Tuesday, January 26, 2010

Three Options

On several occasions now (see here, here and here) I’ve gone on about how the government relates to the economy and what services of what value they are.  To summarize, the following things, among others, are services provided by the U.S. government, for example, and are valuable:

  • Security of financial assets
  • Copyright protection
  • Guarantee sole use of the Radio spectrum
  • Incorporation

These are a few among many that I could list.  Now it seems to me that there are three ways, broadly speaking, that we, as citizens of the United States, and deal with the fact that our government provides these services.

I.  Trade Them

This is the liberal option, and the one I prefer.  We can trade these services for things that are valuable to we the citizens.  Those that can use, and who need, these services to generate revenue could return a portion of said revenue to those who supply the services (the government) which then would spend the revenue on A) the kinds of things needed to continue supplying these services and B) stuff we the citizens could use.  We could have more extensive, and less expensive, mass transit, fully funded social security, education, health care and the like.  I also argue that there is a great deal of overlap between A and B above.  To supply the highest quality of the services listed above, as the U.S. does, requires having a well educated, secure, stable, generally healthy and prosperous  population.  These things are both needed by the government to supply the services and of general value to the population, so the two categories are not totally distinct.

Now if we do trade the services, we do not need to squeeze our customers to death.  We can certainly set the prices such that both we, and our customers do well by the deal.  That is the liberal proposal.  For all the whining and complaining of our conservative friends, even the highest tax proposals leave those who rely upon these services making quite a good living.

II Eliminate Them

This is essentially the Jeffersonian, and it would be a coherent libertarian, position.  While this is not the position I would advocate, it is one that can be respected.  This would be the position of a truly “small government”.  Instead of the government providing these services we citizens would either do without them or they would be provided by the private sector.   With no incorporation, no licensing of the radio spectrum and the rest, this would indeed have the government “out of the marketplace”.  This is also a position that no significant political faction is calling for. 

Now a variation on this policy would be to provide these services, but only to a limited extent.  This could be only be accomplished, however, by making them very expensive.  If the cost of incorporation or sole use of radio waves were very high, these services would be used rarely, and some private sector solution would be used instead.  Now there is no guarantee that the value obtained from these services as provided by the government can be supplied by the private sector.  If it takes a government to supply such things, and I think experience indicates that it does, then the loss would be a deep cost to we citizens. 

III Provide them for Free

This is currently the policy of the Republican party and the modern conservative movement and it is completely without justification.  Currently, the government provides these services and is therefore deeply involved in the economy.  But we charge nothing for them, rather provide them for free to a privileged class of select individuals.  Thus we in no way reduce the extent or intrusion of government we are simply removing the only things that protect us from the dangers of a large intrusive government, namely oversight, review, accountability and transparency.

There are businesses in which all the costs of all the inputs must be paid for out of the revenue that can be derived from the business.  Under these circumstances the business must be run in a manner that maximizes its efficiency if any substantial profit is to be made.  However, if the inputs of the business include copyright protection or a guaranteed sole use of radio spectrum, and as in our current arrangement these are provided at nearly no cost, then large profits are guaranteed even if work is done or the business is run poorly.   This also results in a disproportionate share of the nation’s capital gets drawn into such businesses, as they are more profitable than businesses that must cover all their costs without government assistance.  So this option can only result in growth of government control and influence in the economy.     

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