“Government employees produce nothing”

Kansas Congressman, Ray Merrick, is catching some flak for saying those words. He also said “They are a net consumer.”

Salon.com typifies the criticism of Merrick’s comments in the subtitle of its piece:

Kansas Republican Ray Merrick shows off his breathtaking ignorance.

Brandon O’Dell, commenting on this Merrick piece in Kansas City’s alternative newspaper, The KC Pitch, gets it. He wrote:

You don’t have [to have] the most basic understanding of economics to even comprehend that what Merrick said is factually accurate. The government does not “produce” anything, unless we all woke up this morning to a communist takeover whereas the government now owns the means of production? What he said is 100% true. The government does not take raw materials and labor and combine them to create goods or services that have a net value greater than the cost of making them. That is “production”. Unless you are in the business of making goods or services that can be sold for a profit, you are not a “producer”. Not a tough concept.

What he DIDN’T say is anything derogatory about government employees. It wasn’t a criticism, it was a statement of a basic economic fact, that government consumes. It doesn’t produce. Some government services are absolutely necessary. That doesn’t change the fact that they are expenses though, and should be managed Ina responsible manner, and yes, even cut when possible. Not something government is good at.

I agree. Merrick’s comments reminded me of posts I wrote in 2011, Government is Overhead and Government is overhead’ follow-up.

Criticism I’ve heard of Merrick’s comments falls mostly into two categories “Merrick is a jerk or idiot” which is then coupled with “but government workers are valuable” or “Merrick is a hypocrite since he’s a government employee.”

I take this as another example of the sad state of discourse in our country. These critics don’t have the capability or desire to try to understand what Merrick said. They will just shame him for saying what they thought he said. He is a politician, so he will roll over and apologize instead of taking the opportunity to educate his critics.

Yes. Some government employees do valuable work. Government workers are paid for by taxes. Where do taxes come from?

Just as in my burritos company example in the Government is Overhead post, the burritos company’s accounting department does valuable work for the burritos company, but they aren’t producers. Take away the burritos operations and what happens to the accountants? They lose their jobs. Their jobs are paid for by the production and selling of burritos.

Dwightisms

David Henderson’s post on sayings from economist Dwight Lee is worth a read. This one is from the comments of that post:

You can tell for whose benefit an institution is run by looking at who gets the closest parking spaces. At universities the students get the most distant spaces, administrators and faculty the closest. At Wal-Mart, they ask the employees to park away from the entrance.

Update: Don Boudreaux also posted this at Cafe Hayek. In the comments of his post, someone points out that professors and teachers also get the good parking spots at his children’s private university and high school, implying that private doesn’t necessarily make the institution more likely to give better parking to the students.

I think it’s important to realize that the private/public distinction is not all that helpful in determining whose benefit the institution is run. Certainly, there are plenty of private institutions run for the benefit of their bureaucrats.

I think an interesting question is how and why such private institutions can get away with that?

One answer for universities may be that they aren’t really run for the benefit of the students, but rather for their parents, who don’t visit as often.

Certainly, all institutions have to try to please multiple groups of stakeholders. But, universities do seem a lot more focused on administrators and faculty than other groups. Tenure is another example.

Why do we trust scientists who can be duped by parlor magicians?

Scott Sumner makes a good point about the economy and studies of it in this EconLog post. He writes:

I recall a story that scientists are often unable to explain the “tricks” performed by magicians. Scientists tend to be smart, but also rather linear thinkers. They are not used to their test tubes trying to deceive them. Something similar occurs in economics.

The economy operates in very subtle ways, and often when I read academic studies of issues like discrimination, the techniques seem incredibly naive to me. They might put in all the attributes of male and female labor productivity they can think of, and then simply assume than any unexplained residual must be due to “discrimination.” And they do this in cases where there is no obvious reason to assume discrimination. It would be like a scientist assuming that magicians created a white rabbit out of thin air, at the snap of their fingers, because they can’t think of any other explanation of how it got into the black hat!

They forget how easily fooled they were by the magician.

Why is this important? Sumner also makes the point that the economy works in subtle ways which are often just as misleading as the magician’s misdirect. He brings up one example, the vexing problem of why dry cleaning prices are higher for women than men. Perhaps it’s gender price discrimination.

The truth test — as Dan Hill points out in the comments to Sumner’s post — is to ask anyone who makes such a claim to put their money where their mouth is. If discrimination is the reason for the higher prices, not costs of some sort (be they direct or opportunity), wouldn’t you be able to make a lot of money by opening dry cleaners that offer a lower price for women?

Signals v Causes: Poverty

From the Introduction of the William Easterly’s book, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor:
:

The technical problems of the poor (and the absence of technical solutions for those problems) are a symptom of poverty, not a cause of poverty. This book argues that the cause of poverty is the absence of political and economic rights, the absence of a free political and economic system that would find the technical solutions to the poor’s problems. The dictator whom the experts expect will accomplish the technical fixes to the technical problems is not the solution; he is the problem.

Think of technical problems as problems like not having medicine, food or the internet and technical solutions as providing medicine, food and the internet.

I’m looking forward to reading the rest of the book. I heard about it from this EconTalk episode with William Easterly and that discussion is worth a listen.

Bottom up links

In this Freakonomics podcast, Steven Levitt discusses his work with companies whose managers resist experimentation to test their beliefs.

In one example, he couldn’t convince a company to stop running newspaper ads in any market to see if that would have an effect on sales. But, they discovered that an intern neglected to buy ads in Pittsburgh one summer. It had no effect on sales. But, the company still buys ads.

In this EconTalk podcast, Yuval Levin made what I expected to be a dull conversation about Edmund Burke and Thomas Paine, very interesting. On this, especially, I agree:

I think that there’s a way in which the Left takes for granted a thriving economy that just comes in the background and the question is how to distribute the goods. We have to make the argument that that thriving economy–which makes possible the thriving life of this society–has to be sustained. And it’s a function of certain attitudes toward law and order, of certain kinds of rules, certain kinds of liberties that have to be defended, both because they are right and because they are good. Conservatives are nowhere near good enough at making that kind of case.

Enhanced by Zemanta

Signals v Causes: Rome

This gave me a chuckle, from this week’s EconTalk with Charles Marhon about what makes a strong town:

I like to point out that Rome didn’t get the Colosseum and then build Rome. The Colosseum was the byproduct of centuries of success. And you know, you can look and say Rome was successful because they had a Colosseum. And go out and build a Colosseum and then say, why isn’t Rome appearing here?

I recommend the podcast. Marohn makes a lot points that I am sympathetic to.

He thinks we’ve gone overboard on infrastructure due to the belief that more is always better for growth.

Because of that thinking (similar to thinking on housing and education) and distorted incentives (we don’t directly pay for all that infrastructure) we’ve pushed into the diminishing returns part of the curve and cities that have built infrastructure to try to stimulate growth (rather than build to keep up with growth) are getting to the point where they may not be able to pay their bills.

Socially wasteful?

As a long-time debate aficionado, it seems to become rarer and rarer that I come across a debate that I haven’t heard yet and makes me think. I came across such a debate between Steve Landsburg and Don Boudreaux about socially wasteful spending.

It goes something like this:

Company A has a product that produces value for society, let’s say $100. Company B faces a decision to make a competing product that is slightly better and would add marginally to the overall value for society, let’s say $10. So, Company B’s product would produce value of $110.

Company B faces an incentive to invest more than the marginal improvement in societal value, $10 in this case, because it can also attract Company A’s customers.

So, maybe Company B invests $50 to produce $10 more in value for society, because it can attract the some or all of the $100 of value already served by Company A’s product.

On net, society is worse off because a $50 investment has been made to produce $10 of value, for a net loss of $40. Landsburg says the $50 is socially wasteful spending, though he admits that the simple example doesn’t capture all the complexities of the real world, like the possibility that the $50 investment accidentally produces more than $50 of value.

But, I think his main point is that this incentive to make socially wasteful investments is, perhaps, one weakness in the normal feedbacks of capitalism.

I’m having a hard time fitting the real world onto the simple example, where there is uncertainty, risk, prudence, competition, different value propositions for different people and such.

Enhanced by Zemanta