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re: EBC Book #1 - Economics in One Lesson by Henry Hazlitt
Posted on 6/14/17 at 1:54 pm to RickySauwce
Posted on 6/14/17 at 1:54 pm to RickySauwce
The evolution of the role of government has always been fascinating to me. From law and order to infrastructure to housing to water/electricity to education to healthcare with medicare/medicaid (and ACA) and finally to some extent it has even evolved to providing phone/internet via other government subsidies. Some of these services are obviously tiered by the propensity to pay higher for quality, but they are provided to all citizens one way or the other.
As we progress and the private sector continues to place capital at its highest and best use, the "standard of living" and poverty lines continue to become more expensive to maintain for the general public. Where does everyone here stand when it comes to the role government plays and when is the right time for government to be "handed the buck" so to speak?
RSBR - I know you mentioned in your post the government intervention is when public can provide goods and services for cheaper than a private entity. I agree that it 100% should be provided by government in this case, unfortunately the government is only enabled to do this because of the tax advantaged system for bond offerings that the government itself created. But I also agree that what ultimately ends up happening is that projects with good intentions create bad actors that end up abusing the system and funds for other uses that they were not originally intended, which inevitably hurts the taxpayers due to misallocation of the the funds to not their "highest and best use".
I agree with Hazlitt, that the private dollar is always going to be more efficient and productive to the public dollar, but Hazlitt remains fairly vague when it comes to what the government should and shouldn't provide as "essential services" which has continues to evolve over time. Which is a pretty key question when balancing public vs private spending.
ETA: Ricky - to comment on your post. While I agree that churches regardless of denomination do a good amount of charitable work in the communities, they themselves are subject to a wide variety of goals and purposes with little accountability or transparency with the use of the funds. I've seen some fairly gross misappropriation of church dollars in my work which jades my viewpoint on this subject. So in theory, yes, they could/should be doing a lot of the public works and community related projects with their dollars, the donations and capital is typically spread over a number of different initiatives that are meant to achieve each individual church's specific strategic objectives.
As we progress and the private sector continues to place capital at its highest and best use, the "standard of living" and poverty lines continue to become more expensive to maintain for the general public. Where does everyone here stand when it comes to the role government plays and when is the right time for government to be "handed the buck" so to speak?
RSBR - I know you mentioned in your post the government intervention is when public can provide goods and services for cheaper than a private entity. I agree that it 100% should be provided by government in this case, unfortunately the government is only enabled to do this because of the tax advantaged system for bond offerings that the government itself created. But I also agree that what ultimately ends up happening is that projects with good intentions create bad actors that end up abusing the system and funds for other uses that they were not originally intended, which inevitably hurts the taxpayers due to misallocation of the the funds to not their "highest and best use".
I agree with Hazlitt, that the private dollar is always going to be more efficient and productive to the public dollar, but Hazlitt remains fairly vague when it comes to what the government should and shouldn't provide as "essential services" which has continues to evolve over time. Which is a pretty key question when balancing public vs private spending.
ETA: Ricky - to comment on your post. While I agree that churches regardless of denomination do a good amount of charitable work in the communities, they themselves are subject to a wide variety of goals and purposes with little accountability or transparency with the use of the funds. I've seen some fairly gross misappropriation of church dollars in my work which jades my viewpoint on this subject. So in theory, yes, they could/should be doing a lot of the public works and community related projects with their dollars, the donations and capital is typically spread over a number of different initiatives that are meant to achieve each individual church's specific strategic objectives.
This post was edited on 6/14/17 at 2:33 pm
3
Posted on 6/14/17 at 3:50 pm to GregYoureMyBoyBlue
To expand on the private vs public issue, there are two instances when the public sector should provide the service, in my opinion. The first is when the private sector refuses to supply it and the benefit of funding said service on the backs of taxpayers far outweighs the expense. A perfect historical example of this would be the rural municipal utilities (and, on a somewhat related note - the co-ops). The private sector refused to go into certain rural communities because the returns weren't there, so the public sector ran utilities on its own with the help of tax subsidies. I think few people in those communities would prefer not having electricity to being taxed for those services. We are arguably seeing this same principle play out today with rural broadband.
The second case is when the public sector can actually supply the service more cheaply. This can and does actually happen as corporate taxes, a required return, and other payments are often too large for the private sector to offset. However, when comparing the cost of these services, the public sector proponents almost never include taxes and millages in their cost of service. While the private sector is subject to certain taxes the public sector isn't subject to, citizens receiving the public service are also subject to certain taxes they wouldn't have had to pay if the service were private. Of course, as you said, it was the government who created this tax asymmetry in the first place, so we can hardly rely on them to be honest about it in the first place.
I've found that when you also consider the greater economies of scale the private sector is able to achieve and the inherent waste in the public sector (ever hear about how hard it is to fire a "civil servant"?), the private sector, assuming their own cost structure is efficient, can almost always deliver the service more cheaply. I would include what you said about "bad actors" as one example of public sector inefficiency. This all ties back to the concept of spontaneous/emergent order in the free market system. In the private sector, the free market has an incredible ability to separate the wheat from the chaff, forcing the chaff to either improve or become uncompetitive. There is no such mechanism in the public sector.
To bring things around full circle, however, just because the private sector can provide a service more cheaply doesn't mean they will choose to provide it (e.g. where the returns aren't there either on an absolute basis or opportunity cost basis). So there is indeed a need for public sector services, but in an advanced economy like the U.S., that need is becoming rare. One obvious way to bridge the gap is through PPP, something gaining steam in America but nonetheless something we are still tremendously behind the curve on.
The second case is when the public sector can actually supply the service more cheaply. This can and does actually happen as corporate taxes, a required return, and other payments are often too large for the private sector to offset. However, when comparing the cost of these services, the public sector proponents almost never include taxes and millages in their cost of service. While the private sector is subject to certain taxes the public sector isn't subject to, citizens receiving the public service are also subject to certain taxes they wouldn't have had to pay if the service were private. Of course, as you said, it was the government who created this tax asymmetry in the first place, so we can hardly rely on them to be honest about it in the first place.
I've found that when you also consider the greater economies of scale the private sector is able to achieve and the inherent waste in the public sector (ever hear about how hard it is to fire a "civil servant"?), the private sector, assuming their own cost structure is efficient, can almost always deliver the service more cheaply. I would include what you said about "bad actors" as one example of public sector inefficiency. This all ties back to the concept of spontaneous/emergent order in the free market system. In the private sector, the free market has an incredible ability to separate the wheat from the chaff, forcing the chaff to either improve or become uncompetitive. There is no such mechanism in the public sector.
To bring things around full circle, however, just because the private sector can provide a service more cheaply doesn't mean they will choose to provide it (e.g. where the returns aren't there either on an absolute basis or opportunity cost basis). So there is indeed a need for public sector services, but in an advanced economy like the U.S., that need is becoming rare. One obvious way to bridge the gap is through PPP, something gaining steam in America but nonetheless something we are still tremendously behind the curve on.
This post was edited on 6/14/17 at 3:59 pm
Posted on 6/14/17 at 4:09 pm to GregYoureMyBoyBlue
Also, since you mentioned it, can anyone think of any more perfect example of focusing on the short-term effect / effect on special groups (as compared to the long-term effect / effect on all groups) than the ACA?
Its proponents sold it to the people based on the latter, but now openly defend it based on the former. It's a textbook example. Granted, I realize you can't reduce everything to dollars and cents (e.g. if you give a homeless man your coat, there is a certain non-quantifiable value associated with that act). And the ACA proponents of course draw on this theme when they talk about the underprivileged and those with pre-existing illnesses.
But the solution to solving problems for the few is not to cause new problems for everyone else. There had to have been a better solution than the ACA.
Its proponents sold it to the people based on the latter, but now openly defend it based on the former. It's a textbook example. Granted, I realize you can't reduce everything to dollars and cents (e.g. if you give a homeless man your coat, there is a certain non-quantifiable value associated with that act). And the ACA proponents of course draw on this theme when they talk about the underprivileged and those with pre-existing illnesses.
But the solution to solving problems for the few is not to cause new problems for everyone else. There had to have been a better solution than the ACA.
Posted on 6/14/17 at 4:15 pm to GregYoureMyBoyBlue
To the points being made on churches and charity: sure, churches should provide charity and we should encourage that. But there are other groups with much more transparency and/or higher reporting standards that could also help out that simply don't exist in certain areas. Business people often fail to see this, but any sound economic development plan for a region will also include allocations for charity organizations that are most needed in an area. It's maybe not a huge piece of the ED pie, but it's still an important one that often goes overlooked.
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