October 14, 2010
Three Things Government Cannot DoBy Larrey Anderson
"Government" is an abstract and amorphous word. It means nothing until it is put into some frame of reference (state government, municipal government, central government, etc.). The addition of these adjectives merely narrows the sphere of legal and constitutional powers of a particular institution.
Governments can provide certain services -- like protection of private property or defense from foreign enemies. Governments can also, through taxes, fees, and regulations, redistribute wealth and control some aspects of the goods and services that come to the market. (E.g., governments mandate, either through tax credits or by direct regulation, how much energy certain appliances can consume.) These are the only things that any government can do.
Everything else that we are told that governments can do for us is fanciful fiction. This is emphatically true in the United States. Our federal government does not, and cannot, (1) produce products, (2) create wealth, or (3) provide jobs that pay for themselves.
The interconnectedness of these economic truths is not well-understood (especially by the political classes). Let's review them in the order presented above.
1) Government produces...anything
As I have shown in detail elsewhere, the myth that governments can successfully produce manufactured items is easily proven false. Take a look around you. Try to find one thing in your house that was manufactured by a government [i].
Governments regulate many of the products we use -- from the chairs we sit in to computer monitors to the light bulbs we use. But the government does not produce any of those items. The Department of Energy, for example, has a "Products and Services" tab on its website. Click on the link. See your tax dollars at work. The DOE offers neither products nor any (useful) services. It regulates, and it offers "advice" [ii].
All past efforts of governments to enter the realm of production have failed. The explanation is simple: there is no financial incentive for the inventor, the manufacturer, or the laborer to create commodities in a socialist system. As the proletarians in the former Soviet Union used to say, "The government pretends to pay us -- and we pretend to work." (I explore the failure of the manufacturing sector of the communist system and the rise of the black market under communism in my memoir, Underground: Life and Survival in the Russian Black Market.)
The reason the government does not produce anything but limited services, regulations, and wealth redistribution is directly tied to a second fantasy:
2) Government creates wealth
A state's inability to create wealth is directly connected to its incapability to provide desired goods and services. This point is best illustrated with the example of the production of a specific product. Let's use a "widget" as an example.
A "widget," as defined for this discussion, is anything small and formed of plastic: bottle lids, the sliders on the bottoms of chairs, pads on the underside of a computer, knobs on electronic equipment, doorstops, etc. I counted over a hundred discrete widgets in less than ten minutes looking around one room -- my office. Widgets come in different shapes, sizes, colors, pliability, etc. Widgets are ubiquitous -- and they quintessentially represent modern life.
Widget manufacturers must be able to respond with amazing alacrity to the ever-changing and elastic demands of the market. One order may be a million gray bottle caps for a half-inch opening. The next order may be two million three-quarter-inch blue caps. The products must be delivered on time, meet exacting specifications, and be sold for the amount of the contract.
Governments are not capable of dealing with these kinds of pressures. Nor, except in the case of failed socialist regimes, have they even attempted to manufacture, as in this example, widgets.
Tragically, America is becoming less and less competitive in our lightning-fast world economy. Take our example of widgets. Most widgets are no longer made in America. Those that are do not add significant revenue to our economy. Here is why.
Plastic is made of a string of molecules known as "monomers." Monomers are extracted from petrochemicals. The United States imports about two-thirds of the oil it uses. So the raw material used to manufacture most of our widgets is imported.
The steel used to make the machines that molded the widgets was probably not made in America. The U.S. produces less than 20% of the world's output of steel. The microchips used to run the machines that made the widgets were likely made outside the USA.
To make this clear, there are two economic realities at play in our example: First, the government did not (and could not) fabricate a single widget that exists in my office. Second, because of America's overly stringent regulations, high taxes, and exorbitant costs of labor (due, in part, to overregulation and overtaxation), most of the widgets in my home are now made in foreign countries [iii].
Because it creates no goods or (voluntarily purchased) services, the government creates no wealth. In fact, the federal government is actively discouraging the production of new wealth in America.
3) Government provides jobs
This third and final step into economic insanity is the most perplexing for me. I have never understood how any rational human being can believe that a government can provide a job that pays for itself.
For the sake of this argument, let's ignore the embarrassing fact that the average "public servant" makes more money, and has far better benefits, than the average private-sector worker in America. Let's pretend that the wages and benefits are exactly the same.
Jane Doe works for "American Widgets." She grosses $50,000 a year. (Remember, this is "Let's pretend...") John Smith is one of the 1.43 million civilian employees of the federal government. He also makes $50,000 dollars a year. For simplicity's sake, let's stipulate that Jane and John each pay $5,000 in federal income taxes per year.
Jane needs to produce substantially over $50,000 dollars worth of widgets each year. She must make a usable and salable product. She is compelled to add something of value to the economy in order to keep her job. The customers who buy Jane's widgets pay all of Jane's salary. This includes, in our example, the $5,000 in tax revenue the federal government collects. The customers do this voluntarily because they want and/or need widgets. Jane's taxes are withheld from her paycheck -- she has no option but to pay her taxes.
John Smith works for the Department of Energy. Perhaps he helps write the misleading "Energy Star" ratings. Maybe John Smith toils at the "Products and Services" division, where he crafts website one-liners like this. Or perhaps John provides some sort of real public service. (Nuclear energy research?)
Whatever work John does, it does not and cannot pay for itself (as Jane's labor must). John is also obligated for $5,000 in federal taxes. This leaves us with $45,000 of John's salary that is paid...by whom? Not by John's customers -- he doesn't have any. John creates no products -- so John has nothing to sell. No one voluntarily buys John's services -- whatever those might be.
The government does not pay John because, as we have seen, the government, including John, doesn't make or provide anything to sell. Jane pays John's salary -- or rather, in our example, nine "Janes" do.
Every time a politician claims that the government is going to increase production, create wealth, or provide jobs...grab your wallet.
Larrey Anderson is a writer, a philosopher, and submissions editor for American Thinker. He is the author of The Order of the Beloved and the memoir Underground. His next book, The Idea of the Family, will examine the role of procreation in human self-awareness.
[ii] Sometimes. See this link to nowhere on the "Products and Services" website.