rest of the world every year; not even the IRS can claim success as literally billions of dollars go uncollected each year (though I can't think of a better use of inefficiency than that).Surely, if only the government would contract private industry they could be a slick, modern institution of efficiency. Well, not so fast. The numbers are in, and they don't look good. Since Bush took office in 2001, governmental private sector contracts for everything from mowing the lawn to missile defense have more than doubled. Surely, efficiency in those areas has also doubled, right? Not even close. In fact, representative for the US Government Accountability Office, Schinasi says,
[Officials] can't answer the most basic questions about what the companies are doing--including how many contractors have done a good job or bad job, and whether or not they have saved taxpayers' money. [Source]
How can this be? The efficiencies of the private sector should translate into greater efficiencies in government as well. Unfortunately for Ronald Reagan (the ardent promoter of private government contracts), Bill Clinton (who raised the bar by claiming that the era of big government was over), and George W. Bush (who has all but perfected the art) the situation is not that simple.
During the 2008 presidential campaign we repeatedly heard Obama talk about giving more aide to programs that are succeeding and getting rid of those that don't work. We should look extremely skeptically on such claims, not because they are insincere, but because there is no rational measuring stick for efficiency except that which arises naturally out of the competitive free market, where prices are determined based on the relationship between the scarcity of the good or service and the industry-wide demand for that good or service. I cannot emphasize this point clearly enough. No one anywhere, no matter how brilliant or well educated can accurately determine the price of anything. The only means of determining the price is by comparing how plentiful something is with how in-demand it is. And the only system that can accomplish this task is the free market. This is not a matter of opinion, it is an immutable law, like gravity. Every other measure of price, no matter how well intended or informed, is arbitrary and, therefore, inefficient by its very nature.
The truth is that government is the sixth toe on the global foot, adding very little but is usually an eyesore and, more often than not, gets in the way. Economies thrive as competition forces companies to produce the highest quality product at the lowest possible price in order to win the largest sector of the consumer market. Government faces no competition, however, so all other proceeding considerations quickly become irrelevant. As a consequence, private contractors go unsupervised, invoices go unchecked, results go un-analyzed, and the problems further explode as sweetheart deals are given to friends, family, and associates of government officials.
How does Obama plan to fix the problem? By promising to and eventually reducing the number of private contracts.[Source] This swings the pendulum the other way, but it fails once again to address the fundamental issue: that true efficiency can only be attained in the free and open market.
If government left to itself is utterly inefficient and government in cooperation with the private sector is equally inefficient, what should be done? How about we follow the Constitution. There is no provision whatsoever in the US Constitution that provides for the departments of Agriculture, Commerce, Education, Energy, Homeland Security, Housing, Health, Interior, Labor, Mining, Transportation, or any of their myriad agencies including the IRS monster. The following departments should be left standing: Defense, Justice, State, and Treasury. The evaporation and privatization of all of these departments and associated agencies would leave the government only one fifth its current size. [Source]
The privatization would be a boon to free enterprise, be subject to market competition, and be more efficient as the incentive to provide the highest quality product or service at the lowest possible price drove down operating costs while maximizing the so called bang-for-the-buck. Further, smaller government would require fewer taxes or possibly no taxes at all. Look for proof of this claim in an upcoming article. Even if taxes were merely reduced, the extra money in the hands of consumers would benefit nearly every person in the country.
We are forced to conclude that efficiency and government are incompatible terms. Every government action is an unnatural imposition on progress. The most efficient government, therefore, is the smallest government.
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2 comments:
I'll drink to that! The interesting question would be to look at a representative sampling of individuals and families and the government services they use. Then compare how much they currently pay for those through taxes vs. what their cost might be through private means.
For example a middle class family with children making a combined 100k and currently paying 30k in taxes. 1/5 is legit by your numbers, so 24k toward what services are they actually using? Education, transportation, etc.
Somewhere the line will fall where need exceeds payment, but I think it would be lower than we might expect. And if 10% are left who can't pay for the needed services, what percentage increase in tax on the remaining 90% would be needed to give those 10% a voucher on the free market or something to that effect?
Not saying these are the answers, just some questions off the top of my head.
-Rick
Hey Rick,
That's a good point and a good line of research. We'd have to keep in mind, though, that each dollar that is taxed from the free market adds to free market inefficiency as well.
The single tax simultaneously makes government and the private sector less efficient.
It would be difficult to isolate a variable in that environment.
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