The Answers Are All Around Us

Today’s EconTalk podcast was Knowledge, Power and Unchecked and Unbalanced with guest Arnold Kling.  Like occasional EconTalk guest Mike Munger and the host Russ Roberts, Kling has a knack for discussing economic principles in common language and looking at real world examples to illustrate these principles in things that are so common that we generally take them for granted.

The entire podcast is worth a listen.  I found a few things especially blog worthy.

First, we often talk about bigger and smaller government.  Kling makes an interesting point (near 14:36 mark).  As we have grown government spending the number of governmental units, or decision-makers, has stayed the same.  We have one Congress, 50 states, 435 members of Congress, 100 Senators.  Yet, more is spent per capita than ever before and the number of people making the decisions on how the money is spent remains the same.

They used the example of their home county, Montgomery County, Maryland.  It has a budget of $4.5 billion annually and 9 council members, which breaks down to $500 million per council member.

Very few people who could spend $500 million apiece a year consistently [well].

Kling goes on to the make the point that while there are a million people who vote for the council members, the council members are not household names and few people take the time to figure out who the best candidate is.  Essentially, the successful candidates are supported by special interests.  Kling and Roberts discusses yard sides for candidates that have an apple with “Teacher Recommended” on them.  So, essentially, the democratic process here is somewhat of an illusion.

Next, what’s the optimal size of a school district?  We don’t really know because we’ve grown and consolidated school districts on the basis of other factors like political power  (25 minute mark).  Here’s the kicker (I think this was supplied by Roberts):

What’s the efficient size of a restaurant? Not one that serves 4000 people. We see franchises that brand; emerges from the marketplace.

Why do we need one school district that serves a geographic area?  We don’t have one restaurant that serves a geographic area.   I can imagine someone saying that we need the tax base to provide access to education to those who can’t afford it.  Great.  So do that.  Set tax rates to do that and then give the parents of school age children vouchers to be used at any number of schools.  Then our local departments of education would look more like our departments of health — small staffs making sure the schools are safe for kids — and that’s about it.

Kling also repeated a notion that I have linked to before.  For those who say deregulation was the cause of the financial crisis, why don’t they point the specific regulation that was removed that caused the crisis and then propose to bring that regulation back rather than introduce a bunch of new, untested regulations.

Another common argument for government is that free markets will result in power concentration in big business, so government must be there to limit this.  Kling doesn’t think this works in practice:

[People think we’ve] Got to have this centralization of power on the government side to fight the centralization of power on the economic side. Start with last one. Don’t think there’s much evidence that having a strong central government weakens concentration of economic power. Actually leads to the opposite. In actuality, powerful government and powerful private sector are friends. Classic example: financial crisis, Goldman Sachs, Freddie Mac, Fannie Mae–government will do anything but put them out of business or even allow them to go out of business, so even when they fail the government won’t allow them to go out of business. To say that big government defends the little people against them is backwards.

I’ll stop here for now.  As I read over the transcript of this podcast, there’s enough good stuff to warrant another post or two.

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