Wednesday, August 19, 2015

The problem with government

Federal policies rely on top-down planning and coercion. That tends to create winners and losers, which is unlike the mutually beneficial relationships of markets. It also means that federal policies are based on guesswork because there is no price system to guide decision making. A further problem is that failed policies are not weeded out because they are funded by taxes, which are compulsory and not contingent on performance.

Legislators often act counter to the general public interest. They use debt, an opaque tax system, and other techniques to hide the full costs of programs.

Civil servants act within a bureaucratic system that rewards inertia, not the creation of value. Various reforms over the decades have tried to fix the bureaucracy, but the incentives that generate poor performance are deeply entrenched in the executive branch.

The federal government has grown enormous in size and scope. Each increment of spending has produced less value but rising taxpayer costs. Failure has increased as legislators have become overloaded by the vast array of programs they have created. Today’s federal budget is 100 times larger than the average state budget, and it is far too large to adequately oversee.

Is the only way to create a major improvement in performance to cut the overall size of the federal government?


  1. When evaluating spending programs, policymakers should take into account the full costs of funding them. The direct cost of any program is the tax revenues the government will need to extract from the private sector.
    But another cost is created by the taxation process itself. Since taxes are compulsory, they induce people to try and avoid them by changing their working, investing, and consumption activities. The taxpayer response harms the economy and is not accounted for in their assumptions of cost.
    An example, suppose the government imposes a new tax on wine. Wine drinkers would be harmed because part of their money would be confiscated. But an additional cost would be created as people cut back their wine consumption.

    The ACA funding is another example. The taxes extracted from taxpayers, consumers to fund the ACA has a side effect. The taxes collected are not spent by the consumer but redirected to the healthcare sector.

    1. The problem is that American government is now increasingly responsive to special interests and not the public interest. This is why many people are frustrated and disappointed with our political system. Instead of a democracy where all citizens have an equal say in the governing process, some organizations and individuals have a disproportionate and unfair influence over what the government does. The result is that the power and greed of the few too often win out over the needs of the many.

  2. I agree with Mick. I think taking the money out of our electoral process will address many of the concerns you brought up, Lou, including the bloat. I think the government would basically "right-size" itself by removing the moneyed interests.

    How many departments (or parts of departments), laws, and/or regulations exist simply because they're a kickback to some corporation(s) or lobbyist?

    A perfect example is one that gets brought up on this blog a lot - the provision in the tax code that allows domestic corporations to hide billions in revenue offshore simply by getting a P.O. box in the Caymans and calling in their HQ.

    Everyone knows about it, it's been covered by every news agency, and everyone, lefty or righty, opposes it, yet the provision still exists and has for years.

    Why? Who benefits?

    Smells like a kickback to some large donor(s) to me ...

    That's just one example. Obamacare (kickback to insurers), Bush's Drug program (pharma), etc. Feel free to add your own examples.

    Unless and until we get money out of our electoral politics, the interests of the average person, lib or con, will never truly be represented.

    1. As a side note, you do know that business pays no taxes. Taxes like labor, materials, utilities, property are a cost of doing business and is built into the price of goods and services.

    2. Ok. Then what does it matter what the marginal rate is as long as it's not 100%?

      Can't pass all the cost to the consumer. Can only charge what the market will support.

    3. Do you honestly believe that?

      Here is the consequences.
      Business must make a profit to survive. Lack of profit, investors flee. To maintain profits when taxes, expenses rise the following are the likely actions:
      1. Cut expense scorched earth process where all expenses are cut to the minimum.
      2. Cut expenses (people).
      3. Substitute full time for part time employees.
      4. Off shore work to cut expense.
      5. Move the business off shore.
      6. Close the business.

      Been there and have seen every step.

      They either remain competitive or perish.


  3. Many companies, Microsoft, Apple, John Deere, Cat have off shore earning. The penalty for returning the profits earned overseas is 35%. If it were your company, would you return the profits to the US?

    Microsoft purchased Skype with overseas dollars, a 35% discount on the price as they didn't pay taxes on the dollars.

    Perhaps it's time to address the tax system that penalizes international corporations with overseas earnings. Worldwide vs territorial tax systems.

    Personally I love the fact we continue to manufacture Abrams tanks when we have tanks parked in the desert. Why fix them when the new tanks keep pouring in.

    1. "Personally I love the fact we continue to manufacture Abrams tanks when we have tanks parked in the desert. Why fix them when the new tanks keep pouring in."

      And why pursue any strategy of peace when you have so much military gear?

    2. It's more about jobs in Ohio.

      If there's a home of the Abrams, it's politically important Ohio. The nation's only tank plant is in Lima. So it's no coincidence that the champions for more tanks are Rep. Jim Jordan and Sen. Rob Portman, two of Capitol's Hill most prominent deficit hawks, as well as Democratic Sen. Sherrod Brown. They said their support is rooted in protecting national security, not in pork-barrel politics.

    3. Maybe two different things. The pork explains why we build them and tons of other weapons. In some of our recent excursions, however, the fact we have so many of them, for whatever reason, might lend some insight into why we have gotten so Hawkish and willing to stick our guns into places that maybe we shouldn't.

    4. I guess I'm a bit less cynical.

      To me it's all about bringing home the bacon.

    5. yeah, you are definitely one of the less cynical ones here ;>

    6. On this topic I probably am.

      There is no reasoning in Washington. Do you actually think because tanks are being manufactured to excess it encourages the US to intervene in other countries?

    7. If tanks were the only war tool we manufactured to excess, I might not make this point. That said, it seems to feed on itself. Since we don't have to ramp up our industrial base and repurpose it like we did in WW II, we maintain the ability at all times to invade just about anyone we want to. Would we have invaded Iraq without an excess of tanks and other material? Would we have kept building so many if we weren't perpetually at war? I think it's a reasonable question to ask.

    8. And we did not have the capacity to wage war in Iraq. Reserves were called up numerous times to provide the manpower in Iraq as well as Afghanistan.

      Today with manpower reduced further I doubt our ability to wage war in 1 country without use of the reserves in the US.

      I have encouraged numerous friends that still serve in the reserves to get out. Over half have left the service of their country. Unfortunately I remain in the inactive reserves not by choice as do many others.