...today, most everything not closely associated with the state is cheap and getting cheaper by the day. Those goods and services that the state either provides, heavily regulates or subsidizes are expensive and getting more so all the time. Why?
Discuss among yourselves.
Supply is generally observed to be inversely proportional to price. The more you have of something, the lower the prices are.
ReplyDeleteWhy is the opposite the case with government itself? The more you have, the higher the price goes.
1. government is trying to be all things to all people, i.e. socialism rather than individual responsibility.
ReplyDelete2. since government is not a business those running it have no incentive for efficiency and/or effectiveness, thus high cost and bullshit.
Um...Chicken? Egg?
ReplyDeleteSimple. Competition.
ReplyDeleteThe private sector has it, the public sector doesn't, or in the case of subsidies, tries to shield economic actors from competition.
If the anti-trust laws were applied to government the way they are to business, government would be fined on an ongoing basis.
Hmmm, if true; for example, how much did it cost to provide the actual pay to an individual in the army in 1776 vs. the cost to pay one today? Not the pay itself, just the cost to provide it.
ReplyDeleteI would like to see examples & proof of this claim before i worred too much about the reason's why it might exist.
competition
ReplyDeleteThat's easy. The government is now supporting an entire political class with jobs or giveaways, amounting to 40% of the citizenry.
ReplyDeleteI attribute the expense of goods and services two centuries ago to the smaller pile of wealth that had been accumulated by then.
The answer is in your question. Heavy regulation means higher costs, costs which get passed on to the consumer. Regulation is a form of indirect taxation.
ReplyDeleteThere are three reasons for this. The first reason is because we citizens make it too easy for the government to take our money. To prevent this we should pass a law to make paycheck withholding illegal. That would shock the world. People would get an idea how much they're actually paying when they have to write the check themselves.
ReplyDeleteThe second reason government is so expensive is because of government employee unions. All government unions should be outlawed. Who are they organizing against? The people. Forget that.
The third reason government is so expensive is because of full time legislatures. When those elected take 11 or 12 months to do what could be done in 3 or 4 months they have too much time to make mischief. And they do.
Because the prices of government-provided, -regulated, or -subsidized goods and services are inflated by rent-seeking of one form or another, sometimes a disguised tariff functioning as a barrier to entry, or a coercive transfer of economic or psychic benefits from the unfavored to the favored.
ReplyDeleteThe purpose of the private sector is to make things.
ReplyDeleteThe purpose of the government is to take things.
Well, a hundred years ago you had duel party patronage. When one party won, you got a new crew who worked for the politicians, who you could directly blame for bad service and high costs. Being sensitive to voters/consumers, the pols had an immediate interest in keeping the cost low and the efficiency high. Then you brought in civil service which evolved into a group protected from accountability with a one way permanent patronage arrangement where the pols work for them and no real check for efficiency and costs.
ReplyDeleteI don't know that government was cheap - at least in Europe. The crown ate up a pretty large percentage of the available revenues.
ReplyDeleteIn the late 18th century / early 19th century government was involved in a large proportion of the economy - especially anything related to international commerce (I'm speaking mostly about England but the same is probably true of France and other dominant countries at the time). Example: the East India Company. Many of the colonies that were established in what is now the US were done so under a similar government charter.
If the contention is true (and as Anon 5:06 said, I'd like some data) then I suspect it is because over time the government has become less involved in many aspects of private commerce. As government involvement has decreased things got cheaper.
Government advocates would point to labor intensity in the delivery of certain services and Baumol's Cost Disease.
ReplyDeletehttp://prescriptions.blogs.nytimes.com/2010/01/17/an-economist-who-sees-no-way-to-slow-rising-costs/
Businesses are straightforwardly dependent on the happiness of the public with what they do. You pay for a Nikon camera, Nikon has to make you happy with it to convince you not to try Canon next time. Walmart has to be afraid of Publix (South Florida's excellent local grocery) and vice versa. When you walk into a store and buy a product, you are voting for that exact store and product with your bucks.
ReplyDeleteSince a lot of customer happiness depends on the nexus between price and quality, there's an incentive to work hard to make both as good as possible, so you capture customers and make money.
In government, the user of the services is completely divorced from the providers, and so the only reason for providers to give decent service is their good nature and inherent desire to please. Sometimes this produces good service, but more often it produces abysmal service. And since the public is paying and not the customers, the customers are not rewarded by saving money; quite the opposite, in fact. So there is no cap on cost other than the mercies of politicians, and no reward for offering better quality, because the customers have no other choice.
The key to understanding government is that the happiness of the producers - the legislatures, bureaucrats and political contributors - is the goal. Customer needs don't matter. So they can build an extraordinarily expensive subway and it doesn't matter whether there are riders or not, if it's something the bigwigs want.
No customers are clamoring for high speed rail. Siemens wants it so they can sell railcars. Unions want it so they can get jobs. But customers? Almost nobody wants or uses rail (it represents about 1% of all travel, even at heavily subsidized prices), and yet it gets built. It's stupid from a customer viewpoint, but not stupid for the people with patronage jobs.
So that's why government services are the ones nobody wants, and why they are produced so ineffectively.
D
"Productivity" (if you want to call it that) has not increased. A century ago, it took 5 people to make a widget and 5 people to perform as a string quartet. Today, one person can make 50 widgets but it still takes 5 people to perform as a string quartet. Likely, the price of widgets has declined drastically relative to the price of the string quartet.
ReplyDeleteGovernment services are largely string quartets, only with a lot of extra instruments that don't actually do anything. Think of a string quartet with 20 or 30 friends, relatives and cronies standing around with kazoos that they can't actually play. And they're all getting paid.
Why? Elections.
ReplyDeleteWho's fault? Voters.
The solution is the same.
Anonymous said "government is not a business".
ReplyDeleteCase in point: the California high speed rail.
They are purposely starting it in the Central Valley at a place where there are no riders, because it is cheaper to purchase the right-of-way land necessary.
Ask yourself: would a business build in a place with no customers?
An uncoerced (free-market) transaction leaves each party better off than before. The larger the market, the better the opportunities for parties to find the trading partner that places the highest value on what they have to offer, thereby maximizing the net increase in wealth.
ReplyDeleteWhen there is an element of coercion to a transaction, it can leave one or even all parties to the transaction poorer. The larger the government, the better the opportunities to do just that, maximizing the net decrease in wealth.
Your question isn't clear, some commenters interpret it as total cost of government (i.e., size) and other as unit cost (i.e., efficiency).
ReplyDeleteAs I think the size issue is self-evident, I'll speak to unit cost.
Some govt functions are by their nature pretty labor-intensive and therefore the long-term ability of capital investment to substitute for labor while reducing cost is difficult at best. In the private sector, capital makes labor more productive and labor's compensation rises. In the public sector, pay has to keep pace (and has often outrun) the private sector, but the labor-saving investment isn't there so unit cost of output rises.
The contrast with the private sector is somewhat compounded by the tax code, where taxpaying private entities share their capital cost with the government (deductible depreciation), whereas for the government, spending a dollar costs a dollar. This is part of why govt computers and systems are always behind the times, buildings look run down and shabby compared to the private sector, etc.
But probably the biggest issue is competition; most of what the govt does it does as a monopoly, so it doesn't have to be very good or efficient; and, it's not.
Finally, corruption and misfeasance and malfeasance are probably worse in the public sector, taken as a whole. But then, I live in Chicago, maybe I'm jaundiced.
There exist two sectors of the U.S. economy that have been largely immune to the market forces that have driven huge gains in productivity and efficiency over the past 40-50 years. These market forces are best exemplified by the inverse law of price/data computing power - i.e., more and better computers have become readily available at lower and lower prices. The two sectors immune from these inexorable forces are the two sectors most sheltered, protected and subsidized by government: health care and college education. In these outliers, we see prices escalate dramatically, outpacing quality gains. At least in health care delivery, we see quality gains with skyrocketing price. In college education, we see flat to minimal gains for skyrocketing price. When we choose to stop coddling these vital sectors from the forces that make things better and cheaper, we will see health care and college education emerge from the shadows and join the bustling marketplace of ideas. In short, we have to trust ourselves.
ReplyDeleteCan we do it? Yes, we can!
Markets incentivize communication. Politics incentivizes obfuscation and dissembling.
ReplyDelete