Life would be better if more people understood this

Here’s a great post from Don Boudreaux at Cafe Hayek on the nature of wealth and politics.

In it, he criticizes the all too typical, and wrong, view that wealth is a fixed pie and why the concern that the wealthy use their wealth for political influence is a good marker for someone who seems oblivious to root cause thinking.

Here’s a snippet on the second point:

…Mr. Reich fails to connect the dots by complaining that the rich spend more and more of their wealth in the political arena.  What else to expect when that arena becomes ever more central to Americans’ daily lives and, simultaneously, becomes ever more crowded with redistribution-mongers (such as Mr. Reich) whose squeals to soak the rich grow louder and harsher?

Folks like Mr. Reich think that the solution to their perceived problem of politically powerful wealthy is a more powerful government. But, a more powerful government just raises the stakes for the wealthy to use that power to their advantage.

In other words, without a powerful government, the wealthy could not be politically powerful. The problem is not the wealthy gaining political influence. The problem is that with a powerful government there will always be unsavory characters seeking to gain that power for their own good.

Think about the plot line of every movie that has an object with immense powers. There’s always a fight between multiple groups, good and bad, to get the object so they can use its power to their advantage.

The problem in Reich’s thinking is that he cannot fathom a limited power government. He wants a powerful government, but he just wants to somehow (through even more power for the government) restrict the holders of its powers to people who think like him.

He doesn’t realize that’s a self-fulfilling prophecy. The more power we bestow on the government, the more likely there will be unsavory people seeking to control that power.

“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.

Why does government work so well? Huh?

In this post on EconLog, Bryan Caplan explores why government enterprises work so well.

He makes a good point.

I think the small-government types (like myself) can overplay disasters of government involvement and we lose credibility when we do so. So, I do think its helpful to recognize when government seems to be doing, at worst, okay.

On the flip-side, I think big-government types can overplay the successes of government enterprises.

But, I think much of this is explained to the extent of what level of government we are talking about and the dynamics of that level, to what extent it is bottom-up or top-down.

I discussed this in more detail in this post back in 2013. I think government enterprises that work pretty well are more bottom-up and the ones that don’t work so well are top-down.

That post was inspired by an apples-and-oranges comparison often made by government-types.  They say that fire and police departments are government, and work pretty good. Then they make the logical leap to use this to support that some Federal government enterprise will work.

The lapse in that logic is that fire and police departments, while government enterprises, operate at the local level. There are thousands of these departments, that operate rather independently of one another, across our country. This makes these enterprises operate much more like a bottom-up organization, than top-down. This allows these enterprises to benefit from the same dynamics of innovationism as businesses.

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.

A nutrition group learns what I learned nearly 3 years ago

The Washington Post reported that the School Nutrition Association “has done an about face” on the First Lady’s school nutrition program because children throw away too much of the healthy stuff, wasting lots of money.

I learned this three years ago when McDonald’s offered a healthier Happy Meal.

Sebelius

When I saw the alert that Kathleen Sebelius is going to resign her post as Secretary of Health and Human Services, the classic Warren Buffett quote came to mind:

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

The business of attempting to solve problems caused by government intervention with more government intervention is a business with bad economics.