Why is Government Always Inefficient?

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I’d say that most people who are paying attention, even staunch statists, accept that government is inefficient.  I’ve heard people say, “Sure, it is inefficient, but it is a necessary evil”.  In response to Rollo’s most recent article I heard, “The market would probably be more efficient creating roads, and certainly long distance roads, but the government needs to protect public access”.  I’ve even heard, “My dad was in business, and he said big business is inefficient too.  The government is just like another big business.”.  When Henry Waxman (D-CA) recently blamed the private sector for the Obama/Robertscare website’s failures, it sounded as if he was trying to say, “Hey, the government wasn’t the incompetent one this time, it was the private sector”.  I also heard Barry Schoch (I’m not sure what political party he associates with, but he was appointed by the Republican governor), the Transportation Secretary in Pennsylvania, on the radio today try to reassure Pennsylvanians that even though there will be an increase in gas tax, the private sector will be involved with the infrastructure projects.  Is government really inefficient? Is the private sector efficient?  How can we tell? Does efficiency even matter?

We have a limited number of resources. Our goods and services are scarce.  In this instance scarce does not mean “hard to find”.  It simply means that there is a limit to our resources.  We do not have unlimited materials.  If I use some wood to build a table, I cannot also use that wood to build a chair.  If I use plastic to make a water bottle, I cannot use that same plastic to make a bike helmet.  If I use my time to write a blog post, I cannot use that same time to clean the living room.  Since these resources are scarce, we need to figure out a way to best allocate the resources to make more stuff available to more people.  The free market, through billions of voluntary transactions daily, does this better than any centralized person, group of persons, or supercomputer could ever do.

How can I say that?  The proof is in profit and loss.  To many people, profit  is a dirty word, but all profit really does is show efficiency.  If you are able to produce a product and turn a profit, you are using your resources efficiently.  The profit is a signal that we should allocate more resources to that product.  Say you open up a small shop on the corner that sells lemonade and lemon meringue pie.  Every day you make 10 pies and 10 glasses of lemonade.  At the end of the day you have 9 pies left over that you have to throw out and no glasses of lemonade.  What does this tell you?  Well it could say that your pie is over-priced and your lemonade is under-priced, but for argument’s sake, let’s say you could not lower the price of pie and still make money.  It also says you should probably allocate some of your lemons away from the pies and make more lemonade.

Maybe you only make 1 pie per day and those extra lemons allow you to make 30 cups of lemonade.  Well you find out that you still sell that pie at a profit and you also sell out the 30 cups of lemonade before the day is done.  Also, word is getting out that you make really good lemonade.  You raise the price, and people are still lined up to buy it.  What does this tell your neighbor?  If he can make more money selling lemonade, maybe he should stop producing what he is producing and start selling lemonade.  More and more producers will enter the market until the supply satisfies the demand.

Everyone wants those profits.  That is why we go to work every day.  Once there are enough producers of lemonade to satisfy the demand, the producers have to figure out how to maximize their profits to attract labor and make more money for themselves.  This is how innovation happens.  If you develop a way to produce lemonade quicker with less waste, you will stay in business longer.  Those producers who are inefficient will operate at a loss which will force the inefficiency out of the market.

It’s not that when you step into Washington you automatically become brain-dead, inefficient, lazy, and incompetent (some may disagree with that statement) and people in the private sector are smarter, work harder, more efficient and even better looking, the problem is that the profit motive is not there for the government jobs.  So Mr. Waxman, even if the Robertscare website is contracted out to the private sector, there is still no profit motive for that private business.  They become just as bad as a government agency.  They are paid whether the website works or does not work.  Even if they have 3 years to build it, they don’t have a competitor racing to build it faster and better.  They can take their sweet, old time.  The same can be said for the PA infrastructure.  Sure, a private construction company will be building the bridges, but if they’re building bridges no one will use and taking their time to build them, are they using their resources efficiently?

I believe people often think of inefficiency, in and of itself, as a bad thing.  Nothing is 100% efficient, so everything we do has a at least a little bit of inefficiency associated with it, which is why statists can take comfort in saying there are also inefficiencies in the private sector.  Some people like to point to the amount of food that expensive restaurants throw out on a daily basis. It is true there is waste.  There are other motivations to buy a product other than price.  Some people are willing to pay a lot more because a certain chef cooked their meal.  In that case, the chef is a scarce resource.  If other restaurants can produce the same quality food, same atmosphere, but at a lower price and still just as profitable, they are likely to attract more customers.

In a free market, profit and loss tells us what inefficiencies are acceptable and unacceptable.  Peoples attitudes, wants, and needs are constantly changing and the market reacts to satisfy their desires. Government, without competition and profit/loss motive, never has any desire to satisfy a customer.

Many people who read this will say this is nothing new and they learned it their first day or Econ 101, but to all you products of public school, please dig deeper…I’m kidding, relax. But get a most basic understanding of economics.  It will help you immensely.

God Bless Freedom, Liberty, and Personal Property,

Slappy Jones II

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[…] And it’s not just the roads.  Other routinely defended socialist institutions are education, defense, police, firefighting, courts, market regulation, etc.  You might say that you favor bidding out the contracts for this work to private companies, but isn’t that really just a distinction without a difference? […]

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