Why Government Is Essential, Yet Inefficient

Screen Shot 2013-04-01 at 9.09.28 PM

My motivation for this blog stemmed from a funny analogy made by Thomas Sowell, whose simple, yet outrageous example, speaks to the inefficiency of government.

Suppose a governmental agency has only two tasks:

  1. Build a statue of Benedict Arnold.
  2. Provide vaccinations for children.

When budget cuts are imposed, they decide to do away with child vaccinations, rather than stop building statues of a man reviled in U.S. history.  Why would they do that?  Because that will make it more likely that the budget cuts will be reversed because the general public will demand the vaccinations be reinstated.

How does that relate to today’s politics?  With the sequester imposed on March 1, we learned that the Department of Homeland Security has released a number of illegal aliens due to lack of funding from the spending cuts.  We can also look forward to cuts to educational grants to disabled children and low-income school districts.  While there is waste within all federal agencies that could be cut, those inefficiencies are hard to eliminate due to lack of competition. Additionally, these appropriations may be a drag on economic growth by drawing tax dollars away from more productive activities, such as freeing up more income toward investment spending.  However, they do provide more social stability and relief to the vagaries of poverty.

We live in a dangerous world where there are vast disparities in wealth between nations.  With the advent of YouTube and various social media outlets, it is much easier for people to compare and contrast their way of life with others.  This creates envy, anger, and frustration that can result in dangerous associations aimed at disrupting the lives of the more affluent.  Religious fanaticism and grinding poverty can lead people to resort to extreme measures and even death to lash out at what they believe are unfair outcomes.  That is where the Department of Homeland Security and our military forces come in to protect the general public from acts of terrorism.

Then let us transition to poverty where health care and lack of jobs are barriers to advancement.  Even though most people might believe that anti-poverty programs are limited to only its recipients, there are external benefits to society.  Providing access to preventive health care services to the impoverished can minimize the burden on emergency care facilities that must treat all individuals, regardless of their ability to pay.  If this can be reversed, then this should theoretically lower insurance premiums because private insurance companies would no longer need to shift the cost of uncompensated care to middle-income and high-income individuals.  Other factors, such as lack of resources toward education and workforce training, contribute to large disparities in wages.  In an economy that places more value on intellectual skill, rather than manual labor, there is great frustration and discouragement that leads to unproductive behavior, such as crime and immoral behavior.  If workforce skills are enhanced and job marketability increases, then criminal and immoral activity from the poor will be less attractive and that will bring relief to everyone else.

Even though the $85 billion is an infinitesimal portion of annual government spending, its cuts will be from discretionary spending, rather than mandatory spending.  This is an important distinction because the federal budget primarily consists of mandatory spending, such as Social Security, Medicare, and Medicaid.  Neither will be touched with the sequester.  Since these cuts will cover a smaller portion of federal spending, its impact will be potentially larger.  Most of the negative impact will go to national defense where there will be cuts approximating 9%, while other federal agencies will see their budgets slashed by 5%.

When one asks why the sequester did not allow more flexibility to make cuts to government, it is because both political parties value government in different ways.  While Republicans value national security where business interests are protected abroad and our citizens are shielded from terrorism, Democrats favor a compassionate government that promotes social mobility and provides an adequate safety net for the rigors of life.  The policymakers thought that this process will lead to compromise and common ground where both sides gave a little.  Of course, we found out how inflexible and rigid both parties were.

Over the next few months, it is my suspicion that both sides will recognize the important role that government plays in our overall well-being.  It will just be for different reasons.


10 thoughts on “Why Government Is Essential, Yet Inefficient

  1. I tend to see a fallacy in part of this logic as each side will only see the important role government should play from ‘their point of view’ as opposed to even trying to acknowledge the other point of view even exists. Democrats will continue the ‘social agenda’ with disregard to the some fiscal agenda and the Republicans will continue fiscal agenda with disregard to some of the social agenda.

    • Ed, I actually agree with you. Neither side will consider the other point of view until it is in their best interests to do so. My logic with the last sentence is that eventually there will be agreement as long as the damage to the economy is severe enough to force them to be more flexible. If the economy keeps going along at the same or similar pace, then there will probably be status quo. While the purpose of the sequester was to make the consequences so drastic that both sides would negotiate in a reasonable manner, I don’t think either side understands the true implications until it actually happens.

      • I actually believe that the sequester will cause as much grief to the American public as a gnat causes to an elephant. When the President can host a party for a few people in the White House and invite and pay for musicians with tax money (Justin Timberlake and other Memphis Blues singers), but close the mansion to students because there is “not enough money”, and the American public says nothing, then the sequester is not an issue. The American public says nothing about Congress working only three days a week. No sir, there will be NO severe consequence to the economy because of sequestration.

      • Archie, it’s quite possible that you might be right, especially when you say severe. I do not think that sequestration will lead us to a depression. However, I do believe that it will impact economic growth and slow the rate of job growth. We have already seen some of the weaknesses within our last job report. Let’s look back 3-6 months from now and see if current projections of economic growth will be achieved or not. The International Monetary Fund provided their projections for U.S. economic growth and it was set at 2%. If by the end of the year, economic growth is above 2%, then you will be right. If economic growth is closer to 1%, then my argument that the sequester had a negative impact gains greater credibility.

  2. I think that economists will have to distinguish job growth between private sector job growth and public sector job growth, instead of a gross figure of 2%. I propose that a public sector job growth of 1% or less would be good news for the overall economic health of the United States. True, unemployment would increase, but the number of people whose incomes rely on tax revenues would decrease, thereby lessening the deficit of this county. Furthermore, if government spending as a percentage of GDP is reduced, this gives room for the private sector to grow, also increasing tax revenues to the treasury, thus decreaseing the deficit. The best of all possible worlds would be a private sector growth of 3% and public growth of -1% giving a gross growth of 2%.

    • Archie, it looks like your wishes have taken place over the last couple of years. There has been a significant decline in public sector jobs and we’ve seen consistent private sector job growth. If your goal is purely about efficiency and economic growth, then you should like the direction that we’re going. As for myself, I’m concerned about the impact of lower government spending and its impact on national defense, domestic spending, and health care. My concern is that it will increase income inequality and could cause more social turmoil.

      • How can private sector job growth and public sector job decline cause an increase in income inequality and cause more social turmoil?

  3. Archie, that is because our economy is going through a transition now. With the global economy and technology, there is more competition for jobs. If you have low-to-moderate skills, then you will have difficulty prospering today. While globalization has benefited the U.S. in terms of economic growth and lower prices, it places a high premium on skills. In those instances, government can play a role in closing the skill divide through investment in workforce training and education. It can also provide a stronger safety net to help those that are struggling to find a good job or gain access to quality health care. Even though it would be ideal for workers to gain training from the private sector alone, it is not always in the best interests of shareholders for the private sector to provide enhanced training for less marketable workers. That’s when the public sector can step in and fill the gap. When the public sector is unable to do that, then those workers will continue to see their wages fall, thus creating income inequality.

    • You make an excellent point that the ideal for workers would be to gain training in the private sector, but it is not in the best interests of shareholders to provide such training for less marketable workers, therefore the public sector can step in and fill the gap. That is a well thought out position and I agree with you!

      • Archie, I really appreciate the dialogue and your point of view. I hope this is not the last time that you visit and comment on my blog. Please share the word of my blog to others.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s