Wednesday, April 9, 2014

Government: Larger, Smaller or Better?

So, I would think the solution would be smaller government, so the 1% have less they can control. A government that taxes less, spends less, and regulates less, offers fewer opportunities for cronyism. Alas, Stiglitz sees the solution as more government: higher taxes, more effective redistribution programs, and more effective regulation. - Randall Holcombe, Joseph Stiglitz: The Price of Inequality
shrinking government, which thus shrinks the power of politicians is the only way to stop cronyism. - Robert Wenzel, Bleeding Heart Libertarian: Koch, Soros and Adelson are Idiots for Spending Money Buying Politicians

If there were only two options on the table...

A. Larger government
B. Smaller government

...then I would certainly choose smaller government.  In other words, in the 2016 presidential elections...if I had to choose between voting for Elizabeth Warren or Rand Paul...then I'd certainly vote for Rand Paul.

On the one hand...everybody wants a free lunch...but on the other hand...consumer choice does have extremely beneficial consequences.  So whichever public goods Rand Paul kicked over to the private sector...I'd hope that the gain in quality/results/effectiveness would more than make up for any loss in volume.  A small volume of effective private welfare is certainly better than a huge volume of ineffective public welfare.
But it's so strange though when you think about it.  Rand Paul would kick certain public goods over to the private sector.  Why?  Because the invisible hand is better than the visible hand.  Except, it wouldn't be the invisible hand deciding which public goods were moved over to the private would be Rand Paul...the visible hand.  If we can trust Rand Paul to pick which public goods should be moved to the private sector...then that sort of defeats the purpose of moving public goods over to the private sector in the first place.

As far as I can would be far more logical to simply create a market in the public sector.  Doing so would allow the invisible hand to clarify the demand for public goods.  This means that the invisible hand would allocate resources in both sectors.  Therefore, pragmatarianism is economically consistent libertarianism. trust ranking looks something like this...

Elizabeth Warren < Rand Paul < Invisible Hand

Except, that really does not convey the intensity of trust.  I trust the invisible hand infinitely more than I would trust Rand Paul.

My question long is it going to take before people acknowledge the existence of a third option?

A. Larger government
B. Smaller government
C. Better government

How many comments do I have to leave on other people's blogs before consumers are no longer forced between a rock and a hard place?

Perhaps one measure of effectiveness is to keep track of how many people make the argument that the government cannot or should not be run like a business.  So I'll conclude with a couple relevant passages...

If a government enterprise is funded through tax dollars, it does not face the same market test as a genuinely private business. The problem is all the more severe if the government grants an outright monopoly to the enterprise. The bureaucrats running it have little reason to cut costs or to please their "customers" if they receive a guaranteed level of funding regardless of their outcomes. In an extra twist of perversion, when a government agency botches its job, it often receives more funding. In this view, government officials waste money and offer shoddy output simply because they can. - Robert P. Murphy, Why Government Doesn't—and Can't—Manage Resources Like a Private Business

Government efficiency proponents make the mistake of viewing the cost of government in the same light as the cost of operating a private business. However, government cannot operate like a business because it isn’t a business.
Government is unconcerned with “profit.” The “cost” of government is equal to the taxes extracted from the private sector to pay for government activities, plus the economic damage caused by extracting resources from the private sector. Taxes are involuntarily obtained through compulsion and force. Regardless of the value a citizen assigns to the services provided by government, a citizen must pay for those services, and at a price set by government. The price one pays for government is primarily a function of political factors, which are only indirectly influenced by economic considerations. - Tad DeHaven, ‘Government Efficiency’


  1. I’ve already explained to you that your scheme does not “clarify the demand for public goods”. What your scheme does is effectively redistribute ownership of public resources, generally from the majority to a wealthy minority.

    You keep making the mistake of assuming that the money you pay in taxes belongs to you personally after you have paid your taxes. This is obviously wrong.

    If you buy a product from Koch industries, can you then tell Koch industries how to spend the money you gave them? No. Koch industries will choose how to spend the money because the money belongs to them, not to you.

    If you pay rent to your landlord, can you then tell your landlord how to spend the money you gave them? No. Your landlord will choose how to spend the money because the money belongs to them, not to you.

    Similarly, when you pay taxes the money you pay then belongs to the state, not to you. And the state ‘belongs’ to all citizens equally. So all citizens have an equal right to decide how to use the money that belongs to the state.

    You don’t have a greater right to decide how to spend the state’s money because you paid more tax. This is because the money you paid in tax does not belong to you, it belongs to the state, which does not belong to you personally. You don’t get a greater ownership share in the state because you pay more taxes.

    I find it odd that you find it difficult to grasp this simple, factual point.

    1. In 2012, the Kochs received 115 billion dollar votes. Millions and millions and millions of people voluntarily spent their money on the products that the Kochs helped to produce. That's distribution.

      Then the government takes money from the Kochs and gives it to Elizabeth Warren. Warren takes that money and spends it on a bridge that the Kochs really don't need to deliver their products to consumers. That's redistribution.

      If you want to argue that the Kochs really do need that bridge to earn their billions...then you shouldn't have a problem with allowing them to choose where their taxes go.

  2. an alternative version your scheme which would respect the fact of state ownership of tax revenue could be as follows:

    - instead of people individually deciding how to spend the amount of tax they personally pay (which requires a redistribution of the ownership of public resources), each citizen could decide how to spend an equal part of the public budget. So say for example the total budget is $100, and there are 50 citizens, each citizen would decide how to spend $2.

    Obviously both this version and your scheme have serious practical problems.

    One problem is the issue of deficits and public debt. In practice governments do not sit around waiting for money to fall into the coffers before taking it out and spending it. Instead they commit to spend money on certain things and then spend money on those things. Tax revenue is then collected, and the difference between total tax revenue and total spending is the deficit, which adds to the public debt. All governments predominantly run deficits and have a certain level of debt - they are generally unavoidable, and beneficial when managed correctly.

    Also, don't forget that in countries like the US the government spends and taxes money which it issues itself, meaning that in practice it has to issue or spend money before it can collect it back in taxes or 'borrow' it.

    As well as getting the process the wrong way round, under your scheme there is no clear way to decide how to spend funds in excess of tax revenue.