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Is Government Inherently Wasteful?

Updated: Oct 22, 2020

This week, I came across contrasting articles regarding the government and how it is perceived. On one hand, CATO’s Chris Edwards argues that due to the nature of government, the institution is highly inefficient. On the other hand, Douglas Amy states that government is not inherently wasteful, and that government can actually be efficient in its management of some services.

Edwards’ argument is largely based around the systemic differences between

government and the private sector. For instance, Edwards states in his article “Why is The Federal Government So Wasteful?” that government agencies do not have any competitors threatening their profits. Thus, government agencies have no incentive to be efficient or to stay on budget. This also causes a lack of adaptation or innovation, as there is no competition to stay ahead of. In fact, government agencies are in fact incentivized to be less efficient in the hope that they can demand more funding in order to be effective. These cost overruns are a political gold mine for elected officials, who pride themselves on having the federal government spend as much money as possible on their district. This was a phenomenon in Soviet Russia, where factory owners idled in the hope that the government would allocate more resources to them. To compound this issue, Edwards then expounds the idea that it takes more political capital to create new government agencies in the place of ineffective ones than to simply remove the ineffective ones. This leads to a government so massive that it can no longer easily monitor its own activities. Edwards would be correct in his assertions. One only has to look at recent history. While not directly related to spending, the Smoot Hawley Tariffs are an amazing example of how the government can become inefficient due to a desire to impress the electorate. What started off as two tariffs in the House ballooned into over 900. These tariffs resulted in what was in practice a huge spending overrun, as the slowing of growth caused a smaller tax base due to the sometimes 90% decrease in exports of certain goods. In addition, the F-35 program created jobs in dozens of states. However, this proved to be detrimental, as the massive cost of creating a plane for three branches of the military made the project extremely inefficient. However, the jobs created influenced congressmen to not cut or suspend the project for fear of angering their electorate. Thus, wasteful spending has continued. In short, the flaws that make government agencies inefficient is systemic, as there are simply no incentives to make an efficient government agency, and many incentives to make one that is inefficient.

Douglas Amy argues in contrast to Edwards’ ideas. In his essay “The Case

FOR Bureaucracy”, Amy states that the perception that government is inherently wasteful is a product of public opinion and conservative rhetoric, and not reality. Amy also cites Al Gore’s performance review as proof that the government isn’t as wasteful as people say it is. However, Amy fails to point out that Gore’s performance review cut hundreds of billions from the federal budget, laying off 252,000 employees. One would hardly call this evidence that the government is not wasteful. Amy goes on to critique conservatives’ political motivations for questioning government agencies. However, he fails to refute the points that Edwards has made. Amy’s second “myth” is a straw man where Amy uses the trick of absolutes to state that business is not ALWAYS better than bureaucracy. Amy also uses the example of healthcare as an example of where government is better than business. He states that studies show that privately run healthcare is not always as efficient as government run healthcare. However, the healthcare industry is an exception in the idea that business is usually more efficient than bureaucracy. Healthcare favors the government because the product is ill defined and the outcome of the product will always be uncertain. Thus, it makes it harder to optimize efficiency in ways that businesses usually do, taking away many of their advantages. In addition, Paul Krugman explains that many insurance professionals are focused on providing a third party for paying healthcare bills instead of giving healthcare, which obviously reduces efficiency. However, it’s possible that a better solution would be to remove insurance entirely except for more serious, catastrophic circumstances, as Milton Friedman states. Thus, although Amy does bring up good examples of places where the government does work relatively efficiently, he fails to address the systemic issues that can cause inefficiency.

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