Tuesday, May 3, 2016

The Wrong Way to Trim Government

Our large, interventionist regulatory-welfare-education-police state scares me, but I think a big regulatory-welfare-education-police state that waxes and wanes at random scares me even more.

I favor smaller government, but I don’t necessarily favor the way it’s getting done. Brinkmanship over budget deficits and funding is leading to very sudden shut-downs of government agencies. It’s happening in a big way in Illinois, and it’s looming at the federal level, too. I’d prefer to see a slow, deliberate phasing out of bad programs that don’t pass a cost-benefit analysis. Some government programs are so destructive and wicked that they should be ended immediately, but others are benign (even if expensive in $$$ terms). The benign ones could be slowly phased out so that people have more time to adjust to changing circumstances.

While a government shut-down that happens abruptly really is disruptive, people are wrong to bemoan the disappearance of some of these programs. The assumption is that if the government doesn’t do it, it won’t be done at all. That assumption is wrong for many of the things government does. Government hires people to perform a service, and collects money from the (supposed) beneficiaries of that service. Person A performs a service for Person B, with the government serving as an intermediary. There is no reason to assume that A and B can’t find each other without the government’s help. Schools can still find students, and vice versa, without government acting as an intermediary. Someone can build a road between points X and Y, for any such cases where a road between X and Y is useful, and the users of the road can pay the cost through tolls. Alternatively, businesses can build roads in anticipation of increased traffic to their storefronts. Government provides few true “public goods,” those non-excludable non-rivalrous goods that free markets are (again supposedly) unable to supply. If a government program shuts down and Person A and Person B stop exchanging services and payments, it probably means that the value of those services aren’t actually worth what’s being paid for them. It probably means that Person B values the services of Person A at *less* than what A is currently getting paid. That’s a program that really should come to an end. If we move more of society’s resources into the private sphere where exchange is voluntary, then we could expect only those exchanges where the service is worth the price to continue.

Of course there are exceptions, and I’m willing to entertain the idea that *some* government programs provide true “public goods.” It’s possible that some government programs are cost-justified but wouldn’t happen in a free market because of externalities and public goods considerations. But that’s all the more reason to start trimming, and start trimming *now*. Cut out those programs that aren’t obviously solving public goods problems. That way the ones that *are* don’t get cut every time there’s a budget stand-off. I happen to think we can get away with having a minuscule government, perhaps 5% of its current size, or even 0%. (I’m far more confident about the 5% than the 0%, but I’m comfortably agnostic about the exact location of the optimum level, at which point further cutting would suck more than it helped.) But suppose I *did* want a larger government. If I truly believed we needed a large interventionist state to solve externality problems, I would be very pissed off at all the wasteful government spending that made those necessary government programs unaffordable.  I’m disturbed by the near complete absence of fiscal hawks on the left, who should be saying, “Let’s be good stewards of taxpayer dollars. Let’s preserve the moral legitimacy of the state. Let’s push back against public sector interest groups that take more than their fair share. Let’s even trim some ‘nice to have’ government programs in favor of the ‘need to have’ government programs.” Whatever your goals are, and whatever you think is the optimum size of government, there are finite resources to be managed and allocated. We can’t do away with trade-offs.

These next few years will be interesting. Budget standoffs are looming in a big way, in my state (Illinois) and also at the national level. I think some people will realize that they actually can get on with their lives without government when the need arises. Some people will go through a painful adjustment process, but they’ll get back on their feet once they realize those government dollars aren’t coming back. Some people will be thrown out of their state jobs (or state-subsidized jobs), but assuming they have useful skills they will find employment elsewhere. Some folks will figure out that they can actually get by just fine without their subsidies, and in fact those subsidies may have been holding them back. Even if the budget cuts never in fact materialize, the prospect of big budget cuts will inspire some people to switch to more secure work (I know for a fact that some people are doing this already). This isn’t my preferred approach to cutting government, but I think it’s the logical outcome of an irrational political system. A rational electorate that asked only for cost-justified programs and disciplined budgets would not see this kind of instability. What we actually have are irrational mobs demanding always more for their coalition, making unreasonable demands and adopting a stance of unwillingness to compromise. It’s a good way of getting what you want, if you don’t really care about the rest of society or even your own long-term interests.  

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