Do We Downsize or Supersize the Role of Government?

Here is an argument that you need to "right-size" government. From the blog Everybody is entitled to his own opinion, but not his own facts>:

Right-sizing government

by Michael O'Hare

Can the assertion “Government is too big [or too small]” ever mean enough to support a serious conversation, much less a policy decision? How about “California [or the US; plug in your own jurisdiction larger than a small town] can’t afford [plug in a program]“? What could such statements mean, or be shorthand for?

To begin to talk about pseudo-ideas like these, I think we have to take two or three steps back and disentangle some language. California, for example: the word slides around, sometimes in the same sentence, from meaning all the people and enterprises in the state to meaning the state government to meaning the state government as currently funded. Pronouns are especially weaselly here: yesterday, John Boehner justified the job loss from the public sector decimation his party proposes with a casual “we’re broke!” But who is the we in that utterance? Let’s, then, immediately distinguish a society as a whole, and especially its economy, from the special agency – government – it might decide to task with a larger or smaller set of its productive activities. There’s often lots of flexibility in choices like this: in Europe, the fine arts are usually presented by government agencies, while in the US our museums and symphonies are typically private non-profits; European child-care and pre-school is mostly municipal, while ours is mostly private enterprise. The society isn’t broke, whether or not the government has spent all we gave it last year; we (the whole society) could easily “afford” to shift a lot of activities into the small government part of it if we find it wise.

If you have loosened the stone libertarian mind-vise enough to admit that there is such a thing as a market failure, and enough intelligence or education to understand that market failure is a technical property of a good or service and implies no rap on markets, you will be OK with the idea that government is exactly the right agency with which to get stuff we want that the market won’t supply (enough of) by itself, and to avoid stuff we don’t want, like pollution, that the market will overproduce. If you have a heart, you will also be OK with ideas like “death by starvation is cruel and excessive punishment for ‘not having been able to save enough to retire on’, even for ‘having been too careless to save enough’, certainly for ‘having been unlucky enough to be smitten by illness or accident’” and you will find government is also well suited to correct some important unfairness and injustice, even when the best it can do along these lines entails some moral hazard and bad incentives. It’s worth noting that absent slavery, every productive activity, whether managed (or obligated) by government or by private enterprise, is in the end carried out in the private sector: public schools are built by private contractors, and government workers are economically just small private businesses with no employees.

As is true at every moment of every year, we have governments doing the tasks they have been given so far, and consuming economic resources to do so. Among those are some tasks a reasonable person might ask not be done at all, like making a second, redundant engine for the joint strike fighter, and tasks others might think better done entirely in the private sector, like building and operating a bridge or a piece of highway. We also see tasks not being done at all that some claim should be, and would if government were assigned the work, like stabilizing the climate, and tasks (some claim) would be better done by government than however they are being accomplished in the market. We could ask similar questions about everything in and out of the public sector, but for some of them, like whether the army should be shut down and left to the market, it’s hard to get grownups to waste time on the conversation, so the political debate tends to focus on programs at the deliberative margin of the public-private boundary.

The only way a sane person can want to move tasks like these in or out of the government part of society’s productive ensemble is to ask whether doing so will give us more of the stuff we want(physical and other) than we would have to give up to get it. The fancy name for this test is cost-benefit analysis, and of course it’s as much art as science because the accounting requires that we judge the value of things that don’t have market prices, like a fair trial and a polar bear and health and whether our kids learn music in school. The size of government and tax rates are completely irrelevant to choices like this; they are incidental consequences of making good decisions on proper grounds.

Here’s an example from NPR this morning: all across the northern US, diesel school buses owned by, or contracted for, by government school districts uncontroversially carry kids back and forth to school. The school district could tell parents to get their kids to school themselves, and give out the phone number of a private bus company; government would be smaller, but except for a lot of wasted time on the parents’ part arranging bus transport in phone trees, nothing important would change. About the same amount of fuel, buses, tires, and driver labor would be used up, and about the same value created. If arranging this service privately were so complicated and daunting that people started driving their kids to school, of course, the costs of the private system might be much higher, wasting parents’ labor as private chauffeurs, using much more fossil fuel, and congesting the roads.

Among the costs of school busing, whether private or public, is asthma and respiratory disease caused by the diesels idling for hours to keep the buses warm, polluting the pickup areas with toxic chemicals and soot. It turns out that a propane heater in the bus would allow us to get the same transportation service and save a lot of illness and medical care. How much? According to the EPA, twelve times as much as the heater costs. As the heater isn’t free and the bus company doesn’t pay for the asthma, these heaters are a market failure and undersupplied unless the government does something. What can it do? There are several ways to skin this cat. We could have government issue a job-killing oppressive regulation administered by jack-booted thugs to require that every school bus not only have headlights and good brakes but also a propane heater if operated north of some latitude. We could raise economy-crippling taxes and pay school districts all or part of the cost to install these heaters. We could gin up a nanny-state intrusive public relations campaign to motivate parents to demand that their kids’ buses have and use heaters. The differences among these are interesting and getting it right can save some resources, but at the level of this discussion, if they get the heaters installed and operating, they all cost about the same and provide the same benefits.

Amazingly, EPA has zeroed out the clean diesel program that gets this 12:1 bonanza in the president’s budget. How could this be a good idea? Well, it will make government smaller. A bad idea? Pollution from vehicles is a classic market failure; the market won’t abate it and in this case, it hasn’t, even though ending this particular pollution creates twelve dollars’ worth of health for every dollar’s worth of propane and metal it uses up. Not putting heaters in the buses will also make taxes lower, but the locals will pay at the doctors’ office and the drugstore, twelve times as much. Deciding this question on a “less government” or “lower taxes!” criterion simply destroys net value, in this case in the form of children’s health, impoverishing the citizenry in the name of a vacuous slogan.

What can it mean that we “can’t afford” heaters in school buses? One could better ask, can a society afford to sicken its children this way - when this incredible bargain, where a dollar gets you twelve, is offered for sale, can we afford not to buy all we can get? We are spending the tax dollar it costs privately for things that aren’t even close to being worth what we could get for that dollar in this deal, so we can obviously afford the trade.

Neither of the two decisions, public vs. private provision of school bus transport, and public provision vs. non-provision of bus heaters, is illuminated in the slightest degree by their effect on tax rates or on the size of government, and “can’t afford” in a context like this is simply a lie. Taxes are too high when there are programs in government that create less value than they use up, and too low when there are programs that would create net value if we assigned them to government. Government is too big or too small by precisely the same rules. Trying to make the conversation simple enough for Fox News analysts to rant about by reversing these rules of inference (which actually seem pretty simple to me) is monomaniac lunacy, or cynical mendacity in the service of selling advertising time or getting votes, or both; it’s not politics and certainly not governance.

Funny, but arguments about government are a lot like arguments about parenting. It is silly to call for supersizing or downsizing parental care. It depends on the situation, and the kid, and the parents, and the history of their relationship, and the support of the community, etc. So it comes down to "right-sizing" the parental care. But the free market nuts would argue that we toss out mother love and paternal support for a cash economy where the kid pays for the support he gets from parents and the parents put the kid to work to earn his way in the family unit. All decisions should be left to the workings of the mysterious "invisible hand" of the market. That is how best to get a family to succeed over evolutionarily long periods of time, right?