Center for Limited Government Newsletter – May 12, 2011

1.A Primer on American Government

By Edward N. Robinson

The current debate over what and how much to cut in the federal budget gives us a great opportunity to consider some fundamental questions about what our government was intended to be, what it now is, and what actually works and doesn’t work in its current approach. It’s interesting how rarely these questions are raised in the debate itself, by either politicians or news media, both of whom generally seem to prefer short sound bites with little substantive content.

How should we explain to our kids and our friends why the limited government approach is, overall, the best approach? Here’s a sampler of points to be made.

1. Unlike many national governments, ours was formed on the basis that rights initially reside with the people, and that the government has only those rights that the people choose to give to it. We don’t need an elected official or a regulator to tell us what we’re allowed to do, unless we have previously given him/her that power.

2. The government has no money of its own, only what it takes from its citizens through taxation or similar levies. Every government program that benefits only a subset of the population is therefore a subsidization of that subset by the rest of the population, and should be assessed as such before being created or maintained. We need to be sure that it is wise and fair before we transfer some people’s money to other people.

3. All government programs, no matter how necessary or well-intended, create what economists call rent-seekers, those who will benefit disproportionately from the programs, and will therefore seek to create and maintain them, regardless of how well they work. We must be aware of this effect before creating or maintaining programs to be sure that the benefits greatly outweigh the costs, especially since it is much harder to end programs than to get them started because of the vested interests developed by the rent-seekers. These rent-seekers include not only the direct beneficiaries of the programs, but also those who get paid to provide the programs’ goods and services.

4. Government programs tend, over time, to be less efficient and effective than similar programs run by private enterprise. This is because there is no competition, so the government does not have the same incentive to improve and innovate that private enterprise does. The government’s customers usually have no ability to go elsewhere for the products or services.

5. Governments should not provide products or services that compete with private enterprise, because doing so undercuts the entities that pay the taxes that allow the government to function. And government providers don’t pay taxes, a fact that gives them an unfair competitive advantage over private providers.

6. Government workers should not be allowed to unionize, since the relatively equal bargaining power that exists between labor and management in the private sector does not exist in the public sector. In the public sector, labor is bargaining with a “management” that wants labor’s votes, and doesn’t have to care much about the efficiency or effectiveness of the services being provided by labor. The incentive of public management, therefore, is generally to err on the side of giving labor what it wants, rather than what it is worth in the marketplace. This benefits government workers to the detriment of all other members of the populace.

None of this is meant to say that we don’t need some government programs and services, or that government workers are bad people. It is simply meant to remind us of the skepticism that we as citizens ought to apply to every government program, to be sure that its benefits are as advertised and worth the various costs they impose on the taxpayers – especially when those costs come at the expense of one group of taxpayers in order to benefit another group of taxpayers.

The author, Edward N. Robinson, is director of the Center for Limited Government. He has been a financial advisor to corporations, a senior executive and a management consultant. Prior to retiring in 2006, he operated Robinson Partners, consulting CEOs on corporate strategy and mergers and acquisitions. Before that, he was an executive vice president of Texas Commerce Bank (later Chase Bank of Texas and now JPMorgan Chase), where he ran the investment banking business, and then created and ran The Private Bank; was an executive director at Azurix, an international water utility business, responsible for corporate strategy and M&A; and was a managing director at First Boston (now Credit Suisse), running the firm’s Los Angeles office and the regional M&A practice. Mr. Robinson has a B.A. from the University of Michigan and a J.D. from New York University School of Law.


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