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The Hidden Consequences of Government Programs

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One of the more insidious effects of government production of goods and services is that the products that would have been produced in a free market — and the innovations that would have arisen — are never seen and therefore are never appreciated. That phenomenon helps to perpetuate the idea that without government intervention, certain projects would never get done or are even downright impossible. But when government extends itself beyond its proper role of protecting individual rights, it cannot be doubted that whatever projects it undertakes, it will always be inefficient and the results frequently disastrous.

State bureaucrats can manipulate the market in various ways to achieve their desired ends. They can produce goods and services directly using tax money. They can outlaw certain products or types of behavior. Or they can subsidize certain products or types of behavior.

Of course, the most direct way for government to build something is to use tax money and construct it itself. For example, state-owned recreational centers are quite common in communities across the nation. The government either competes with an already existing private operation or, in those cases where the market has not produced a for-profit recreational center because it was deemed a profitless venture, the government becomes the sole provider.

This can have two outcomes. First, as a practical matter, it is impossible for a private venture to compete with the government on price. With the virtually limitless operating budget that the government coffers provide, government services are almost always priced below the free-market price. Of course, the “price” does not include the taxes used to finance the operation, and that cost is hidden from the consumer. If it costs $5 to go to the city pool and $10 to go to the private pool, all other things being equal the city pool is going to win out most often.


Government-owned enterprises

Second, state bureaucrats have undertaken a project that no private venture decided was profitable. In other words, the market has deemed the project a waste of resources, which means that the materials, skilled workers, and time consumed would be better spent on other projects. By short-circuiting the process and building the project anyway, the government has no way of gauging the efficiency of the project. The fact that no private venture was operating is a clear sign that it was a waste of resources to begin with.

Golf courses are another classic example of this type of socialism. Not only are they rampant, competing with private enterprise in every state in the nation, but, contradicting the political wind-bags who claim they are here to help the poor, the courses cater to the wealthy. Golf is an expensive hobby that only those with the means to buy the equipment and drive to a course can afford the luxury of enjoying. In Michigan alone, government entities own and operate 91 golf courses. Can you imagine having to pay property taxes on something as large as a golf course and then having to compete with the same government that just took the taxes from you?

First-class mail delivery is another area where the government has killed the incentives of the market. Not only does the government provide a service that a free market would surely deliver more quickly and more cheaply, it has provided itself with a true monopoly on first-class postal delivery by making it illegal to compete.

All of these programs, and every other program that the state gets its hands into, are always fraught with inefficiency and corruption. The USPS is constantly hiking its rates and losing our mail. Amtrak is in constant need of government bailouts. The national park system is in a state of complete disrepair and the government is slowly watching the decay of these natural jewels. Don’t you think that the Nature Conservancy or the Sierra Club would be a more diligent steward?

The national retirement system, Social Security, is a pyramid Ponzi scheme that would be considered illegal in most states, were it private. The state-run highway system is falling apart and government can’t even keep up with driver demand.

One must ask, if government can’t build or run anything right, why does it do it in the first place? Simply, government construction and management buy votes for politicians. That is why we have a John Murtha Johnstown-Cambria Airport, a John D. Dingell VA Medical Center, and a Robert C. Byrd Highway. It is free political advertising for the politicians. Why wouldn’t Joe Six-Pack vote for the man who brought him his local recreation center? As long as a man has no moral objections to theft through taxation, it is only rational for him to vote for the politician who brings him the most goods and services. That politician is always going to be the one who is the most skilled at trading his vote on issues unimportant to his constituents for the votes of other legislators on his own pet projects.

And so we have a nation filled with monuments to politicians still in office. The Robert C. Byrd Highway is a political billboard, letting its users know that Robert C. Byrd is a politician who can bring them all kinds of goodies. In fact, Byrd has almost 40 auditoriums, highways, laboratories, bridges, and community centers named after him.


The unseen consequences

If economics has shown that the free market is the most effective method of providing goods and services, why do voters allow the government to continue providing such things as postal service and recreational centers? Simply put, most people aren’t economists. Most people aren’t familiar with the comparative advantage, opportunity cost, and gains from trade. And as Frédéric Bastiat pointed out in his essay “What Is Seen and What Is Not Seen,”

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

 

When government builds pools and golf courses and a myriad of bridges, space shuttles, and liquor stores, there are many hidden consequences. These are the consequences that Bastiat’s good economist foresees, but the vast majority of people cannot.

First and foremost, when the state uses tax dollars for government-run projects, there is less money for taxpayers to use on other purchases. It is difficult to detect because the effects are spread over the entire economy; but when government increases taxes for government programs, demand for all other goods decreases because income levels have been reduced by taxation.

Families now have less money to spend, and it is the luxuries they enjoy that they now consume fewer of. They might rent a movie instead of going to the theater. They might eat at home instead of going out to eat. They might eat meatloaf instead of steak. They might vacation at the lake instead of going to Fiji. Decrease in demand for all goods is hidden because it is spread across the entire economy.

Another hidden consequence of government programs — and perhaps more important than the decreased demand for other goods — is the stifling of innovation that they cause. The free market, through the profit motive, encourages individual persons to develop new products and services that did not exist before. The market richly rewards those who can improve the lives of others in new ways.

Nineteenth-century America was rife with new inventions precisely because individual persons were free to develop and market any idea they wanted. Unfortunately, that is not the case any longer.

The U.S. government now strangles innovation either through regulation or direct competition. It has its fingers in almost every aspect of our lives, and it affects the economic choices of almost every partner in almost every transaction throughout the country every day. Innovation in housing design is stifled by draconian building codes. Automobile ingenuity has been stamped out by safety and environmental regulations. Private mass transit is nonexistent because no one can compete with state-owned operations. And society itself is pigeonholed into compartments through zoning laws.

What most Americans do not grasp is that the hand of the government eliminates innovations that would have been developed, but never had the chance.

When people are free to interact peacefully without interference from the government, amazing things can happen. When the airlines were deregulated, prices fell through the floor and new types of service popped up overnight. When Jimmy Carter signed into law a bill legalizing the home brewing of beer, thousands of microbreweries popped up all over the nation. An unregulated computer industry gave us personal computers, Windows, and new methods of communication. But until the government got out of the way, how would consumers have ever heard of Sierra Nevada Pale Ale or Google.com?

A similar effect can be seen when the government subsidizes economic activity. The problem with subsidies, aside from their intrinsically immoral nature, is that the decision-making process has been taken out of the hands of the market and placed into the hands of a bureaucrat. The decision inevitably is wrong.

Consider Bill Clinton’s hydrogen fuel-cell program. There is no doubt that consumers would like to have a car that would give them both better mileage and the same performance at the same price. In a free market, consumers would dictate what technology is best suited for automobiles by their purchasing patterns, and auto manufacturers would do their best to predict the tastes of the consumers and give them what they want.

The Clinton administration decided that it knew what consumers were going to want — automobiles powered by hydrogen fuel cells. The problem with the cells is that, with current technology, they are horribly expensive to manufacture and they are incredibly bulky. Clinton proposed to solve these problems by funding fuel-cell research to the tune of billions of dollars, with GM and others promising to develop a viable vehicle that would be affordable and practical. That research has now been going on for more than a decade, and more money is still being pumped into it to this day.

How did the auto industry respond? It developed electric/gas hybrid cars. GM still has not brought a fuel-cell car to market, and Toyota has now sold more than one million hybrid vehicles.

Imagine what would have happened if the government not only subsidized fuel-cell research but also mandated that all auto producers steer their production towards fuel cells? Consumers would still have the same choices they had previously, and they would have never even heard of hybrid vehicles.

The lesson to be learned? Government should get out of the way and let the market guide business decisions. For more than 100 years the United States has been under the yoke of a government that insists on dousing the fire of capitalism through regulation, subsidization, and direct competition. It is time for Americans to realize what has happened to their country and to declare loudly and passionately to the government what Frenchmen did in the 19th century: “Laissez faire et laissez passer!” In other words, leave us alone!

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    Bart Frazier is program director at The Future of Freedom Foundation. Send him email.