Tuesday, January 25, 2011

Anything Government Can Do... Part 02

Following my post, Anything Government Can Do, The Free Market Can Do Better | An exchange between friends, my friend replied:
In response, I did not say better, but more cost effectively. Cost efficiency does not always equate as better. I can drive a well maintained 10 year old Toyota Corolla more cost efficiently than a new full sized auto, but that does not mean it is a better auto. Secondly, I never said anything about "the unfailing efficiencies of the free market". I believe it is the fact that the free market can and does fail that makes it pure. Government, on the other hand is able to prolong and deny failure by extending budgets, increasing debt and raising taxes. 45 out of 50 states are now insolvent and several are headed for bankruptcy while still spending at record levels. That is not "philosophy', but is backed up by government audits.A federal employee is paid 64.47% more (including benfits and pensions) than a free market employee with full benefits doing the same task. By the Governments on records there were 72 Billion dollars spent on improper payments in 2008. The government also discovered that 22% of the programs they finance (at a cost of 123 Billion annually) fail to show any positive impact on the population they serve. The beauty of the free market, is that it can not operate like this. Most free market enterprises operate on less than 6% profit and would long since be out of business if they operated so inefficiently. Many of the businesses I shooped at or resturants I ate in 10 years ago no longer exist. I am not aware of many (any) governmental agencies that have been aloowed to fail in that time.

 A 2001 government comission evaluation found that the cost of operating and maintaining private roads is often less than half the cost of publicly manged roads. In Washington D.C. the cost of public education is $17,500 per student without figuring in capital expentures (Costs of buildings, healthcare, retirement and debt reduction). When you add these the total cost per student is $28,000. In the same district, only 39% of private schools charge more than $10,000 (all inclusive). These are not "philosophies", but facts "weighed" by audit, for the most part, government ausdit. Our forefathers also showed 0 interset in developing national health care, a federalized pony express or welfare. They believed in the free market and allowed it to function unhindered. It is what made us the most prosperous nation in the shortest amount of time in thistory.The free market certainly is not perfect, because greed is a temptation available to entrepenuers and CEO's as well as union and governmental leaders, but all in all it is heads above any system in place now or in history.
To which I respond:

Perhaps I mistook the heart of your argument. You said there is one flaw in Ms. Cutter’s reasoning: “and that is that Government can provide any service more cost efficiently than the free market.”
The heart of my argument is that this may be the wrong argument. 
In one sense —  borrowing a line from an old movie — “We don’t care how much it costs; we care how much it makes” (Heaven Can Wait, Paramount, 1978) I’m pretty sure a pencil-pusher could find fault with this notion; but only a pencil-pusher would care at the nth degree.
This was, more or less, the reasoning of Thomas Jefferson when he presided over the Louisiana Purchase; financing an amount equal to 95% of the nation’s annual revenue — much of which was already allocated to debt service — and increasing the nation’s debt by 19% just like that.
Mr. Jefferson defended the purchase in his second inaugural address — speaking to concerns not of cost efficiencies but of the soundness of the Union:
I know that the acquisition of Louisiana had been disapproved by some from a candid apprehension that the enlargement of our territory would endanger its union. But who can limit the extent to which the federative principle may operate effectively? The larger our association the less will it be shaken by local passions; and in any view is it not better that the opposite bank of the Mississippi should be settled by our own brethren and children than by strangers of another family? With which should we be most likely to live in harmony and friendly intercourse?”
President Jefferson joined others like first Secretary of the Treasury Hamilton in the willingness — in fact the action — of leveraging revenues to match expenditures by the constitutional mechanisms enumerated in Article I, Section viii which begins: 
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States…”
They played this out with admirable flexibility, I think, and both Hamilton and Jefferson were inclined to generate revenues from the well-off before resorting to ordinary working Americans (you can see this inclination in Jefferson’s second inaugural speech and 15 years earlier near the end of Hamilton’s report on public debt to the House of Representatives dated January 9,1790 )American State Papers, Finance, Vol. 1, pp 15-25).
Wading back into the mainstream of our discussion, I believe we all should insist on effective rather than ineffective government operations at every level. I doubt you and I have much disagreement there. We may disagree about what if anything enables effective government.
Please pardon my overreach in putting words in your mouth regarding “the unfailing efficiencies of the free market.” That said, it seems to me that after spitting them out, you bit them again with your contention that free market failures drive the purity of the thing. This is an old conundrum which in my opinion embodies the philosophical divide between free market purists and…well, everybody else. I doubt we’ll solve that between us.
You note several interesting data points without citations. I’d be interested in tracking some of those down if you can direct me to original sources. I’m particularly interested in the claim that federal employees are paid 64.7% more than the rest of us for doing the same task. That doesn’t look like what I read from the Bureau of Labor Statistics.
Finally for now, you say, “Our forefathers also showed 0 interest in developing national health care, a federalized pony express or welfare. They believed in the free market and allowed it to function unhindered.”
I go back to the US Constitution which absolutely declares the responsibility of the government to interrupt the unhindered functioning of the free market as necessary to provide for the general welfare of the United States. 
How else am I to understand Article I, Section viii?
The Congress shall have the power…
- To lay and collect taxes, duties, imposts and excises
- To borrow money on the credit of the United States
- To regulate commerce with foreign nations, and among the states and with the Indian tribes
- To establish laws for bankruptcies
- To coin money and regulate its value against other currencies
- To fix standards of weights and measures
- To punish the counterfeiting of securities and currency
- To establish post offices and post roads
- To promote the progress of science and useful arts through limited copyrights and patents
- To constitute lower courts
- To define and punish piracies and felonies on the high seas and offenses against international law
- To grant wartime letters of marque and reprisal and make rules concerning captures on land and water 
Then, tying it all up in a bow:
“To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”
Those powers — enumerated in the U.S. Constitution, ratified by the States and extrapolated into statutory laws and observable practices — stand in clear opposition to the notion that they believed in and intended the United States to be the crucible for a wholly uninhibited free market.
Which is not to say they were anti-business any more than I am. 
I’m just another moderately successful entrepreneur — fully engaged in the life of commerce and in no way anti-business. And I’m just another citizen — fully engaged in the political process and in no way anti-democratic. These identities are not at odds for me. 

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