When all is said and done, a lot of your money goes towards paying the government to do whatever it does for us. You pay income taxes, FICA, sales taxes, and hidden taxes everywhere, because every middle-man builds taxes into his cost as does every service provider. When you pay a lawyer he doesn’t charge you tax on top of his bill, but he might as well because he pays taxes, and that is part of where your bill goes to.
It’s your right as a citizen to be concerned how and on what your money is spent. It doesn’t belong to the government, it belongs to you, and the government belongs to you too. The people who work in government are there at your mercy, because you have the power to vote people into office who can terminate their jobs.
The job of the government is to get certain things done. My question is whether government gets things done as well as the private sector does.
The main problem is inherent in the system, and it’s simple to understand. The problem is that people in government have a built-in incentive to spend more money, whereas people in the private sector are incentivised to spend less. Here’s how it works…
Let’s say you get hired into a government position. It’s an entry-level position that doesn’t pay much, but you’re interested in climbing the ladder and getting paid more. How do you do it? You either get promoted, or you find out a way to hire an assistant. You see, the more people you manage, the higher your pay. So you tell your boss that you’ve got too much work for one person, you need someone you can manage. So you get another person. Then you repeat the process a few times. Then you’ll need a secretary just to help you manage all these people. Then you’ll need a tech guy to support them, and another secretary, and so forth. Soon you’ll have a department of 30 people working for you. If you have 30 people working for you, you must be doing a lot, and so you better have a salary to reflect that.
But won’t my bosses crack down on this? Of course not, the more people you manage, the more people they manage. They’d love to manage more managers such as yourself.
Contrast this with the private sector. You get an entry-level job. You want to climb the ladder. What do you do? You work hard and produce results so that you can get promoted. As you get promoted you get management opportunities. And management gets paid more.
Either way, the way you make more money is to get people under you. In government, you do it by bringing in new people and sticking them under you. In the private sector, you do it by climbing over the ones who are already there. It’s kind of like raising a large ship in the one of the locks on the Panama Canal vs. sending a ship up a river.
So why don’t people in government try to get promoted the way people in the private sector do? Well, the truth is they do, and they do it a lot. But it’s easier to do it the other way in government. If it’s easier, why don’t people in the private sector do it the way they would in government? They do, but they don’t do it much, and the reason is that they’d get fired.
Over time, government becomes more and more bureaucratic. So do businesses in the private sector, but they generally never become as bureaucratic and the process is much slower.
So why this disparity? The answer is profitability. That gap between what your organization brings in and what it spends. Profitability creates incentives, and in order for someone to receive an incentive there must be accountability, or the ability to measure performance.
Here in Utah, we have a company called Novell. You may have heard of them even if you don’t live in Utah because they used to be the largest networking software company in the world before Microsoft killed them. Novell hasn’t been profitable for three or four years. As a result, they haven’t given out bonuses to their employees. However, at the end of 2004 they were profitable. And they gave out bonuses. Everyone at Novell knows that if they’re profitable again in 2005 they’ll get bonuses again.
If you were an employee at Novell and wanted to get paid more, you could try it two ways. Get more employees under you, get promoted, or get a bonus, or a combination of those. If you go and try to hire more employees under you, what’s going to happen? Your boss is going to ask “Will this make us more profitable or less profitable?” Then you’re going to have to make a case for hiring these people.
But wait, isn’t this exactly what would happen in government? They wouldn’t just let people hire people whenever they want to, right? Yes, that’s true, but here’s the difference. At Novell, the question is whether or not hiring people will aid or hinder profitability. At the government, there is no such thing as profitability, so the question is will hiring more people help certain tasks get done. The answer is always “yes” to the latter, and so people will always get hired. But what about budgets? Budgets in the government will always get spent, and the next year they’ll ask for more.
At Novell, the boss won’t so easily let those he manages hire more people because he knows he’s going to have to justify it in terms of profitability. Yes, hiring more people might make him look more important, and that trend could continue up the chain, but at some level someone is going to say “We’re spending too much money in this department” and then comparisons start being made. “Why is Larry the Manager spending so much doing his job when so and so over here isn’t?” Nobody knows for sure, but Larry’s job is suddenly in danger.
You see, Larry gets rewarded for doing more with less, because higher productivity is what generates larger profits, and ultimately at some level of management someone will step in and make sure money is only being spent where it needs to be spent. The top management in a company knows that if they’re more profitable that means more bonuses for them. If they’re a public company, they know they’ll be punished by the stock market if they’re not profitable, and they may lose their job.
In the private sector, there is a natural pattern of correcting influences that keep companies from becoming uselessly bureaucratic. That’s the beauty of a capitalistic society or a market-driven economy. In government, there is no naturally occurring incentive to keep costs down. The only way this happens is for those at the top to create systems of forced accountability (as opposed to natural accountability) and to focus on hiring people who are self-accounting. This is not easy.
Once you understand the dynamics that make government inefficient compared to private industry, you can see why socialism failed in the Soviet Union. Not only was the dynamic present in government in the U.S. present in their government, but it extended to their businesses as well, and the entire economy fell apart.
Economically speaking, in an ideal world, government would be a thin layer of bureaucrats, and perhaps would be composed completely of volunteers from the private sector. Taxes could be almost completely eliminated, increasing the productivity of the nation by almost double overnight. However, this is far from an ideal world. There are problems such as national defense and crime that make a large government necessary. But there are still areas in which the government can save plenty of money, which could then be used to cut taxes and stimulate the economy.
I don’t pretend to be an inside when it comes to government waste, but here’s one example. A few years ago I hired a web designer who was previously employed by the state of Utah. He was willing to take a pay cut because he said his job at the state was too boring. He was getting paid $45K per year plus benefits to do what he described as “about two hours of work per week.” The rest of the time he sat working on his own website or surfing the web. When I asked him if the state employed other people in similar positions, he said just about every department had a webmaster like him, so there were about 25 of them and none of them did much work either.
Let’s do the math. If an employee gets paid $45,000 then their actual cost to the employer is usually about 10% more than that. 10% x 45,000 = $49,500. $49,500 x 25 = $1,237,500. Now let’s assume the work each of these people do could really be done in 2 hrs per week. In other words, at 1/20th the cost, based on a 40-hour work week. That would reduce the cost to $61,875 per year, resulting in total savings of $1,175,625 per year.
Even assuming that my former employee was exaggerating, it seems obvious that a substantial amount of money was being wasted, and this is one of those areas you never even hear about. And if you take a look at Utah’s state website, it’s not that great either. You could turn this over to a private company for $50-100K per year and get much better results.
IT IS OBVIOUS THAT YOU ARE IN FAVOUR OF PRIVATIZATION. DON’T YOU THINK THAT IT WOULD BE DANGEROUS FOR THE PRODUCTION OF PUBLIC GOOD BE PLACED IN THE HANDS OF THE PRIVATE SECTOR?
Mmmmm, I’m afraid I don’t know what you mean well enough to answer. It depends on what you mean by “production of public good”.
This is a GROSS misrepresentation of how to get a promotion in the government, at least the Federal government. In the federal government each agency is appropriated a certain amount of money. You want to complain about spending, complain to congress, who, consequently approves the budget for each agency. A federal employee is on the GS scale. Each grade level is assigned duties, including mnagerial duties. Getting approval for an extra FTE is an insanly impossible process as the budget is always tight.
Also, it is insanely stupid for you to assume that Federal employees get promoted by their ability to hire more employees rather than on merit. There are many hard working, highly educated, poorly paid employees who work for the government out of their duty to protect the greater public good.
You really should know more about what you’re preaching against.
There may very well be lots of hard working, well intentioned people with federal jobs. It may be hard to get funding for another FTE. Budgets may be tight, and all the problems may be the fault of congress. But none of those is really my point. My point is that there are systemic problems with governments that are inherent at the core of what government is, and some of those problems are mitigated in the private sector because the private sector works in different ways at its core. It’s not about good vs. bad, hard working vs. lazy, etc. It’s really about efficient vs. inefficient, or works vs. doesn’t work.
What I’m advocating is the idea that there are things that federal and state governments do that could be better handled by the private sector. Some things have been privatized to the benefit of society at large, like the phone industry. Other things still need to be, like education for example. Some cannot be although they suffer due to the same systemic problems, such as the IRS.
I don’t have a problem with 20 people working at the federal level. What I have a problem with is 20 people doing a job that, with some creativity and maybe some policy changes, could be done by 2 people at one-tenth the cost. Those 20 people may be working hard, but is what they’re working hard at really necessary? I don’t see incentives in government for people to get creative and figure out ways to save money, whereas in the private sector there is a bulit-in incentive.
The private sector should be involved only when the task is something the government can’t, won’t or shouldn’t do and vice versa. It’s like the healthcare debate shows in the myth that Medicare is an example of how government is better than the private sector.
Medicare doesn’t follow the same rules it imposes on the private sector, doesn’t have to worry about taxes and doesn’t have the costs the private sector does.
I worked for the federal government for 10 years for the Department of Defense and the Health and Human Resources. I have never seen such waste in my life on new construction. I had to spend more money every year in order to get the same amount of money the following year. There is no incentive to be efficient.
You are a idiot… You better go back to community college.
Interesting argument… But the assumption that business is more efficient than government because of profit motive is flawed. I’ve studied and consulted many for-profit organizations. I have not seen any of those organizations that did not need help from an efficiency standpoint. What I do see is the adherence to profit motive (for shareholders) above all other stakeholders (employees, customers, community, environment, etc…). Government, at least, says that they are in place to advance the public good.
Also, there are examples of efficient government organizations, such as the U.S. military and the Post Office. I agree with you that some areas are most likely better run in the private sector (selling shoes) or more locally (i.e. education), but government is not necessarily as wasteful as business. The problem is that government waste comes in the form of tax dollars. I have no problem paying taxes for military, infrastructure, research and the like. But I am with you on one thing, I would like to see tax dollars used effectively and we should hold our leaders accountable if that does not happen.
By the way, we have no way of voting out poor leadership in for-profit organizations. Democracy tends not to exist there. Accountability does come in the form of profitability. But profit motive also leads to greed. Greed may have unintended positive consequence in some cases, but left unchecked will ensure negative consequences witnessed by the home mortgage fiasco. So to sum up, I am not absolutely sure for-profit is more efficient than government (both tend to be inefficient), and working for public good vs. greed and profit motive is a more acceptable model when we need institutions that help people as well as protect them from harm. What I would like to see is empirical research done on the topic, because I think it is a fascinating question.
I’m surprised anyone would bring up the Post Office as an example of government efficiency. They are billions of dollars in the red and are going to require a bailout, once again, to keep operating. And does anyone who has used the Post Offices services really think that’s the model of efficiency? If so, then we’ve been trained as a society to have low expectations of what’s possible. How about no lines? How about multiple deliveries per day? How about employees who care? But that’s the thing, what’s the incentive for a Post Office employee? They’ve got a union, so they don’t have to worry about job security or their level of pay. The management doesn’t have to worry either. And they’ve got a government-mandated monopoly. There’s little, if any, incentive to improve their service or operate without it costing us taxpayers billions on top of the fees we already pay the Post Office. In a competitive, private enterprise situation the employees who don’t perform would have to shape up or be fired, management would be held to performance based standards, and the company as a whole would operate better because they would know that if they don’t–they’ll be out of business and everyone will lose their job. This doesn’t exist in the Post Office, which is why we all suffer from their poor service. But if we don’t even know we’re suffering then man, we’re really in trouble.
As for the military, again, it’s not the model of efficiency. There is a tremendous amount of money being wasted. The military certainly gets things done, but at what cost? Not that I’m advocating turning the military over to private companies. That’s a much stickier issue than that of the Post Office for obvious reasons.
Actually, we do have a way to vote out poor leadership in for-profit organizations. In fact, we probably have more power to influence leaders of private corporations than we do to influence our politicians. It’s called “don’t buy it”. If two companies make a product or provide a service, as consumers we tend to buy the better product or service. The company that provides the best product/service does well and grows, and the other languishes or goes out of business. Of course this doesn’t happen instantly, and so we see all sorts of situations where the worse product is the leader while the better product languishes. But in the long run we have constant improvement because consumers are free to choose between the products and services offered to them.
This process results in better and better products and services at lower and lower prices. The only time the process doesn’t work is when there is interference, which comes principally from government regulation. If you see a product or service that gets worse and worse while also getting more and more expensive, you can bet there’s a healthy dose of government regulation involved. Healthcare is probably the best example.
Profit motive does not lead to greed. Greed exists independent of any other factor. And greed is not just about money, but also about power. If you got rid of all corporate profits, you’d still have greed and its manifestations. The way to minimize the damage greed does is to let the free market function with government regulation being used primarily to promote transparency. When there is transparency, then corporations must provide products and services that benefit consumers, otherwise they go out of business. Government regulations that favor one business over another, or one industry over another, allow greed to play a greater role than they would otherwise. Again, healthcare is a great example in that it is government regulation that prohibits health insurance companies from selling across state lines. This allows health insurance companies to carve out small quasi-monopolies, provide poor service, and raise prices at the same time. If government regulations were removed then there would be much more competition, and prices would drop while quality of care would improve. The problem is that politicians and health insurance companies exist in a symbiotic relationship where they provide favors to each other at our expense, and until we wake up, get educated, and vote the greedy politicians out, we’re going to be at the mercy of their greed.
Regarding the home mortgage fiasco, this was also caused by government, not private industry. Even if there were zero greed in the mortgage industry we’d probably still be in the same situation. Private industry merely responded to the crooked incentives government gave them. If the government hadn’t set up Fannie Mae and Freddie Mac to buy mortgages, then mortgage companies and other lending institutions would have had to take the risk of managing those loans themselves and potentially losing out if the home buyer defaulted. But government came in and said “We’ll buy your loans, regardless of the quality of those loans.” In addition, government came in and said “If you don’t make more loans to poor people, we’re going to make life tough for you.” The government virtually forced mortgage companies to make loans to anyone and everyone, regardless of whether those buyers were capable of making the payments. If government hadn’t gotten involved there would have been no housing bubble and we might not be in the current recession at all. The trouble is, the government hasn’t stopped their bad behavior. They’re still encouraging companies to make bad loans, thank you Barney Frank.
So far every argument that says the government is less efficient than private industry depends on “lets do the math” economic theories, but once you start looking at the numbers that actually measure economic reality the argument looses ground fast.
One can start by looking at the debts to GDP for each sector. Government debt is the lowest of all at only 60%, while the private financial sector (where all the money experts are supposed to be) the debt is above 250% of the GDP. You can see the same patterns in the overhead costs for Medicare (5%) compared to the average for the private insurance industry (20%).
Maybe when people get over this fear of their own democracy, they will have the ability to see that ALL systems are less than 100% efficient and that government waste is consistently lower than waste in the private sector.
Nigel, those are some pretty wild comparisons. While some of it might be true, it’s not exactly an apples to apples comparison (more like apples to oranges).
If GDP = Income on a national level, then debt relative to GDP could be translated as Debt relative to Income. As an example, lets imagine a person that has $100,000 in annual income and has a $350,000 mortgage. This would equate to a debt to income ratio of 350%. Is this person in trouble given that they have a $100,000 annual income and a $350,000 mortgage with no other debt? Most people would say NO. Is there risk present? Sure there is, but if he loses his job, it’s not the end of the world. Furthermore, a private company (or individual) could apply up to 100% of Net Income towards a debt whereas the government cannot (unless taxes are increased to 100%).
A better comparison would be debt to US Govt. Receipts (not GDP). Typically, tax revenue is around 20% or less of GDP. Do the math there and your argument starts to fall apart.
EMPLOYEES IN THE PRIVATE SECTOR HAVE A 50% BETTER CHANCE OF LOSING THEIR JOBS THAN THE GOVERNMENT EMPLOYEES. ENTRY LEVEL JOBS ARE MORE READILY AVAILABLE AND THE GOVERNMENT POSITIONS HAVE ALWAYS BEEN SHOWN AS THE SAFE CAREER OPTION WITH MORE JOB SECURITY. THIS IS DUE TO TO THE FACT THAT GOVERNMENT IS RESPONSIBLE FOR THE LABOR ACTS AND LAWS, SO THEY HAVE TO ADHERE TO THEM. GOVERNMENT ALSO HAS TO GIVE MORE ATTENTION TO LABOR UNIONS AND THEIR DEMANDS. EVEN IF AN EMPLOYEE DOES NOT DESERVE A PAY RAISE EVERYBODY RECEIVES A YEARLY INCREASE. THIS TYPE OF JOB SECURITY LACKS IN THE PRIVATE SECTOR. I DOUBT THE PRIVATE SECTOR WOULD CARE ABOUT STUDENT LOANS. NO I WILL ALWAYS TRUST THE GOVERNMENT OVER THE PRIVATE SECTOR ANYDAY.
Neal, you’ve given the first legitimate answer to the question posed in the post title–what does the government do better than the private sector? Waste money. As you state, the government wastes money by keeping people employed who would be fired if they were working in the private sector. The government wastes money by paying employees more than what they would get paid for the same work in the private sector. And the government wastes money by providing better benefits than what the private sector might offer. Yes, the government does a fine job of taxing us, printing money, and going into debt to provide high wages, job security, and nice benefits to government workers. We all suffer for it as we see more money taken from our paychecks, our savings and retirement accounts devalued, and our children saddled with ever increasing mountains of debt, but hey, at least we can have the satisfaction of knowing those government workers are getting a sweet deal.
Wraith, I disagree. GDP is the grand total of all receipts private AND public which is why it makes such a good reference for comparing private and public sectors. I’m not really clear why you think otherwise, your arguments don’t make sense. You mention that the world won’t end if someone has a 350% debt to income ratio. Well, that’s just marginalizing the significance of a high debt-to-income ratio; I fail to understand how that affects my argument. Then you say that the private sector can apply 100% of it’s net income to debt while the government can’t (unless it raises taxes to 100%). That doesn’t make any sense either… First of all, the government doesn’t get a “net income”. (So if anyone is comparing apples and oranges here…) What the government gets is everything that isn’t net income and secondly, it CAN apply 100% of that income toward debt just like any other borrower.
Joshua – Thanks for more of the same old stereotyping we see day in and day out… Maybe it’s news to you but people DO get fired in the public sector and the private sector suffers from no shortage of incompetent employees that keep their jobs for various personal or political reasons, or because they work for incompetent managers. Also the private sector also takes money from your paycheck. Don’t you ever pay bills? Also, “printing money” is an antiquated term that comes from the days before computer systems can simply add zeros to an account balance to inflate the money supply and that’s something the Federal Reserve does and the Federal Reserve is NOT the government it’s a cartel of private banks that we allow to control our money. So, check your facts.
Nigel-If you want to discuss facts, then let’s discuss facts, not semantics and exceptions to norms.
Of course government jobs aren’t 100% secure and stable, but statistically you are much less likely to be let go or fired from a government jobs vs. a private sector job. You are statistically likely to be paid more in a government job than if you take a job in the private sector (see http://www.cato.org/pubs/tbb/tbb-0605-35.pdf). And it’s not just a small difference. The stereotypes exist because they’re based on facts.
And of course there is incompetency and waste in the private sector. But the Darwinistic nature of free markets acts to squeeze out inefficiencies, so that incompetency and waste are temporary anomalies whose time is measured. But whereas marketplace reactions to waste and inefficiency can be fast and harsh in the private sector, in the government the reaction is not only slow, but ofttimes waste and inefficiency are rewarded with larger budgets.
Yes, private companies take money from my pocket just as the government does in exchange for products and services. The differences are that the private sector generally (if not always); 1) provides a higher quality product or service at a lower cost, 2) offers choices vs. one size fits all, 3) gives me the freedom to not use the product/service and not pay for it. Examples: health care, post office, pre-privatization phone service, etc. Is there any doubt that if the government took over providing ISP services that we’d see slower speeds at a higher cost? We’d probably all still be on dial-up if the government were in control of Internet connectivity. And not only would the government charge us a fee for Internet service, but they’d subsidize the money they lost on the service with our taxes, so that even if we didn’t want Internet service we’d still be paying for it.
Whether you want to call increasing the money supply “printing money” or something else, it’s still the same thing, and arguing about whether it’s an “antiquated term” or not is purposeless. The point is the government uses the Fed to increase the money supply to pay off debts, making the cash we hold in savings and retirement accounts worth less.
As for the Fed being or not being technically part of the government, that’s also a pointless argument. If the Fed is increasing the money supply it is doing it because our government is allowing or encouraging it to. The outcome is the same whether or not you choose to see the Fed as an extension of the government.
So an exception to the norm isn’t a fact? What is a fact Josh? Do we have to go to the Cato Institute to find them?
BTW, I get a 404 error when using your link so I don’t know what your reference is all about but I do know that what you are suggesting is nearly impossible to verify. There are over 300 million people in this country; do you really think you can pin-point the “norm” based on the statistics of one report?
You can make statistical assessments based on what information you have or what information Cato chooses to filter but that doesn’t make your resulting perception (that government is more liberal with the payroll than a private companies are) anything more than a perception of what you think the norm is and worse still, a settled conviction about what we see in the data.
I would have to actually see the report to be any more specific but most reports that I’ve seen portray national trends tend to leave a lot of factors out. Such as the Obama administration saying that their programs are creating jobs. There are really too many variables to really know for sure but they can certainly select a sub-set of convenient “facts” to produce a favorable perception just like a think-tank with motives, such as Cato can.
On the other hand look at the examples that you refer to as non-factual exceptions to what you’re calling the “norm”, such as the hundreds of thousands of executives making over $500,000 a year. Show me where in the government people are paid that much. Even the presidents make more money once they rejoin the private sector. Ask any one in the military if they think they are over-paid and see what they say. Most of them make more money when they go civilian too. I’m afraid I disagree with you here Josh, I think overpaid employees are the result of numerous factors that have more to do with supply and demand than whether or not you are a government employee or not.
Also, the “Darwinistic” nature of free markets does NOT squeeze out inefficiencies. I know it’s supposed to but the difference between an economic theory on paper and an economic theory applied to the real world is profound enough to at least notice. Free-market theory has as much chance of success in the real world as Marxist theory does. Both theories require total commitment which is unattainable in a global economy. What you have instead is are entities leveraging capital in a war of attrition over the market with the intention of eliminating the very competition that’s supposed to squeeze out the inefficiencies and since a private company can leverage capital to influence the government, there is only enough free-market to eliminate protection for smaller fish, but not enough to prevent protection for the bigger fish and when the big fish corner a market the theory no longer applies.
The assumption that private companies provides higher quality products or services at a lower cost is a fallacy. The health care debate, if nothing else, has wrung out substantial evidence that people often get a bigger bang for the buck through the government than through the private sector. For instance, the 5% overhead cost of Medicare vs the 20% overhead cost for private insurance. Government also has the ability to offer choices and the private sector has the ability to limit your choices. It’s really not as black and white as you say it is. For instance, one of the least regulated sectors in the communications field, wireless networks limit your choice of phones. If I use Verizon I can’t use an iPhone and it’s not a simple matter of switching networks, Verizon is the only network that covers my area so my choice is to not use an iPhone, not because it wouldn’t work but because Verizon and Apple don’t have a deal. This would be equivalent to the government telling me that I can’t drive a Ford Mustang on an interstate freeway.
The only thing that would effect the speed and cost of an ISP is available technology and demand for bandwidth. I doubt that private vs public ownership would make any difference.
Finally, the purpose behind stressing the difference between inflating the money supply with paper or electronically is that paper is printed by the government and electronic inflation is triggered by the Fed, NOT the government. Also, you have everything backward with regard to the Fed. The government technically has no authority over the Fed. The Fed responds to the needs of its member banks, many of which are involved with corporate lobbies in Washington. Indeed, the government and the Fed work together on monetary policies, but if you think it’s the government doing the orchestration, then you are gravely mistaken.
The link’s working now, not sure what happened there.
I’ll stand corrected on my claim “You are statistically likely to be paid more in a government job than if you take a job in the private sector.” That was a rash and uninformed claim on my part, since while true in many circumstances, it’s also not true in many others, depending on the specific job. I don’t have the time digging up data for the other one, but here’s a quick and easy article on the topic and I’m going to resist the temptation to resort to anecdotal evidence.
But on to the other topics of debate…
I’m not sure what you mean when you say “free market theory”, but for my part I don’t advocate 100% free markets. I think there is a healthy balance between government regulation and free markets. I think when we go too far toward government regulation we end up with a form of tyranny, and when we go too far in the direction of free markets we end up with anarchy, neither of which are beneficial to society. For me, the argument is not whether we should have one or the other, but where the balance is. Obviously I’m of the opinion that the United States has moved too far towards the government regulation side of things, and that we should move in the other direction. That doesn’t mean I think we should abolish government, but I don’t see measures to grow government as being positive, given where we are on the line between 100% government control and 100% free markets.
I do maintain that free markets squeeze out inefficiencies, and where they don’t, it’s often due to government regulation, rather than a lack of it or because the government doesn’t do it itself. When private companies influence government to protect their industry, this is the antithesis of free markets. I think if you did the research, you’d find that in instances where a market has been “cornered” you’d find that the government had a hand in making it possible, whereas if free markets had truly been operating, cornering the market would have been impossible, or at least unsustainable. Build a wall of separation between business and state, and we would see a more even playing field for smaller businesses to compete against large ones, greater innovation, and inefficiencies being wrung out of the system.
The private vs. public health care argument doesn’t pass the smell test. Why would private insurance companies willingly spend so much on overhead to provide their services if it’s so easy for that overhead to be eliminated? It’s in their interest to get rid of the overhead because that would greatly increase their profits. And if the government is so much more efficient in its managing of health care, why is Medicare bordering on insolvency? Something doesn’t make sense here.
I know part of the answer, at least. A large part of the overhead costs private health care providers deal with is all the extra paperwork they have to do in order to comply with government regulation. If I walk into a hospital and ask for an MRI, they’ll charge my insurance company $1,500. If I tell them I’ll pay out of pocket, they’ll charge me $1,000 (I just went through this about a year ago). Why? Because if I pay them directly, they don’t have to deal with all the paperwork. Why is there so much paperwork? Because health care is so highly regulated by the government. If we want to eliminate the overhead, then lets get government out of health care regulation. How ironic that the very people who have created the problem through over-regulation are the ones who say they can solve it through more regulation.
The phone example doesn’t hold water in this argument either. How many options for phones did we have when the government ran our phone company? I think there were two, and phone service was lame. How many options do we have for phones today? Hundreds, thousands? Is it coincidence that we’ve had an explosion of innovation in the phone industry since the government de-regulated it? And for the record, the iPhone is coming to Verizon in the next few years. The lack of choice is a temporary one, that will be overcome in due time by free market forces. If the government were still managing our phone service, we wouldn’t have the iPhone, if we had mobile phones at all.
Regarding Internet, Utah, where I live, is in the midst of an interesting experiment. A $500 million, government managed plan was rolled out almost 10 years ago. The idea was to bring fiber optic cable to residents in 18 cities, including Salt Lake City. The city I live in is right in the middle of the other cities that opted into the program, but my city declined it because it meant they would be going into debt to fund the project, and they didn’t think it was viable. Today, the project is over budget, and I haven’t heard of a single residential customer with fiber running to their home. I don’t know anyone benefiting from this project. On the other hand, I have 15 mbps Internet to my house, via Comcast, for $90/month. Two years ago I was paying the same price for half the speed. And the city I live in doesn’t have the huge debt burden with little or nothing to show for it like the other cities that opted into the program. Public option = hundreds of millions in debt, and nothing to show for it after almost 10 years. Private option = zero debt for municipalities, continuous service during the same time period, with ever increasing speeds and ever decreasing prices.
I think the “orchestration” going on with the money supply is a combined effort of the Fed and our Federal Government. The point is that our government could abolish/control/restrain the Fed overnight if it wanted to, and any refusal to do so is an endorsement of its policies. For the record, if I ever use the phrase “printing money” in the future you can take it to mean “increasing the money supply”. When I say “printing” I mean “creating” or “increasing” the amount of money.
Well Josh, we seem to disagree on a few things. I’ll just respond to your point about a healthy balance between too much government regulation, which you say leads to a form of tyranny and total market freedom, which you say leads to anarchy.
You seem to be suggesting that regulation can only come from government, but the way I see it, regulation comes from people who want things to work a certain way and is enforced by whatever organization they have influence over, public or otherwise. From this open perspective it becomes apparent, at least to me, that the market is always regulated by one influence or another and that pushing government regulation out only makes room for corporate regulation. So the question becomes, which type of regulation is better, and I think the answer depends on how you relate to the circumstances.
When the IMF gave Bolivia a choice to either go bankrupt or deregulate it’s markets, the news was good for the stock holders of Bechtel because it lead to a 40-year contract to take over water utilities there, but it was bad news for the residents when Bechtel explained that rates would go up 93% in the first five years and that the residents had no other option. It’s not anarchy that we find at the extremities of the free market, it’s order according to the highest bidder, which can in many cases be a form of tyranny.
I’m convinced that Thomas Jefferson’s concern over tyranny had more to do with private corporations than any kind of government. He once said that “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” The fact is that private firms with enough control over the market CAN and DO take choices away from people.
I stress this because I’m concerned that a large part of the voting public are reacting to a culture movement based on free market ideas that made more sense 30 years ago. Back then there was a wider distribution of money making competition a bigger factor and our economy wasn’t as “globalized” as it is now At any point after the dot-com boom, I would equate free market advocacy to over steering.
I think you have the right idea. There should be a balance somewhere between the extremes but when you describe the extremes in terms of how much government there is, you are really only describing one side of the balance. I think it’s advisable to scrutinize our government, it was designed for that, but I also think it’s advisable to scrutinize the corporation with equal vigor since the corporation is no less capable of tyranny.
I think we may mostly agree on the substance of issues, but not so much on semantics.
I don’t know anything about the Bechtel case so it’s difficult to comment. There are circumstances under which a 93% increase in fees would be acceptable, such as if the water rates were ridiculously low, and the rate increase was accompanied by many people being able to get water piped in who previously had to bring it out of a well with buckets. But for the sake of argument, I’ll assume water rates were already prohibitively high, and the increase was not accompanied by any sort of increased access or quality, and let’s even assume access and quality went down, so that it was a negative for everyone involved except Bechtel. If such a thing happened, then that isn’t a reflection on free markets so much as it is on Bolivia’s government, since they’re the ones who agreed to this deal with Bechtel. If they made a deal that is a raw one for the people of Bolivia, then the people of Bolivia aren’t being well represented by their government, which should have shopped around for a better deal, negotiated better terms, etc. You might say that Bechtel or the IMF coerced or corrupted Bolivia’s government into accepting a raw deal, but again, that’s not the fault of free markets, that’s corruption.
I agree private firms can and do take choices away from people, but in many cases, if not most or all, they are aided and abetted by our government whom they lobby for special favors, thus undermining free market principles. Our politicians try to make the case that whenever they create more regulations, they are restraining unscrupulous businessmen. But it seems to me that more often than not, they are in bed with the unscrupulous businessmen, and the regulations serve the interests of the very businessmen they supposedly restrain. One example is this recent increased regulation of the lead content in children’s products. The politicians sold this under the guise of “protecting the children” but the levels of lead they’re “protecting” against are beyond what’s reasonable, but worst of all the regulation applies to children’s products that are re-sold by thrift stores, charities, etc. The effective result is that many smaller toy companies have been put out of business because they can’t afford the testing requirements, and many charitable organizations that sell second-hand goods have also been run out of business. All of this benefits large corporations that can spread the cost of testing across a larger volume of products. Now they have less competition from smaller toy companies and the second-hand market.
Another example is how the FDA makes drug testing regulations so expensive that only huge mega-corporations can afford the process, forcing out smaller competitors. It’s done under the guise of consumer safety, and the FDA can point to unsafe drugs it kept off the market, but what about all the drugs that could have saved and improved lives but were never created because FDA restrictions make it cost-prohibitive for companies to focus on anything other than blockbuster drugs? Maybe more people would be alive and/or living higher quality lives if there had never been an FDA to begin with. But of course then politicians couldn’t take credit for anything.
I think the problem is that we have politicians looking to score points to stay in power and grow their power, and it’s hard to do that with a hands-off approach. They feel like they need to look busy, so they create regulations to “protect” us, but whether or not these regulations do any good or not isn’t the point so much as whether or not the politician comes away looking like a great guy. Then you get the corporations in bed with the process and it snowballs into the regulatory nightmare we have right now where the tax code is 70,000 pages and there are so many laws being passed it’s hard for anyone to keep up with them and the question no longer is “What is good?” or “What is right?” but rather “What is legal?”
Anyway…have you read the book Liberal Fascism? I think you’d find it pretty interesting. It opened my eyes to the interactions of business and government and helped convince me there needs to be a wall between the two in order to protect the general public against corporations and government colluding against us.
Sometimes I forget that so many Americans have no idea what Bechtel did in Bolivia. I think that if you were familiar with the story you would find it much harder to blame the Bolivian government for signing the contract. Bolivia, being mostly dependent on agriculture, had suffered some setbacks including a severe drought and needed a loan and apparently, the IMF was their only option. Keep in mind that foreign currencies are based on the dollar, so when a foreign country needs money they have to actually borrow it. We are the only country in the world that can simply “print” more. Kind of an unfair deal, but then again, we’re the country with the big stick remember? The IMF told Bolivia that to get the money they HAD to deregulate and when Bechtel stepped into the newly liberated market, they didn’t say anything about a 90% increase until AFTER the free-market deal was signed. So it had nothing to do with shopping around for a good deal.
As it turned out, the Bolivians that were being forced to spend about 20% of their income on water bills, while others that couldn’t afford it went without water at all, took to the streets. Of course the only authority that had any interest in the well-being of the people was the government and they soon canceled the contract. Bechtel then turned around and sued the country for $25 million. Granted, this is an extreme case. I’m not saying that every company does this but before you start talking about “norms” you really need to do something that Americans rarely ever do, you need to look outside the U.S. to see how the free market really works. You need to look at the third world where the governments are much weaker against multi-national corporations. You need to see not only what Bechtel did in Bolivia but what Mobil did in Indonesia and what countless corporations have done all around the world while we Americans, protected by a comparatively liberal government, tune into Family Guy. You need to do this because when it comes to the free-market the norm isn’t defined by American Libertarians but the global economy.
I also fail to see how you can blame the government for most of not all cases where private companies take choices away. First of all it simply isn’t true. Most of the examples I can think of have nothing to do with the government and everything to do with corporate policies. A good example is Coke and Pepsi. When American restaurant owners buy Coke, they have to agree not to buy Pepsi and when they buy Pepsi they have to agree not to buy Coke. That’s 100% corporate regulation, which thrives in America where the government does NOT interfere, but in Europe people can enjoy a Pepsi at McDonald’s if they want because the EU DID interfere and told Coke and Pepsi to drop the BS.
Now, I realize there ARE cases where the limits corporations impose on consumers are aided by government regulations, but as you said yourself, these are cases where the corporations have special interest lobbies in Washington, so again it gets back to the corporation. Where do you think the motive comes from? You said yourself that such regulations serve the interests of businessmen. Well, put two and two together. Do you really think it’s all about politicians trying to make themselves look busy? Have you even looked at the congressional agendas? No, it’s about the businessmen trying to eliminate their competition. Blaming the government for regulations that serve the interest of corporations is like blaming a handgun for a robbery. Your FDA example is a perfect example of how corporations use their power to point the government at the targets they want to shoot. Yes, the government is filled with crooked politicians but only because corporations put them there and the people aren’t motivated enough to leverage their voting power to change it. If anything, the people and the corporations are fighting each other for control of the government and the people are loosing because half of them are suckers for anything their corporate dominated parties tell them.
Yes, I have a copy of Goldberg’s book and I read some of it… he brings up some interesting points but the chapters I’ve read are filled with ideas that conflict with a lot of established ideas, it’s hard to tell what he is exposing and what he is distorting, but to link modern liberals with mid-20th century fascism is a fantastic stretch of imagination. I mean the forerunners of the neoconservative movement that hijacked the Republican party were Trotskyists but that doesn’t make George Bush a communist. I’m familiar with Goldberg’s op-eds too and it’s not hard to recognize his bias.
Well, I should probably bow out of debating the Bechtel/Bolivia thingy because I don’t know anything about it, and when I wrote the original post I was only focused on the US. But again, I’m not arguing in favor of 100% free markets everywhere and zero government regulation, I’m in favor of reasonable regulation. I just think we’re way past that in the US.
I’d argue the Coke/Pepsi issue, but it seems kind of insignificant. I mean, is that what we want our government doing, passing regulations to make sure we have adequate choices of cola at McDonalds? Is there a more meaningful example of the same type of thing we can debate?
If the corporations are to blame for bad politicians, then that’s all the more reason for building a wall between government and business. I’d like to see a set of amendments to the constitution limiting the US government’s ability to compete with, regulate, and tax private industry. Maybe something along the lines of Milton Friedman’s economic bill of rights. Whether you think of corporations or politicians as being the culprits, the solution is the same–keep them separated.
Well, the Bechtel/Bolivia “thingy” and the Coke/Pepsi issue were only small examples to support my counter-argument that tyranny doesn’t always come from government – that often enough, it comes from private corporations and in such cases it’s often government that saves people from it. Since you’re suggesting a balance of “reasonable” government regulation, I’ll assume you know this.
I wouldn’t say corporations alone are to blame for bad politicians either. I think ultimately in a democracy, the blame lays with the voters. If people continue to let corporate-dominated parties make choices for them (and that includes Republicans and Democrats), then they will continue to vote in the politicians that corporations want and if that’s the case then what good is a wall between government and business going to do?
Friedman’s economic bill of rights, isn’t suggesting a wall between government and business anyway. A wall keeps either side from passing where Friedman’s economic bill of rights only addresses limitations on government. A better analogy would be a bouncer at the door to the market that keeps the government out but lets business in. As you can imagine by the examples I’ve brought up, I don’t think that’s such a good idea. Maybe if it were combined with equally broad sweeping rules about what corporations can do, at least it would be balanced, but I still don’t think that’s the answer simply because they are such broad sweeping rules and the world is too complex for that. I would prefer that we address issues on a case by case basis and prioritize our sense of judgment and humanity over our obsession with the dollar.
Back to generalizations, I think a basic difference in our perspectives is that where you see a conflict between government and business, I see that only as an signature caused by a deeper struggle between humanity and profit and from my perspective, the last 30 years has pushed the balance way too far in favor of profit. Perhaps we can discuss that.
Well, the Bechtel/Bolivia “thingy” and the Coke/Pepsi issue were only small examples to support my counter-argument that tyranny doesn’t always come from government – that often enough, it comes from private corporations and in such cases it’s often government that saves people from it. Since you’re suggesting a balance of “reasonable” government regulation, I’ll assume you know this.
I wouldn’t say corporations alone are to blame for bad politicians either. I think ultimately in a democracy, the blame lays with the voters. If people continue to let corporate-dominated parties make choices for them (and that includes Republicans and Democrats), then they will continue to vote in the politicians that corporations want and if that’s the case then what good is a wall between government and business going to do?
Friedman’s economic bill of rights, isn’t suggesting a wall between government and business anyway. A wall keeps either side from passing where Friedman’s economic bill of rights only addresses limitations on government. A better analogy would be a bouncer at the door to the market that keeps the government out but lets business in. As you can imagine by the examples I’ve brought up, I don’t think that’s such a good idea. Maybe if it were combined with equally broad sweeping rules about what corporations can do, at least it would be balanced, but I still don’t think that’s the answer simply because they are such broad sweeping rules and the world is too complex for that. I would prefer that we address issues on a case by case basis and prioritize our sense of judgment and humanity over our obsession with the dollar.
Back to generalizations, I think a basic difference in our perspectives is that where you see a conflict between government and business, I see that only as an signature caused by a deeper struggle between humanity and profit and from my perspective, the last 30 years has pushed the balance way too far in favor of profit. Then again, I’m generalizing here. I still think it’s best decided case by case.
I agree the blame ultimately is on voters, and the only cure is education of the voting population (I would stress self-education, not propagandizing from either side).
I think the only regulations necessary to keep corporations in line, for the most part, are those relating to transparency and fraud. I don’t think it’s possible to eliminate bad behavior, but I think when government tries to prevent the behavior through pro-active regulation (Sarbanes-Oxley being one example) they often create more problems than the regulation solves. And I reject the premise that S-O was created for any reason other than to help politicians look like they’re keeping busy and throw a bone to large corporate interests, who once again are protected from smaller competitors since S-O effectively serves as a barrier to entry against smaller companies, but provides no challenge to large entities.
On the larger topic of humanity and profit, I don’t see any conflict between the two, in fact, I think profits serve humanity. The Soviet Union had no focus on profits like the US, and I think it would be hard to argue that the Soviet Union served humanity better than the US. Generally, profits are what result when companies provide goods and services that benefit humanity. Companies that don’t benefit humanity don’t generate profits and go out of business. Some companies might engage in fraud, but these instances are the exception rather than the rule, and are generally short-lived (I would cite the Federal Reserve as being a possible exception to “short-lived”).
The amazing progress made by companies based in the United States over the past 60 years was driven by profits, and has been of inestimable value to humanity–extending and improving life and raising standards of living, not just in the US but worldwide. In part, this has been made possible by government regulations that protect property and prevent fraud, but also in spite of government regulations that favor certain corporate interests over others, stifle competition, bail out companies/industries that should be allowed to fail, skew market data, and generally make it harder to run a business.
Anyway, but yes, there are many things that need to be taken case by case, although I wouldn’t be opposed to wiping out the majority of the regulations Congress has come up with during the past 200 years and starting over with just the Constitution and some of the amendments.
Seems we agree on the responsibility of the vote and the educational prerequisite that comes with it. I will also agree that fraud is one of the most important areas of focus for government regulation of industry but I would still prefer to see human dignity and the quality of life recognized as threshold values when deciding what industry is allowed to do simply because industry HAS been known to cross those lines. Besides, what good is transparency by itself if we’re allowed to do whatever we want anyway? I also agree with you on the absurdity of Sarbines-Oxley… Keep in mind, I never said government regulation is always a good thing. This is why I’ve already stated the importance of scrutinizing both government AND business. I’m not taking sides here, quite the contrary; my entire purpose of argument is to point out the dangers of doing so, especially when the conflict is fabricated to start with. This is why I bring up the conflict between profit and humanity.
Rhetoric has always been used to rally people to one side of a conflict they don’t understand, quite often to their disadvantage. One example would be the illusion that America is an evil empire that wants to take over the world. For conservative mindsets in the Middle-East that don’t want the liberal economics of the west interfering with their traditional claims, this illusion presents a way to broadcast anti-American sentiment to people who may actually benefit from liberal economics. The notion that the government is a self-serving entity is another example of the same thing, in this case the illusion is stressed primarily by conservatives defending their economic advantages against the power of democracy and once again, the illusion succeeds in getting people to turn on their potential saviors.
Josh, don’t fall for the BS. Our government is not a self-serving entity. Everything the government does is requested by the citizens it represents, which according to accepted interpretations of the 14th Amendment includes U.S. based corporations. So if a government regulation is impeding the success of one company, it’s probably because another company was able to get the government to legislate it – or maybe it was a petition of individuals – either way, the contention is between citizens. If anything, the government is the battleground and that’s what leads to my point about the conflict between profit and humanity, which I see as two interests battling for control of the government. Actually, it would be more accurate to describe the problem as an indifference between profit and humanity. So yes, humanity can benefit from profit (although I think you could have found a better example…the reason why Americans enjoyed a higher living standard during the cold war than the Russians did was because Americans were consuming far greater quantities of energy – that drove the profits and elevated living standards, neither of which depended on the other per se). Since profit is indifferent to humanity there is potential for both human advantage and disadvantage, so we can spend all day bringing up examples of both. The point of specifically bringing up the disadvantage is to stress the conflict rather than the mutual benefits, only because it’s the conflict, not the mutual benefits that create opposing interests in the government. As long as profit remains indifferent to humanity, and by it’s nature it always will be, the humanity will always need some kind of insurance and like it or not, our constitutional democracy is the only asset we currently have that can raise our sense of humanity to equal terms with profit.
It simply blows my mind that a nation that clings to it’s right to bear arms can at the same time surrender their power of democracy piece by piece on the half-baked idea that profit will always serve humanity. I guess that’s what happens when citizens of a superpower spend 70 years in splendid isolation. Given the sentiments I’ve described, I pray we get another 70 years of the same, but global economics tells us that isn’t going to happen.
Josh – quick footnote: please don’t assume that I am equating the corporation to profit. I think the potential conflicts between profit and humanity run right through the interiors of the corporation itself, which on good days can do amazing things for humanity. But when conflicts arise between the interests of profit and the interests of humanity, entities made of money will rally behind profit and entities made of laws will rally behind humanity.
Joshua,
I’m just picking at random some of your arguments…
Post Office–I’d like to see a private entity offer me the ability to send a hand-written letter or other document to any address in the country for less than 50 cents. They provide a public good that would not be provided by the private sector, as they have for generations. People use the Post Office because it’s cheap. It may be that technological change has created a situation where we no longer need a Post Office, but ironically, much of this technological change (advances in electronic communication and our transportation infrastructure) has been purchased with government investment because there was no private will to pay for it.
Also, many private businesses operate in the red or go bankrupt–this doesn’t mean private enterprise as a whole is inefficient. Many even cause massive economic problems by their inefficiencies (Enron, Worldcom, GM, Chrysler, the entire airline industry save Southwest, about a million dotcom companies, most of the financial industry, the list is endless)
Current financial crisis–your blaming the current economic crisis on government efforts to promote lending in distressed areas is a conservative talking point not based in reality or supported by fact. Fannie Mae and Freddie Mac were not allowed to purchase subprime loans directly, so they did not prop up this market directly. They did belatedly begin the purchase of subprime securities issued by private entities, but they were two of many, many players in the industry who purchased these products. (If they were the only ones, they would have been the only entities in danger when the market dropped.) Government did not force any of the private financial institutions to make the investments they did; their difficulty in assessing the risk associated with their purchases was directly caused by private-industry “innovations” in securitization that were too smart for their own good. Fannie and Freddie may have acted stupidly in investing in some of these securities, but they were not the cause of the crisis–they were affected by it, as were many others. I’d like to hear your explanation of the commercial real estate crisis. While the market is not as big, the crisis is analogous to the one in the home market, yet it developed along the same lines with no government GSEs.
Government does many things well and many inefficiently, just as the private sector does. I agree that, by default, the private sector should be left to provide for the production and distribution of goods and services in our economy. But this is based on a belief in individual liberty as much as on economic efficiency. In the numerous cases where our private enterprise system does not provide for the production or distribution of these goods in a way that is in our collective interest, the government has the ability and responsibility to step in.
You might see a private entity offer you the ability to send a hand-written letter anywhere in the country for 50 cents if the government allowed competition against their monopoly. Plus you have to bear in mind that the prices you see at the Post Office aren’t the real prices, since they’re subsidized with taxpayer money. There is always someone out there willing to satisfy a need as long as it can be done at a cost lower than the price someone is willing to pay. What good does it do for the government to provide services nobody would pay for if the true cost were known to them, or if they had to cover the cost themselves rather than having the money taken from other people?
Many private businesses cause massive economic problems because of government and/or Federal Reserve interference. If it weren’t for government/fed meddling you could easily make the case that many companies either never would have existed in the first place (Enron, Worldcom), or wouldn’t be in trouble (auto industry, airline industry). Our government’s policies often encourage poor investments that cause economic bubbles. However, when the bubbles burst the blame is often put on the companies themselves or the free market, and few people do the research to see how the bubble never would have existed in the first place without government interference.
Whether or not Fannie and Freddie were allowed to purchase subprime loans directly makes no difference as to their effect. The point is they bought subprime loans–a lot of them. Sure, they weren’t the only ones, just some of the largest ones. Sure, the government didn’t force any institutions to buy subprime loans, they just created very strong incentives for companies to do so by putting on political pressure and removing risk.
As for the commercial real estate market, I think it’s just following the economy, plus due to the uncertainty I think people are being more careful than they would be normally. Who wants to commit to commercial space right now when you’re not sure where things are going? Why are we not sure where things are going? Because we don’t know what the government is going to do. Health care, cap and trade, etc. would raise the cost of doing business, so until those things pan out I think a lot of business people are holding their breath and delaying plans for expansion until they know what they’re dealing with.
The problem with the statement “In the numerous cases where our private enterprise system does not provide for the production or distribution of these goods in a way that is in our collective interest, the government has the ability and responsibility to step in.” is that it’s the same reasoning that led to 70 years of poverty and misery in the USSR. As soon as we allow government to decide what’s best for the collective and disregard individual rights, then we’re on the road to a dictatorship where the powerful decide what is best. The solution that will produce the highest standard of living for the greatest number of people is economic freedom, with government intervention only for the purpose of preventing fraud.
BTW Nigel, have you read any of Ron Paul’s stuff? I didn’t really know anything about him, but since I last responded to your comments I read End the Fed and The Revolution and found them to be fairly compelling, so I’m just curious if you’ve indulged as well.