Tuesday, February 18, 2014

An Examination of the Economics and Sociology of Government Spending

NOTE: I am reproducing a number of essays on taxes which originally appeared in my now defunct blog Random Notes. I will also be reproducing articles on the FairTax in the next few days. I hope these essays will provide a good background for my planned essay examining the current state of the FairTax, as well as summarizing all my objections to it, those which have been answered and those which were not. Those interested in the topic may also find useful material in a number of essays printed in this blog (many reproduced from Random Notes), including: "Passing Thoughts on Taxes", "Two Thoughts on Taxation", "Government by Emotion", "Minimal Reforms", "Simplicity", "Reframing the Debate", "A Partial Reply to yt_knight", "Another Reply to yt_knight", "The Runaway Stagecoach", "The VAT Versus the FairTax", "Ch-Ch-Changes", "Gardasil and Logical Errors", "What is Wrong with a Prebate?", "Making Taxes Hurt", "Reply to FairTax Comments", "Reply to FairTax Comment II", "Reply to FairTax Comment III", "Short Reply to Doctor Adams", "Revisiting the FairTax", "If we must...", "What We Need", "The Consequences of Bad Laws" and "Truths About Taxation".

I have written extensively about the belief that government spending can improve the economy, either generally or in a specific context. The argument takes countless forms, from the belief that war somehow improves an economy, such as the belief that World War II "saved" us from the Great Depression, through the belief that government spending can result in continual growth, all the way to the belief that government spending, carefully targeted, can remedy the effects of recession or depression1. Being such a widespread belief, with so many variations, I suppose it was inevitable I would write about it many times, sometimes in general terms ("Our Financial Problems", "Not Entirely to Blame", "Inflation and Uncertainty", "Why Gold?", "Monetary Issues Made Simple Part I", "Monetary Issues Made Simple Part II", "The Rubber Yardstick", "Bad Economics Part 7 ",  "Bad Economics Part 8", "What Is Money?", "What Is A Dollar? ", "Mistaken Perceptions of the Industrial Age", "Child Labor and the Industrial Revolution", "The Irrationality of Government Redistribution", "The Most Misleading Word", "Luxury and Necessity"), but most often dealing with a specific issue (Such as "War Stimulates the Economy? Let's Nuke San Francisco!", "Bad Economics Part 6"). However, looking back, I realize that I could have saved myself the trouble of so much writing. Despite the many forms the argument takes, it can be dismissed with the same reasoning in every case. And so, rather than write yet another specific post, I have decided to write this essay. I will start with a few examples, specific cases showing how little reality conforms to the general belief in the benefit of government spending. I will then move on to a very general argument, showing that government spending, in any context, is, at best, irrelevant, and most often harmful. And finally, I will take that general argument and apply it to a few specific arguments, showing how it can be universally applied.

What brought this topic to mind again was my recent purchase of one of my guilty pleasures, a massively detailed, micromanaged war simulation game. In the dim past this would have been one of those Avalon Hill board games, one with thousands of little cardboard chits and a mimeographed manual larger than an issue of National Geographic, but, in the electronic age, this means buying one of the many simulations distributed by Paradox Interactive, or one of their few imitators (oddly, mostly programmed and distributed by Russian firms). Oddly, while I was reading through the (still very long) manual, I decided to watch an old DVD, the Dr Who episode Genesis of the Daleks. (I admit I am still something of the geek I was in my youth -- see "Musings About A Television Series",  "Off Topic Post - A Question of Scope", "A Final Digression On the New Dr. Who", "A Science Fiction Story", "More Off Topic Musings", "Off Topic Comment on Science Fiction", "A Matter of Perspective, or, Not So Off-Topic After All", "Very Off Topic Post" and "Disturbing Entertainment, Ethnic Quotas and Distorted Views of Pop Culture - A Potpourri of Post Topics".) In that episode it is mentioned that the constant war of attrition between the two sides has led the troops to go from using futuristic lasers and other weaponry to automatic rifles and finally to very simple bolt action rifles. One comments "soon they will be fighting with bows and arrows." 

As I had World War I on my mind, it reminded me of the many units of the tsarist army which were sent to the front without ammunition. Of course, it was not limited to the Russians. The tsar had run a particularly inefficient economy, but all of the participants suffered from shortages, from the most free (Britain and the US), to the less free (France and Austria) to the even less free (Germany and Italy) to the abysmally unfree (Ottoman Empire and Russia). The US, having come late to the war, and being free of the worst of the blockade efforts suffered the least, but even the US was not untouched by the war expenditures.

And that was what made me think of this essay, which I have considered writing many times. You see, the argument is often made that war is good for an economy, which makes sense, as those making this argument firmly believe government "investment" (by which they mean spending of either tax revenue or borrowed funds -- funded by bonds or inflation) is a beneficial act, and since war involves tremendous amounts of government expenditure, it is inevitable they would sing the praises of war. And, if one takes a particular viewpoint, and assumes some specific measures as the sole means of calculating economic success, and then manages to forget that dollars are a malleable measure, it is possible to convince some people that war brings about economic growth or activity or some other supposed benefit.

But the problem is that, when viewed with a simple, uneducated eye, taking a common sense, vague definition of economic success, it becomes quite obvious that the argument is nonsense2.

Take any war throughout history and you will see a general decline in wealth. And the more with which a nation begins, the more dramatic the decline. Nations start comfortable and wealthy and end up a land of homeless refugees, empty stores, malnourished families and economic collapse. Some blame this on the destruction of infrastructure and industry, or on economic blockades, and those are valid, but as those in inherent parts of warfare, it makes me wonder why they would sing the praises of something that involves such activities. Still, ignoring those costs, and the fact that in wartime much of the economic output goes, not to production, or even consumption by civilians, but items destined to be destroyed, there is still much more economic decline than we would expect. What is it about war that causes the economy to collapse?

As I said, first, and foremost, war is about destruction, and so the primary economic drain is the channeling of endless resources into destruction, but that is not unique to war. In the end, all government spending is money diverted from more desired to less desired ends. While destruction is the most dramatic example of this -- resources diverted from fulfilling consumer wants, or productive improvements, being sent to be destroyed producing nothing -- the difference from other government spending is only a matter of degree. All government spending is a reduction of satisfaction. And, from an economic perspective, it is also a reduction of productive capacity. There are other reason, some of which I discussed in "The Inevitability of Bureaucratic Management in Government Enterprises", "Bureaucracy Revisited", "Bureaucratic Management and Self-Policing", "Transparency, Corruption and Reform ", "The Endless Cycle of Intervention", "The Cycle of Compassion", "Recipe For Disaster", "Slippery Slopes ","Inescapable Logic" and "The Right People, The Wrong People and "Just Plain Folks"", which tend to increase these problems, and create new problems, but they are separate issues and will be discussed later. The primary issue with government spending is that it necessarily reduces the productive output3.

Let us start explaining this with a very simple fact. The economy is inherently impossible to model. I wrote this point very succinctly in "The Limits of "Scientific" Management", revisiting it in "A Thought on Technology and Technocrats", "Some Additional Thoughts on Technocrats", "The Nonsensical Nature of Some Statistical Analysis" and "In The Most Favorable Light", but let us make the point very simply. All prices are the result of the relative valuation of every individual in the economy. Those valuations are wholly subjective and change from instant to instant in unpredictable ways. There is normally some regularity, but that is not necessary, in a moment the numbers could change completely. Given that, the mechanistic models proposed in micro and macro economic classes are nonsense. We can generate approximations from historical data, but that is "good enough" only if we do not plan to use it manage an entire economy. For the government to be able to manage the economy more efficient than a multitude of individuals managing their own little domains, it would need perfect, or near perfect, predictive data, which it simply cannot possess ("Who Will Decide", ,  "Fairness and the Free Market", "Planning For Imperfection", "Greed Versus Evil ", "In The Most Favorable Light"). The government can only work from vague approximations, and in that respect it is basically flying blind when meddling in the economy. Any action it takes is either "expert" opinion based on faulty, outdated and incomplete data, or else simply an arbitrary choice based on nothing. There is no alternative, except perhaps naked pandering or openly political decisions.

Why I mention this is that many will try to argue that government spending can improve the economy by correcting "errors" made by the individuals in the market. ("Cutting "Costs"", "Misunderstanding Profits",  "Again?", "Government Efficiency", "Two Examples of "Inefficiency" in Capitalism", "Pro Hoc, Ergo Propter Hoc", "Bad Economics Part 10") While this is consistent with the theories of liberalism, as I have been describing in "Liberalism, Its Origins and Consequences", the fact is that the government cannot possess knowledge superior to the individual. In fact, concerning any individual's desires at the time of a decision, the individual is clearly much better informed than the government. And since the whole state is just a mass of individuals ("Individual and Aggregate", "Aggregates and Confusion", "The Importance of Details"), what is true of one is true of all, and the government is inherently less efficient at allocating resource than individuals4.

That is, provided we accept that individual desires are the purpose of the economy. ("The Most Misleading Word", "Luxury and Necessity") If we assume there is some other goal, then we run into a problem, as there is no way to measure the success or failure of the economy. ("Aggregates and Confusion ", ""...Then Who Would Do it?" ", "The Lunacy of "Common Sense" ", ""Seems About Right", Another Lesson in Common Sense and Its Futility ") But, on the other hand, as no one has ever told us how to measure "needs" and distinguish them from wants, it is impossible to measure the success in terms of "needs" at all, leaving us only with individual desires as a measure, and thus we must again say, if we wish to satisfy individuals, the government is, of necessity, less efficient. 

But let me slow down, and start over with a smaller scale example.

You have a fixed sum of money at any given time. You consider that money and all the possible wants you have and decide which wants you will satisfy now, which will be postponed, and what money you will put aside for either satisfying future wants or for the satisfaction of more expensive wants you cannot afford now. In so doing you consider all your desires of the moment, balance them against the satisfaction you expect them to bring, and them allocate your money to produce the most satisfaction. However, should your desires change in the next few minutes, or the next day, you can then reallocate all the money you have left to produce results more closely matching your new desires. And you can perform these adjustments constantly throughout the day, the week or month, as your wants change, or as the results of past action prove more or less desirable than you anticipated. In short, you are in a process of constant minute adjustment of your actions to bring yourself the greatest satisfaction, basing every change either on the results of past actions, new external data, or changing desires.

Let us take a trivial example. Normally, you go to a restaurant on Thursday and order an eight ounce steak. You have done it for years. One Thursday, feeling particularly hungry, you decide to order a twelve ounce steak. In the real world, this is an event so insignificant it would pass without notice. You would pay a bit more, but beyond that it would make no change in your life.

But let us imagine now that you no longer make decisions for yourself, that a third party has taken over planning your life for you. He is open to adjustments, but since he cannot be in constant contact with everyone for whom he provides management, most of his decisions are based on past decisions, adjusted by weekly statements from his customers concerning changes in their tastes and wants.(This is actually probably more flexible than most government management could ever be, but I don't want to be accused of stacking the deck. So for this argument I will postulate a surrogate for government far more responsive and efficient than government could ever hope to be.)

This is where that twelve ounce steak comes into the picture. As it is unlikely you will know your level of hunger days in advance, most likely you will go to the restaurant on Thursday, as you always do, and find yourself served an eight ounce steak, as always. Now, this is hardly a disaster but in terms of your satisfaction, you will be less satisfied. 

I am certain some will respond "Ok, you only got an eight ounce steak, but you only paid for one as well, so you saved money even if you did not get your steak." But that misses the point. If you were willing to buy a twelve ounce steak, you obviously valued the larger steak more than the additional money. So, by "saving" you money, the state forced you to keep money you valued less rather than exchanging it for steak you wanted more. In short, you were deprived of some amount of satisfaction.

And that is the problem with any government intervention, as I have argued many times before. ("The Inherent Disappointment of Authoritarianism") Individuals are far more aware of the value they place on any given good or service than the state. As there is no "true" price ("Saving Us From Lower Prices", "Price Gouging", "Put Your Money Where Your Mouth Is, Or The Logical Implications of Price Gouging Laws", "Excuse Me?"), the only measure we can use is the satisfaction of individuals. And since satisfaction is based on the intensity of the desires, and related valuation, of the moment, the individual is in possession of much more complete information than the state ever could be. Which means a state intervention will, at best, produce the outcome an individual would and is useless, or else would deny him a transaction he would undertake and thus reduces his satisfaction.

Before anyone accuses me of being something of a pollyanna, in postulating individuals who make perfect decisions, allow me to make my argument a bit more clear. Yes, I say individuals will make the choice which brings them the most satisfaction, and that may be a bit incorrect. I should say, within the limits of their knowledge, individuals will make the best decisions, while the state will far more likely make one which will produce less satisfaction. Now, that does assume individuals possess accurate information, which may not be correct. However, I see no reason to assume the state would be any less prone to error than the aggregate of individuals making up society. In fact, as government is nothing but a subset of the same individuals5, the argument could be made the state is as likely to make errors as individuals are, and given that, we can ignore errors as they are evenly distributed, leaving my initial statement effectively correct.

Actually, the above may be too generous in one regard. Individual decisions are motivated by a single objective, the production of optimal results. People always think this sounds absurd, and they claim that individuals are not machines driven entirely by monetary concerns ( "Bad Economics Part 16"), but that misses the point. This is not about money, but satisfaction, and in that regard, individuals are completely consistent. I have never yet met someone who would give away something they value more for something they value less, unless, in the bargain, they obtain another benefit which makes up the difference. (Eg. The satisfaction they get from pleasing their wife or child, the favor of their boss) And since they would only make a "sacrifice" if it gained them some other benefit, they in fact never "sacrifice", individuals always make beneficial exchanges. 

Government actually does the same, but the problem is the exchanges are beneficial to the government as a whole, or to individual functionaries setting policy, and not to the supposed beneficiaries, the citizens.We can see this in any number of political questions. For example, the location of military bases. While supposedly driven entirely by military concerns, everyone knows that a large part of such decisions is made up of which state's political pull is strongest. And so, rather than making a single minded decision based on military need, bases end up where they are politically, not militarily, most useful6.

Perhaps a better example from an economic perspective would be government contracting processes.  On the surface, these are nominally efficient. The government, in many cases, places a contract up for bid. It then accepts tentative offers from prospective contractors. In many cases it then requests proof that the various contractors are capable of fulfilling the requirements. With such proof, it then either accepts the lowest bid, or in cases where there is some variation in the quality of goods produces (eg. military armament contracts), panels of experts review the goods and prices and judge the best combination. It all sounds quite efficient and cost effective, but even without many details I will discuss later, the process as it is intended to work is often inefficient.

For example, many departments will accept as qualified only firms meeting a host of requirements deemed to show their suitability. This sounds sensible, but I can say from first hand experience, most such requirements are more related to being a large firm with the money to meet government requirements rather than any guarantee for fitness. For example, many programming project require "CMM Level 5 Certification". This is an academic model supposed to show the ability to produce software reliably. However, outside of government contractors, I have never met anyone who thinks it a good idea. It produces nothing but massive bureaucracy and huge delays, as well as incessant meetings and multi-year development cycles, and, worst of all, it is perfectly unsuitable for many types of programming. The problem is that it stresses "repeatability", which is fine as long as you are doing "Lego programming", plugging together existing bits to form new variants, such as juggling around database interfaces, but if you are developing something novel, then "repeatability" is senseless, and the methods, reminiscent of the 19th and early 20th century "efficiency experts" who measured the movements of factory workers to time how long it should take to make a shoe, just don't apply. Yet the government requires this certification for many projects in the computer realm.

The consequence of such requirements is that the pool of candidates is almost always small, and relatively fixed. Even when the certification requirements are sensible, the process itself is lengthy, and usually the costs are paid by the company, making it unlikely many newcomers will be able to compete with established firms7. And we all should know what a limited pool of suppliers means, especially when dealing with a buyer like the government, which has an effectively flat demand curve. That's right, cartel pricing. Normally, as I have argued elsewhere, even limited numbers of competitors and closed markets do not support cartel pricing without explicit collusion, as one competitor will eventually try to undercut the others and the whole process will collapse. But in this case there is an alternate support, informal collusion. All the firms involved know how much other firms have bid for past jobs, and they also know that there are so many jobs to go around and they are likely to receive a certain percentage if they bid a set markup. Looking at the circumstances, with a long standing pool of limited competitors, a limitless source of money, and many decades of such income available, the prospect of a small gain through competition pales in comparison to the considerable gains to be made through accepting the unofficial industry-wide markup.

But even ignoring the markup, government bids are a bad idea for efficient purchasing. The process I described above, used for things such as munitions, is better, as it does contain cost-benefit analysis, but it still has flaws, as I will describe shortly. The other process, the "lowest bid" system, is a nightmare. Yes, if all goods were equal, then accepting the lowest price is probably a good idea, but no government contract, though they usually go into minute detail, can imagine every variable in a transaction, nor can they specify every detail sufficiently that there is not some room for variation. And given that reality, accepting on the lowest price alone is usually a bad idea. Not to mention that, though contracts often spell out a floor, they rarely define a ceiling. But, by basing purchases on price alone, the government removes any possibility of receiving anything but the bare minimum of services. Instead of allowing firms to compete in terms of both price and services, they limit the contracts to price alone, and ensure they will get nothing but the services specified, even if all parties involved realize other services would be beneficial8.

But the biggest flaw is endemic to all government purchasing, whether done on cost-benefit analysis or lowest bid. It is the reason the government wraps its purchasing process in so many procedural controls, and yet it is a problem no amount of lawmaking, oversight or bureaucracy will correct. The government is buying things with other people's money. And, as they have no personal interest in the money they spend, the government will not have the focus an individual will. When you or I spend $10, we know it is $10 we won't have to spend on anything else. The government lacks that knowledge, as the individual departments can often get more money if necessary, or at least expect a budget increase next year,  while the government as a whole can raise taxes, create new "fees", or just inflate the money supply should they run short. There are limits, of course, but they are loose limits, and it makes the money they spend a lot less significant to them than our money is to us.

The government will argue that I am not being entirely fair here, as the money they have available is limited. They have a fixed budget and so they are restricted just as we are. But that is not quite true. For example, within a department, the person spending on one project likely will not have access to the whole departmental budget. And so, no matter what he spends, unless he spends the whole departmental budget, it does not limit his future purchases. He likely will spend no more than 1% or maybe 2% of the department budget, so if he spends 50% more or 50% less makes no difference to him, as he is in no danger of running up against a hard limit.

And that is hardly the only way in which his incentives differ from private purchases. For us, we spend our money to achieve goals, to satisfy our wants. The government would have you believe each department spends its money similarly, spending every dollar to achieve departmental goals, but that is only true in a general sense. In many other ways, their incentives are quite strange. For example, as has been said many times, leaving money unspent is normally good for individuals, but bad for government offices. Leaving money says you had too much, and so the incentive is to spend every last dime, regardless of need. Failing to do so is seen by those allocating funds, not as a sign of thrift and good management, but as a sign that the department has no need for additional funds, and so, unlike individuals, where failure to spend money means more to spend later, spending less money for the government means less money in the future.

That is just the beginning though. There are many other incentives that are alien to the private sector. Let us start with the obvious, the need to keep politicians appeased. Every decision may not need to pander to a specific politician, but each must avoid upsetting one. As I described many times, government is basically founded on avoiding blame ("The Bureaucratic Mind", "Fear Driven Enterprises"), and so they must make each decision first and foremost with an eye to who might be upset. That alone means decisions will not be founded on the best return for the dollar, if such could even be meaningfully established9, but on the whims and foibles of elected officials, vocal celebrities, community activists, newscasters and major contributors and lobbyists. There is almost no way a decisions such as that could correspond with the decisions which would produce the greatest general satisfaction.

Besides avoiding blame, bureaucrats are also motivated by increasing their domains. This is not necessarily a selfish motive, as I described in "Grow or Die, The Inevitable Expansion of Everything", "With Good Intentions " and "In The Most Favorable Light", even if they are true believers, they need to increase their own power and scope of operations so they can reach the greatest number and do the most good. But whatever the motive, whether venial or not, the need to increase their power means they must attract attention, and so their projects often are aimed at either drawing public acclaim, or the praise of the higher ups. This often means that more efficient but quiet uses of money are ignored in favor of more public and impressive actions. In addition, as doing nothing is often seen as failing to do one's job, at times when failing to act would be the most cost effective answer, the government almost never does so10. ("Doing Something") As a result, we have spending where under other circumstances there would be none.

I could go on, but it should be clear that any given government decision will be handicapped by countless considerations no private individual would allow. And so, even without any inherent inefficiency, the government will have less acurate information about individual desires, and, even more significantly, will be hampered by considerations that divert its attention from satisfying the public's desires.

But that is not all, far from it. The government is at a disadvantage in so many other ways. First, rules it imposes must always be "one size fits all", while individuals can decide each for himself, allowing a fine tuning the government, even at its most flexible, simply cannot match. ("Redundancy as a Protective Measure", "Inflexibility and Bureaucracy", "Adaptability and Government") By imposing rules with a broad brush, and gathering all data in the aggregate, the government has an impression of the public which may be far from accurate. Grouping things together in such a way tends to not only miss many details, but it can also produce quite misleading impressions as well. ("Individual and Aggregate", "Aggregates and Confusion", "The Importance of Details") Many times a "moderate" average can conceal the fact that reality is made up of the two extremes, and thus often approaches intended to have broad appeal end up pleasing no one11.

A second problem is bureaucracy itself. I discussed this in great detail in "Bureaucratic Management and Self-Policing", "The Inevitability of Bureaucratic Management in Government Enterprises", "Bureaucracy and Arbitrary Power", "Fear Driven Enterprises", "Killing the Railroads", "Adaptability and Government", "Inflexibility and Bureaucracy", "In Praise of Contracts",  "Bureaucratic Management", "The Bureaucratic Mind" and "Bureaucracy Revisited", as well as a few other posts. It is probably worth spending a minute on this topic here, as the term bureaucracy is widely misunderstood, and understanding the term is essential to understanding why government management is inherently inefficient.

We need to begin by understanding that management of firms can take two forms, profit management and bureaucracy. Profit management generally leaves each division to its own devices. There may be some general rules, an overall goal, but the details of management are left to the subdivision, and its success or failure is judged on cost accounting principles12. That is, if the brakes division of GM produces the needed brakes more cheaply than an outside contractor, it is rewarded, if it fails to do so, either it is restructured, or it is sold and outside brakes are used. And within each division the same rule is applied. At each step the individual unit (or individual, at the bottom rung) competes against an outside source, and his success or failure is judged based entirely on the ability to add value at a reasonable cost.

Bureaucracy is the opposite means of management, and one suitable for enterprises where profit does not exist. Bureaucracy is based entirely on rules, with individuals left little or no autonomy. Because bureaucracy originated in enterprises such as police forces or government offices where profit is impossible, other means of measuring performance were needed. Since there is often no output to measure, compliance with rules became the sine qua non of performance measures. And that became the most notable feature of bureaucracy. (There are a few other practices common to all firms under bureaucratic management, but they don't  matter here. If curious, the links above will fill in the remaining details.)

Why this matters here is that bureaucracy is not only common in government owned or run firms, it is unavoidable. I won't get into the details here, but in my essay "The Inevitability of Bureaucratic Management in Government Enterprises" I describe the reasons why it is inevitable firms will end up running under bureaucratic systems, even if previously run for profit, once they come under government control. And, as should be clear, that means that any government run firm will also be less efficient. Of course it is possible to have extensive government spending without the government managing firms13, but it is unlikely. Even if the government does not buy into an industry outright, or regulate an industry until it effectively manages it, the government almost never misses an opportunity to subsidize an industry, and even if that subsidy is not burdened with oversight requirement at the beginning, once there are economic problems, or a publicized bankruptcy, or the hint of a scandal, the government will step in and begin micromanaging its former beneficiaries.

One final word on bureaucracy before moving on. I have argued before ("Transparency, Corruption and Reform", "Bureaucratic Management and Self-Policing", "Bureaucracy and Arbitrary Power", "Julius Caesar, Elliot Spitzer and Andrew Jackson") that large government is unavoidably corrupt. Even with the most honest individuals involved, the fact remains that big government often has no rational means of determining what decisions is correct, and so it makes either arbitrary decisions or corrupt ones, and sometimes the two are hard to tell apart. And, in the real world, it is far from likely that every government official will be free of any ethical lapses, making it almost certain a government will be as corrupt as its size allows. And bureaucratic management makes corruption even more likely, and more difficult to root out. In "Bureaucratic Management and Self-Policing" I described why, but for our purposes, let us say that the first rule of bureaucracy, as I said above, is to avoid blame, and, while sometimes it may work to admit to a scandal and correct it before found out, most often the best way to avoid a scandal is to bury it. And bureaucratic atmospheres tend to favor that reaction, making already inefficient bureaucratic firms even less efficient due to both corruption and the costs of covering up such corruption.

Rather than continue onward, pressing into ever more numerous, but more specific, problems encountered by the government when spending funds, let us stop and look at where we are. Perhaps if we compare individual spending with government spending we can see why it is inevitable the state will fare so poorly.

Individuals, for better or worse, tend to spend their funds in accord with their wishes. They may make mistakes and not get the results they wished, but errors are universal, so that is not a mark against them. They do always know with certainty their own desires, and so will always know whether or not a purchase will provide more satisfaction than the cash required. They also will be single minded in pursuing their own interests, and will not be distracted by other considerations. And thus, for each individual, within the limits of their knowledge and ability, they will pursue in each decision the result which provides them the greatest satisfaction.("The Irrationality of Government Redistribution")

The state, on the other hand, works through aggregate data, gathered historically, providing them with information which is likely inaccurate and certainly out of date.They are also capable of mistakes, as the state is nothing more than a group of individuals selected from among the ones to which the state is being compared. Beyond the lack of information, the state is burdened by incentives which drive them in directions other than satisfying the wishes of citizens. And, as if that were not enough, they are forced into using a bureaucratic managerial system which is both inherently inefficient and prone to corruption.

All of which makes it pretty clear that my initial premise was correct. When it comes to choosing between individual spending and state spending, there is simply nothing to recommend entrusting funds to the state. Admittedly, in the case of the few state functions which provide a good value for their cost, and which are among the proper functions of government -- police, armies and courts -- the cost is made worthwhile by the results. ("My Vision of Government", "My Vision of Government Part II", "Prelude", "How Much Does Government Cost? ", "Government Efficiency", "Of Wheat and Doctors ", "Government Quackery", "The Difference Between Public and Private, Or, The Real Monopolies and Cartels ") But once we move beyond those functions, the state is usually less efficient than private action, and so there is nothing to offset the losses experienced when the state spends our money.

In short, far from having saved us from the depression, priming the pump or jump starting the economy, state spending is a burden, a drag on the economy, which results in a net loss of individual satisfaction.

As there is no way in which an individual could be made more satisfied by having his money spent for him rather than spending it himself, the question remains, why would anyone favor government spending over individual use of funds. And, despite my arguments above, there exist three arguments, which we shall examine before completing this essay. Those are (1) that the government has information unavailable to individuals, (2) that the state understands an individual's needs better than he does a or (3) that money needs to be taken from some individuals for the benefit of others14

The first has been dealt with extensively in the earlier parts of this essay. As the information needed to make a proper decision is a comprehensive understanding of one's own desires and their relative strengths, as well as the degree to which a given choice will satisfy those desires, it seems impossible the state could do better than an individual. The state may know that a given product or service is usually found less pleasing than is assumed, but even that is not necessarily true for a given individual. And that is really the only area in which the state could even possibly have more information. As far as desires and their hierarchy is concerned, the individual will always know better than any other, making it impossible for anyone to do a better job allocating resources than the individual himself. Provided we strive to satisfying individuals desires, and consider success the satisfaction of the most urgently felt desires, then there is no alternative to giving each individual control over the allocation of his own resources.

Which brings us to the second argument, as it implicitly, or sometimes explicitly, denies that definition, though it regularly fails to provide an alternative measure. Arguing that "wants" should be subordinate to "needs", implying that individuals cannot determine the latter due to the influence of the former, individuals advocating this position propose placing some degree of control in the hands of impartial outsiders who can better identify what is needed, rather than wanted, and ensure economic resources are allocated according to these criteria.

The problem here is that "need" is nowhere near as well defined as these individuals believe. ("The Most Misleading Word", "Luxury and Necessity") "Need" only has meaning in terms of a specific goal, which, in turn, is only meaningful in terms of individual desires. In other words, the system they propose, while pretending to be objective, simply amounts to substituting one individual's values for those of others. ("The Inherent Disappointment of Authoritarianism", "Every Kid Likes Hot Dogs", "The Threat of Perfection", "Utopianism and Disaster") While they may make what sounds like a strong case, arguing that "obviously" food is more essential than, say, comic books, or medicine than lipstick, in reality this is still all simply an implicit smuggling of value judgments. For example, at what point do we have enough food that we an begin making comics? Or enough medicine that lipstick can be made? They may say "when we don't need any more", but who defines that "need"? At what point is a "need" satisfied? It sounds objective, but it is still just a value judgment, masquerading as objectivity. And what they pretend is altruistic, objective and humanitarian is really arbitrary and authoritarian, forcing the entire society to conform to the arbitrary values of those creating the laws. ("Who Will Decide", "Copyright as Politics", "The Right Way", "Some Thoughts on "Summerhill"", ""Best Practices"")

Which brings us to the final argument, as it is often combined, in part or in whole, with this argument. For example, when discussing the funding of public education, the twin arguments offered are that individuals, even if they have sufficient money, will not spend enough on education -- the argument about "wants" and "needs" -- and even if they did, without the money from a few wealthy individuals, there would not be enough to fund education for the poor -- the argument for redistribution. (""...Then Who Would Do it?"", "Collective Action and Government")  In fact, I don't think I have ever heard an argument for redistribution which was not coupled with some sort of wants versus needs argument. Perhaps that is only because explicit redistribution is an unpopular argument in the US, so it sounds better to say people simply don't understand the true needs of the nation and so need to be guided into the correct use of resources, rather than saying "rich people must give up their money"15, but, whatever the reason, it seems these two always occur together.

However, as we have dealt with the errors of the argument from "need", let us look at redistribution in a little more detail.

It is tempting to skip this whole argument by simply sending readers to my post "The Irrationality of Government Redistribution" or even to my earlier post "A Great Quote", in both of which the damage done by redistribution, as well as the futility of relying upon such methods, is laid out in detail. But as I have found readers rarely follow all the links in a post, I will try to give, instead, a concise summary of the best arguments against redistribution.

The first argument is simple, though for some reason it seems to fall upon deaf ears. When we appropriate large accumulations of wealth, we eliminate the stores from which future enterprises arise. Without such pools of ready funds, it becomes harder for new firms to start, or small firms to expand. As a result, the economy tends to stagnate, and economic status tends to become less fluid. It becomes more difficult to rise in socioeconomic status, or to start a new business. New products do not appear, existing firms tend to provide only what is absolutely necessary. Without new firms, price competition declines, prices remain constant, as do the number of jobs. Basically, the economy becomes frozen in place, taking the bad situation the appropriation was meant to solve and making it permanent. Which means those the redistribution was meant to help will likely remain in need of help forever, rather than eventually rising out of their poverty.

But the problems of redistribution go beyond that. Hopefully even the most ardent socialist will recognize that appropriating wealth beyond a certain level will act as a disincentive to effort, as those who fear their work will take them above this cut off will likely not undertake those efforts, since they will not enjoy the benefits. This may not touch many individuals at first, as usually redistribution starts by taking form only the wealthiest, but as time goes on, the threshold normally lowers, and as individuals see ever less affluent people being deprived of their wealth, they will anticipate the day when they will suffer the same fate, and they will become ever less inclined to try to better their lot, for fear that eventually whatever they accumulate will be taken away.

And that points out yet another issue. Individuals tend to work with the expectation they will keep their property. When they become unsure of whether or not they will be able to keep their possessions, that increases their uncertainty. I have written many times about uncertainty, and the detrimental effects it has ( "In Praise of Slow Changes", "Predictability", "Conservatism, Incremental Change and Federalism", "The Problem With Evolving Standards, "Inflation and Uncertainty"), but to repeat, when someone cannot predict what will happen, he tends to avoid taking any risks. Without being able to plan, to anticipate what will come, and to take steps to protect himself against risks, an individual will instead either do nothing, or will, at best, adopt the safest course, which is usually one of the least productive and profitable. It is for this reason I have often said that it is better to have an oppressive, tyrannical state with predictable laws than even the most wonderful, compassionate rulers who govern by their whims. Predictability is essential to growth.

There are other problems to redistribution, but those three should make clear that redistribution tends to cause the economy to fail in short order.

Some will respond that the poor don't care. That, for example, funding public education is more important to the poor than economic growth, that they will see the benefits of education but not of growing businesses. However, that is wrong in many regards. First, it assume a lack of economic mobility which simply is not consistent with reality. Yes, since we have instituted the welfare state we have created a class of life long welfare recipients16, but that is due to the provision of money in exchange for following definite rules, rules some find easier than working, it is not due to any economic problems17. Second, even if we allow economic mobility does not exist, which I do not, the poor are also consumers, and the problems caused by redistribution tend to freeze prices, stopping an reduction in the cost of living, thus keeping the poor more deprived than they would otherwise be. In addition, the poor, like everyone else, suffer from the failure of new goods and services to be introduced, and so they are also victims of that aspect of redistribution. Which means, even if we ignore economic mobility, government redistribution causes more harm than good ("When Help Hurts", "When Help Hurts II"), even from the perspective of recipients, and if we add in the lack of economic mobility, the problems become even worse.

Having answered those three final arguments in favor of government funding, I had thought I would complete this essay, but in the course of writing these last paragraphs, it occurred to me that there were a few other arguments against government funding that did not fall under the broad categories we had used throughout our discussion, problems unrelated to economic growth or stagnation and individual satisfaction. These were issues properly described as sociological rather than economic, and were often ignored in economics texts, but they were still very real problems, and,even if they were not themselves economic problems, they definitely had economic and even political implications.

The problem is that excessive government involvement, which is the inevitable outcome of extensive government spending, has consequences beyond the economic. Whether intended or not, individuals see what the government is doing, draw conclusions and learn the lessons of those conclusions, whether or not the government intended to teach that lesson18.

And the same ends up happening with government involvement. As the state becomes the source of ever more revenue for firms, the firms become more and more focused on government as the source of funds, and begin to ignore the other sources of revenue. As discussed above, this causes the adoption of bureaucratic internal controls, but that is hardly the only consequence. You see, outside sources of revenue and many and varied, and allow for a multitude of approaches, while the government is a singular, monolithic source, which makes it difficult for those not already in the know, who are not insiders in terms of government favoritism, to even begin to enter the "market". Combine this difficulty in entering the market with the decreasing sources of new funds thanks to redistribution schemes and taxation, and this is a certain formula for crushing individual initiative in business.

And as individual initiative dries up in business, it also disappears from other areas of life. With government funding becoming more prominent, teaching the lesson that only state favoritism can create success, people begin to lose any feeling of self-reliance and become, mentally, if not legally, wards of the state, seeking approval of the state before doing anything, looking to the state for any ideas, for direction, for instructions on what to do19,20

But that is far from the end of the consequences. Individuals tend to relate best when they can establish the terms between themselves, and do so amicably. ("In Praise of Contracts") Government involvement tends to not only interfere with private interactions to a tremendous degree, but, as we see with the rise of liability laws, for just one example, greater government involvement tends to create hostility where none existed before21. ("How the Government Corrupts Relationships", "The Fifth Wheel") The way the state involves itself tends to assume opposition between buyer and seller, employer and employee, and, when such opposition doe snot exist, effectively forces it into the situation through the rules it imposes, which creates conflict where there was none.

Some will say that is not the fault of spending, but of regulation, and they are right in one sense. However, I would argue that spending inevitably brings regulation, if not because spending inevitably expands the scope of government, then because the government insists on imposing rule son those who accept its funds (that was the original basis, for example, of the 1964 Civil Rights Act, the acceptance of government funds), and thus government spending will introduce these behaviors in that way. But, if readers insist on sticking to the effects of spending alone, allow me to point out one big consequence.

Government funds are a zero sum game. The government only has so much money, and it doles it out to only so many people. With the money being funded by confiscated wealth, the private sources of wealth or even investment are decreased the more government spending increases, which makes government funds a significant source of capital in those regimes where government spending is common. Since the funds are limited and the number of recipients are not, this creates a very hostile atmosphere, in which the gains of another really are your loss. In other words, this creates an atmosphere making inevitable the growth of a highly envious set of people.

Before anyone argues the free market is the same, let me dismiss that claim at once. The gains of one producer are never at the expense of another. Yes, they may compete for customers, but that "competition" is of a different nature. In government giving, the money is confiscated then doled out, it is simply a question of who will have theirs returned, or even more, and who will not. In "competition" for customers, there is no preexisting wealth, the "customer" is not yet committed to one or the other, and so it is basically a question of who will get new business. And, even then, if you "lose" a potential customer to a rival, there are countless others you could regain. For that matter, in many markets you might win the next purchase of the same customer. And that is the one fact making business competition different. It is not a zero sum game. Production increases wealth, making us all better off, increasing the pool of customers and of goods, allowing everyone to "win", unlike the competition for government funds, where one's win is everyone else's loss. The two have nothing in common but the terms used.

The list could probably be extended, but there seems little reason to do so. The argument is clear. Besides the quite obvious economic damage of government spending, it also does untold harm to our society, by destroying friendly relations, turning all interactions hostile, and generally making of ordinary people the cut throat "dog eat dog" competitors they left claims come from the free market. Instead of solving problems, spending tends to create many times more, and, almost inevitably, in the process even fails to fix the problem that brought about the original spending.

It is a recipe not only for failure, but for the eventual collapse of the economy and perhaps society as a whole. Some spending is inevitable, unavoidable, even beneficial. But going beyond that level can be quite damaging.


1. Though closely related to the arguments for government spending, I will ignore here the arguments for both protectionist measures industrial subsidies. To be precise, subsidies will be considered in as far as they are spending, but the other side of the equation, the supposed benefits to business in general, will be ignored here. Protectionism, though often tied to massive spending programs (as we saw in the 1930's), will not be mentioned either. Those curious about such topics can find my writing on protectionism in "Cheap Lighters, Overseas Dumping and Monopolies", "Jobs, Jobs, Jobs, and More Jobs", "The Inevitable Corruption of Protectionism", "Protectionism Right and Left" and "Fear of Trade". I also discuss the inefficiency inherent in government funding, as well as government regulation and control in the posts "In The Most Favorable Light ", "The Difference Between Public and Private, Or, The Real Monopolies and Cartels ", "The Irrationality of Government Redistribution", "How Much Does Government Cost? ", "Government Efficiency", "Of Wheat and Doctors " and "Government Quackery ".

2. I generally abhor such "pragmatic" arguments, and I will argue later that a more precise, defined approach produces the same conclusion. On the other hand, as the ideas of "growth" or "activity" are themselves ill-defined impressionistic measures which masquerade as economic terms of art, I feel less remorse at using my own impressionistic view. So, to be clear, I am not arguing in favor of impressionistic, anecdotal approaches, I am simply showing that, given their impressionistic approach, another approach, using a common-sense understanding of the same terms, tends to lead to the opposite conclusion, making me wonder how they ever imagined their theory made sense. Yes, they can produce numbers to support them, but as I showed in "Mathematical Deception" and "Sterility of Formal Economics", numbers can prove anything. What I wonder is how they could look at such a counter-intuitive theory and hold it long enough to bother coming up with the theoretical support they required.

3. Originally I had intended to use the USSR, and perhaps Nazi Germany (despite the myth of its efficiency), as examples of how government spending, even without war, causes economic decline and collapse. But I realized that the general principle itself will show that well enough. I may revisit the Nazis in this essay again, as dispelling that myth of their efficiency is a useful example of how "common knowledge" can also mislead, just as the myth of Mussolini's trains running on time whitewashed the inefficiency of Fascism, but I won't go into complete detail in my examination of peacetime totalitarian states.

4. There is another variation which finds not that the state knows better, but that the free market is riddled with "waste", which government involvement corrects. Granted, this is usually an argument for intervention rather than spending, but at times spending has been suggested as a short term remedy for "waste", so I feel I should mention it in passing. As it is such an unusual argument however, I won't give my argument here, but will instead refer readers to my prior articles "Cutting "Costs"", "Misunderstanding Profits",  "Again?", "Government Efficiency", "Two Examples of "Inefficiency" in Capitalism" and "Pro Hoc, Ergo Propter Hoc", culminating in the summary "Bad Economics Part 10".

5. As I argued elsewhere ("Liberalism, Its Origins and Consequences - Chapter 7 - More Equal Than Others ", "Our View of Our Fellow Citizens", "Those Other People", "Seeing People As Stupid", "Arrogance and Gun Control", "Contradictory World Views", "Those Other People", "Appealing to Arrogance", "The Intellectual Elite", "The Essence of Liberalism", "The Citizen Dichotomy") most interventionist theories of government, such as liberalism, quietly assume the state is made up of saome sort of elite, though they would never openly say as much. Still, looking at the track record of government, I see no reason to think such an elite exists ( "An End to War", "History Repeats Itself (And We Learn Nothing From It)", "Some Additional Thoughts on Technocrats", "A Thought on Technology and Technocrats", "What Makes Lawyers So Special?"), and I stand by the question I asked years ago in "A Question", why would ignorant individuals needing protection by the state suddenly become omniscient by virtue of being elected?

6. I know there have been several attempts to reduce political influence in this process, as well as in closings, but I am skeptical of them as well. First, because many criteria are so subjective it is hard to tell bias from objectivity, which allows for a lot of hidden political wrangling to come into the picture. Second, because in several cases many decisions are equally acceptable, it is quite possible for yet more political wrangling to enter. Third, because those making the recommendations are military elite and political insiders, and so they are well aware of the desires of politicians and also are in need of patronage jobs, or partisan support, once their current position runs out. Fourth, because politicians themselves wrote the rules, and as we have learned from toothless tort reform, incumbent protection -- I mean campaign finance reform -- laws, and redistricting laws guaranteed to prevent gerrymandering, politicians will never sacrifice an advantage when they can get the same benefit from appearing to sacrifice it. 

7. I am not alleging it happens, but if a firm wished to exclude potential competitors, the relatively arbitrary nature of certification makes it a good means to keep out potential competitors. And the fact that many steps are handled by low level officials who would be cheap to bribe makes it a very vulnerable part of the process if anyone were interested in corrupting it.

8. As they take so long to draw up, government contracts often specify incredibly out of date requirements, especially in technology. This is often remedied by adding amendments, but even then they take months or years and so the contract still runs behind the state of the art. In addition, as new service soften go from novelty to standard in a year or two in the IT field, government contracts often fail to require support, life cycle maintenance and other services that would be available with over the counter software for a fraction of the price. Not to mention that, as prices drop quickly in IT, such contracts often allow many times the necessary purchase price for over the counter software, paying market price only for custom software, as programmer and manager salaries rarely drop.

9.When I speak of the efficient use of funds, in terms of government action, do not take it to mean that I believe there is such a thing. I still contend the government, basing its decisions on, at best, aggregate wishes that are, even then, always out of date, will be less efficient than private decisions in terms of satisfying wants. However, even within the range of possible inefficient government solutions, there are more and less inefficient alternatives. And so, for purposes of evaluating government actions, I informally term the best possible government solution "efficient", even though, in absolute terms, it is itself far from ideal.

10. This is not just the fault of politicians or bureaucrats, nor even of liberal voters. Sadly, it seems almost everyone thinks the government must "do something" when there is a problem, and criticizes them for failing to act, even when government action is the worst possible solution. I discuss this in more detail in ""How Conservatives Defeat Themselves", "Defending Freedom?", "Why We Lose", "Giving Away the Game", "The Single Greatest Weakness",  "What We Deserve", "What is Wrong with Us", "Pyrrhic Victories", "Who Is To Blame?", "Don't Blame the Politicians", "The Difficulty of Principle", "Damn the Torpedoes!", "You Lose When You Think You Win", "The Shortcomings of Pragmatism", "Pragmatism Revisited", "Pragmatism Revistied, Again", "Impractical Pragmatists", "The Problem of the Small Picture", "Arguing In Hindsight", "The Best Historical Example", "A Passing Thought", "Rethinking the Scopes Trial", "The Political Spectrum", "Child Labor and the Industrial Revolution", "Mistaken Perceptions of the Industrial Age" and "Right for the Wrong Reason", among others.

11. One simple example would be to imagine the average "ideal" spouse. Pick the female sex symbol of the moment, and then the male equivalent. Now, try to figure the average of the two and imagine whether marrying such a creature would please anyone. Or, to use an example slightly less bizarre, think of the middle of the road politicians whose centrists policies so horribly disappoint our rather polarized electorate. By averaging the positions of both extremes, they manage to satisfy no one. ("A Good Lesson", "Political Polarization and Divisive Politics", "Clinton and Bush Killed the Center", "Inconsistencies in Historical Perspectives", "Partisan Arguments")
12. My normal example when discussing this topic (as shown by the sentence following this one) is that the GM brake division could not start making pizzas, but so long as a division stays within its mandate, the sole measure of its success is the ability to produce the goods in the quantity and quality needed at a price lower than an outside contractor, or, if not lower price, then on other advantageous terms, such as more reliably, more swiftly, and so on. (Actually, if the GM brake division began producing brakes AND pizza, and the brake production did not suffer, if it were profitable, it is conceivable that the operation would be allowed by the management. Well, perhaps not GM, as unionization and government involvement keep them rather inflexible, but if a private firm with little state and union involvement had a subdivision which found a secondary source of income, it is unlikely management would object so long as their primary function was not detrimentally effected.)

13. Even firms that are not controlled explicitly by government, or even strong armed through threats of withholding funds, or conducting regulatory investigations, can still be driven into a bureaucracy-like management simply by accepting government funding. I discussed this in several places, the links to which have already been provided, but I will provide a short explanation. First, government funding tends to remove competitive pressures, replacing cost-accounting and profit management with the quest to find more government funding. As government funds are often allocated on arbitrary, or at least unknowable, criteria ( "Bureaucracy and Arbitrary Power"), those seeking such funds try, above all else, to avoid any controversy which would make them ineligible, and also seek to avoid upsetting government officials or those with influence. This leads, over time, to the same appeasing climate I found in bureaucratically managed firms. In addition, as such firms cannot rely upon the good judgment of employees to avoid such problems, they tend to enforce strict rules to make sure such problems do not arise, or, if such problems arise, they have grounds for sacrificing the employee in question to appease the sources of state funds. There is more to it than this, but that provides a pretty basic explanation of how bureaucratic management occurs in firms even when the government exercises no explicit or implicit control.

14. A variant of the second argument is the declaration that some service would not exist if not provided by the state. For example, public education would not be funded but for state intervention. (Which is partly #2 and partly #3.) However, as this is simply a variation upon individuals not knowing what is in their own interest, it shall be dealt with at the same time as the more explicit version of that argument is examined.

15. Sometimes these arguments are made explicitly, but most often they fail dramatically. During periods of high populist sentiment, it may be possible to rail against "Wall Street fat cats" and "rich bankers" and "corrupt oil tycoons" and the like, but inevitably it soon becomes apparent that almost anyone can be seen as "rich" by someone else, and the argument for redistribution begins to fall into proper disrepute once again. Anyone who recalls the Clinton plans to saok the rich, which turned out to be anyone making $50,000 a year, will remember this pattern well, how initial resentment of wealth, fueled by a minor recession quickly turned into fear of government, as it became clear that "rich" meant something else when used by the government, and, with that realization, sympathies switched from crusading bureaucrats and the poor to the persecuted producers and the put upon middle class.

16. I discussed the ways welfare programs -- including unemployment insurance, disability payments and related programs -- create a permanent recipient class in "Life Is Not Fair - And Trying To Make It So Makes Things Worse", "Utopianism and Disaster", "Why Must The Government Do It? Part I", "Consequences", "Perverse Incentives", "When Help Hurts", "When Help Hurts II" and "Subsidizing Irresponsibility and Poor Planning".

17. Since we have instituted the welfare state, the economic drain, as well as the constant massive drain of inflation since the early 1970's, has caused economic slowing and other problems, and our regulatory state has definitely impaired growth as well, but even with those impediments, we have still seen almost constant growth, even if it is sometimes less than stellar.

18. An analogous situation would be affirmative action. While intended to redress past discrimination, the actual implications are quite different. Everyone, black or white, upon seeing a successful black person, wonders if he is there on his merits or through affirmative action favoritism. It ends up creating distrust of black professionals among whites, and a feeling of insecurity in blacks, and the more aggressive the affirmative action policy, the more intense the feelings. In addition, by seeming to assert that minorities cannot succeed without government help, it ends up creating an impression which is the exact opposite of its intent, that is creating the impression among blacks and whites that the only way blacks can succeed is through government intervention. Since whites feel they are not discriminating, it tells them blacks must truly be incompetent. And since blacks feel they are not incompetent, it tells them whites will never stop discriminating. In short, regardless of the intent, people draw their lessons from the logic of the actions. (This is also interesting to consider when reading my posts "Disturbing Entertainment, Ethnic Quotas and Distorted Views of Pop Culture - A Potpourri of Post Topics" and "With Good Intentions", which discuss the liberal fascination with intent over actual results, as this shows the results of adopting such a position.)

19. From time to time, when this mindset becomes dominant, pundits will appear who will write essays about the end of the "rugged individualist". In most cases they simply make unsupported assertions in their arguments, but the few who do provide a basis for their claims usually found it either on the heavy involvement of the state in business, or else the prominence of groups rather than individuals in research, which is yet another consequence of government funding. (See "The State Versus Universities", "Subsidies and Censorship", "Patronage Versus Choice", "Asking the Wrong Question", "My Censorship Is Your Discretion", "Publish Or Perish" and "Funding and the Corruption of Science".)

20. This can be seen in the mindset I discuss in ""...Then Who Would Do it?"" and "Collective Action and Government". People seem unable to imagine collective action separate from government. In some cases this may just be intellectual laziness, being unable to imagine the unfamiliar, but in most cases I think it demonstrates the degree to which we have come to see the government as the sole tool of collective action.

21. This is most obvious in the realm of civil courts, where expansive causes of action lead businesses to assume everyone they encounter is a potential litigant. However, the problems exist in many seemingly innocent areas, such as the mechanics of unemployment insurance, where, despite the fact that the employee paid into the system, it is in the interest of the employer to have claims by former employees denied. Similarly, "bounty" clauses in many laws, such as California's ADA analogue, and it's food safety laws, create a hostile relationship between customers and proprietors, as any customer could be seeking to cash in on a technical violation of a regulatory measure. Not to mention that the expansion of laws unrelated to protecting life liberty and property tends to foster less and less respect for laws. Where once only criminals disliked the police, with mroe expanisve laws, more and more individuals come to dislike and lack respect for the police.


I admit I am no expert in government contracting, but I do know many contractors, and I worked as a contractor at the Department of Labor, for a firm writing software purchased by the government, for Citigroup which had contracts with the Federal Reserve and others, for a firm which included government contractors, as a contractor for the Army working on medical logistics, as a contractor at the Pentagon working on public information web server security,and, before I was a programmer, as an eligibility worker in social services. In addition, I applied for jobs -- and went far enough into the interview process that I got a good feel for the work involved -- with a contractor handling compression and encryption of satellite transmissions, a company developing means for military vehicles to send short messages to one another, a corporation which wrote the software used to generate change of address labels for the Postal Service [I don't recall if they had the contract, or were seeking it],  and with a firm contracted to help develop software to monitor readiness of various nation guard units. So, my knowledge may be limited, and impressionistic, but when combined with the many stories I heard from others, I think I have a good picture, admittedly spread over 15 years or more, but still a fairly accurate impression. If I err in some specific, or if some practice I describe is no longer accurate, I apologize, but I don't think I am too unfair in my description. 

Then again, I welcome comments, so please tell me if I erred in some significant way.

I want to make mention of one more disturbing aspect of this issue. As I mentioned elsewhere ("Somewhat Off-Topic Rants"), as the government becomes more and more involved in private business, either through regulation or through funding, or just by creating civil causes of action allowing lawyers greater scope to examine business practices (eg. private ADA causes of action), private firms come to more closely resemble the government. With government regulators holding more power over them, or more and more of their revenue coming from governmental sources, they have many of the same considerations in decision making as bureaucrats. For example, when regulators are a major power in an industry, it becomes crucial to avoid any decision which could draw the attention of such regulators, or politicians who might pressure such regulators to investigate a given firm. Eventually, it becomes a bad idea to even upset those with the ear of a politician, be they newscasters, activists or major donors. As a result, over regulated industries start to behave like government offices, doing all they can to avoid any controversy, driven by fear rather than profit.

Of course, as I said before as well, certain departments within companies have had these sort of pressures for some time, as they lack any sort of objective measure of their contribution to profits. Though, to be accurate, this seems to occur more often in industries which are much more closely tied tot he government. For example, when working in "Information Technology", I found the most bureaucratic practices in universities, and the least in fully private firms, with little or no government connection, and in the middle firms like Citicorp, which had clear government involvement, but also had a considerable private segment with heavily profit driven considerations. 

One exception was when I worked for the "On Line Information" division of a very large corporation with many interests. The division had been turned into the private domain of one politically astute VP who ran it in a dictatorial manner, hiding his own mistakes by blaming and firing large segments of the division every quarter or two. The firm itself was quite profit oriented, but that specific manager's personality led to the division itself behaving in a fear driven, bureaucratic manner. As this was during the heyday of the dot com craze, his bad management, though reducing profits, did not reduce them enough to overcome the general market frenzy -- itself a government creation [see "Explaining Past Crashes" and "A Final Comment on the Futility of a Bailout"] -- and so, unfamiliar with the boom market, management kept him on, thinking he was successful, when, in reality, compared to other firms, his returns were dismal. Eventually the market won out. With the dot com crash, he was let go, the division was shut down, and the firm itself has not been a player in that market since.

However, to return to the bureaucratic nature of private firms, let me describe one of my jobs at a university. As I explained in the essay itself, besides avoiding blame, which was a prominent activity at the university, the other motivation for bureaucrats is to attract positive attention. It is secondary to avoiding blame, but if blame can be avoided and praise won, it will be their main focus. And I saw the same at my job. For example, each CIO would start off his time in office by eliminating all old projects and announcing a plan to "standardize" all our programs on one platform or another. He would put a lot of time and effort into it, making a great show. (Of course, several professors would get exceptions, as would influential departments, as blame avoidance is still paramount.) Once he had made enough progress to put together a presentation, he would begin shopping around his resume, take a new job, and his successor would end the project to create his own. Thus, we ended up operating on not five or six platforms, as we did at the beginning, but on dozens, each one supposedly the "one true platform" when it was implemented, and most of them not chosen for compatibility with anything we already had.

And the problems were present on the lower levels as well. Each department, with an eye to funding, would spend all of its effort on "projects", that is new development which would make for a nice end of year presentation, draw praise from other departments, and generally garner positive attention. It sounds innocent enough, except when you consider that this means there was no time allocated for maintenance or modification of existing programs. And so, when problems would arise, most often tiny patches would be applied to make the specific issue go away, even if it revealed a serious underlying problem. Rather than spend a few hours to fix it, a few minutes would be used to patch it, leading to ever increasing risks of catastrophic failure. Only when a crisis arose which drew the attention of the higher ups would any time be used on existing applications. And even then, there was no time for improvement, for handling user suggestions or otherwise improving, or fixing known issues. They would allocate only the bare minimum time needed to get the application running again.

I don't mean for this to sound as if I am griping about past jobs, far from it. Nor do I mean to suggest all bad management is the fault of government. As I mentioned above, one of the most egregious examples was a firm with few government ties. However, in my experience, certain types of bad management are much more common in government, or firms strongly tied to government. As there is a very reasonable explanation of how government would cause such behaviors, in fact how government involvement would make such behaviors inevitable, it seems to me providing examples to confirm my theory is the next step in my argument. So, rather than seeing this as complaints about past employers, please view these few anecdotes as just a few pieces of evidence confirming my premise.


I mentioned in footnote #21 that the expansion of laws tends to create a lack of respect, and even an active dislike, for the police and for the law. This may sound strange to some, but I have two examples that can illustrate this quite well.

First is found in drug laws. Drug laws, like the prohibition era laws concerning alcohol that they resemble, are one of only two sets of laws I can imagine which made either a majority, or a significant minority, law breakers. Prior to drug laws, or prohibition, most individuals were law abiding. Just think about it, if the law finds criminal only violence, theft or fraud, then most people will be law abiding. But if you add in ever using marijuana, suddenly a lot of people have at one time or another broken the law. And that simple fact makes one suddenly have much less respect for the law, as well as a slightly different perspective on the police.

But since my readers may not have had that experience, let me offer an even more universal example, traffic laws. People who otherwise love the police, who have nothing but respect for them, who adore law enforcement, all have a sudden change of heart once they get behind the wheel. Suddenly, police are the enemies, and these people want to do everything they can to avoid meeting one. And the reason is obvious, traffic laws are almost universally violated. Partly because the speed limits are set 20 mph or more below the safe speed of most roads, partly because they are even farther jiggered to help ensure a revenue stream from ticket writing, and partly because some traffic laws verge on the nonsensical, or are so vaguely defined ("speed greater than reasonable"?) that no one can know if they are complying or not until they are pulled over. All of this makes people who are otherwise in love with the police into miniature James Cagneys, shouting their defiance at coppers. Because we are all likely to violate the law at some point, we have no respect for the law or its enforcers, at least in that context.

And that is my argument about expansive laws. The more laws there are, the more they intrude into everyday matters, and the more vague and arbitrary they are, the more likely we are to law breakers, perhaps accidentally, and the less respect we have for law and for law enforcement.

Correction (2012/04/3):
 A little over a year after writing this, I realized that my job at a university has warped my thinking so that rather than "campaign finance reform", I wrote "campus finance reform". I fixed it in the body of the text, but found the slip funny enough, especially given my job, I had to mention it rather than just silently fixing the problem. It reminds me of another problem I had, one especially troublesome when I worked at the Department of Social Services. When someone has a name which is spelled differently from the standard spelling, I find it almost impossible not to type the standard spelling. It was troubling at DSS, where so many children's names  had, shall we say "unique", spellings, but continued to plague me when I worked for Thomson Financial, whose name I continually misspelled. (Oddly enough, years afterward, having trained myself to never include the "p", I found myself constantly misspelling Fred Thompson's name in this blog.)

Originally posted in Random Notes on 2011/04/01.

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