Downsizing government…? It ain’t rocket science!!!

Politicians & bureaucrats seem paralyzed when it comes to meaningful cuts in what governments do or spend money on.

As further proof that the private sector provides better incentives to cut waste, the Cato Institute offers a web site dedicated to downsizing government.

Did our found fathers really imagine that tax revenues should be collected & spent on landing a space vehicle on an asteroid?

The (limited) wisdom of John Maynard Keynes

In separate commentary entries, Jerry O’Driscoll in the Wall Street Journal & Mario Rizzo in the Christian Science Montior point out that the ongoing debate about economic policies can be traced to disagreements between F.A. Hayek & John Maynard Keynes.

While I find little wisdom in Keynes’ economic utterances, he did make 2 comments that I have taken to heart. I read once where he said that (sic) “5 minutes is a very long time”. With that in mind, I have possibly been more productive in using small bits of time.

Another comment supposedly made quite near his death is that one of his great regrets is not to have drunk more Champagne!

Friends that know me well agree that I live so as to avoid similar regrets!

Never underestimate how much politicians will waste to support bad policy

Those that fear the demise of the euro (or applaud it) should realize that politicians have a boundless capacity to spend other people’s money to support failed policies.

When it comes to the survival of terrible policies, there is no better example than the agricultural subsidies provided by the European Union’s common agricultural policy (CAP). Spending on this series of boondoggles involves €50 billion each year, constituting ½ of the entire EU budget.

Passed to support small, relatively poor farmers, the main recipients are larger farms, often owned by rich corporations, especially in support of the production of sugar beets. Higher food prices arising from the CAP harm the poor the most since they spend a larger proportion of their income on staples. And by promoting agricultural surpluses, the CAP leads to continual dumping of artificially-cheap food on world markets that harms farmers in poor countries.

Despite enormous costs of the CAP & wildly-distorted agricultural prices, European leaders are unlikely to muster the political will to pull the plug on a stupid policy.

And so will be with the euro.

Leaders in Brussels & other capitals complicit in the dissemblance of Greek leaders about the conditions of Greece’s economy were joint authors in the debacle that is the euro. The €700 billion bail-out should be seen as a mere down payment with much more pain yet to come, including erosion of the credibility of the European Central Bank.

Pie-in-the-sky economic logic supports “green rain” for so-called “green jobs”

It turns out that “green jobs” depend heavily upon “green rain” in the form of government subsidies waste money & distort energy prices.

In Spain, $758,471 was spent on each “green job” over the last 8 years, coming at the cost of 2.2 private-sector jobs with only 1 in 10 newly-created green jobs being permanent. And tax subsidies for renewable energy from 1998 to 2009 caused the price of electricity to rise by 77 percent (Gabriel Calzada, “Study of the Effects on Employment of Public Aid to Renewable Energy Sources”).

Similar disappointing results on the economic impact of “green energy” initiatives are reported for Germany (‘Economic impacts from the promotion of renewable energies: The German Experience,’ published by Rheinisch-Westfälisches Institut für Wirtschaftsforschung).

While government aid for wind power in Germany costs 3 times more than conventional electricity, per worker aid for solar industry is about $240,000, far more than average wages! All this leads to artificially-higher electricity prices. And as in Spain, most green jobs arising from government action disappear when subsidies end.

In all events, “green” energy sources like wind and solar power raise costs unnecessarily since big reduction in carbon emissions can arise from replacing coal with natural gas. The simple fact is that if green-energy sources were affordable, everyone would buy them!

If governments want to more jobs to be available, taxpayer funds must be used more efficiently (i.e., more profitably) than if left in hands of private sector. Sadly, there is little evidence that this is likely to occur since most new government spending tends to be directed towards consumption, vis-a-vis, redistributionist transfers.

As it is, mandating subsidies to support labor intensive, inefficient & expensive power sources is a boondoggle. Waste occurs unless there are net gains in productivity & more wealth is made available to the community.

A sensible way to create jobs & expand green energy is to end the dependence of renewable energies on government handouts & eliminate regulatory barriers to entry to spark competition. Since regulatory red tape delays renewable energy ventures & makes them more expensive, there is less market-driven investment.

Governments must cut waste, fraud & corruption before raising spending or hiking taxes

Here’s a novel idea.

What about governments reducing mismanagement that allow losses from corruption, fraud & waste before imposing more new taxes or hiking rates or making spending promises!?!

As it is, levying taxes is more credible if accompanied by guarantees for the efficient use of funds in activities to deliver collective benefits rather than being a redistributive tool for sycophants.

For example, a GAO report reveals the US Department of Health & Human Services conducted poor oversight on its Low-Income Home Energy Assistance Program. Of $5 billion spent in 2009, $116 million went to pay electric bills of thousands of applicants that were dead, in prison or living in mansions. While some of the bogus recipients face trial, no government bureaucrat has been fired or faces legal sanctions.

And it is widely reported that Medicaid abuses involve at least $30 billion a year, 10 percent of the total annual budgetary outlay for that program. One promise behind Obamacare was to pay for it in part by ending $622 billion in Medicare and Medicaid “waste and inefficiencies” over the next decade. Reducing so much waste should have been a first step taken before creating new layers of bureaucracy & more tax obligations!

World leaders & “mad hatter” economics

In another pathetic summations from yet another summit, the Group of 20 issued a statement that committed them to move away from a focus on spending programs to emphasize debt reduction.

For their part, European leaders indicated a belief that deficits were the biggest threat to the stability of their economies. Meanwhile, the leaders from the US, Japan, India sought tempered language so they could continue to spend as though there were no tomorrow. For its part, Japan was explicitly left out of any mention of targets since most of its public-sector borrowing is from domestic sources.

In the end, a “timetable” appeared to suggest that some countries might sometime so something at some point in the future, without any deadline.

Their declared preference for reducing debt is to combine spending cuts with increased taxes.

The correct approach would be to lower the burden of government on the private sector by less public-sector spending with tax cuts & deregulation.

Human progress is the outcome of exchange

Human progress is the outcome of decentralized, spontaneously-ordered actions whereby gains occur from exploiting otherwise dispersed “collective knowledge” through voluntary exchanges.

These trades may or may not involve material goods or immaterial services, but the voluntary nature of the transfers insure that all those engaged directly in the transactions gain from them.

Social democracy and its limits

Social democrats (aka, “liberals” or “progressives” in the USA) generally support the welfare state.

In so doing, they continuously seek out ways to promote government interventions into the economic & social lives of their fellow citizens. And they do so under the false presumption that they or operatives of the state can know what is best for the overall community.

In turn, they reveal much about their own inadequacies. They are too intelligent to try to defend socialism, but they are not well-informed enough to understand why they should defend economic freedom as a bulwark against government oppression.