Government Involvement=Higher Prices. Imports=Lower prices

Gee, it almost looks as if the more government involvement in an industry, the faster prices rise. Who would have predicted that?
And (dare I say it?), prices also seem inversely related to the level of imports in the industry.

Why Government Productivity is Always Less Than the Private Sector

Want to understand why government productivity is inevitably much worse than the private sector?

Imagine there are two companies. Lets call them Alpha and Beta.

At Alpha, employees get reviewed frequently and are rewarded with raises if they meet their goals. Those that don't meet their goals for many quarters are fired and replaced with new employees. The company's motto is: Adequate is Not Good Enough.

At Beta, performance reviews have few consequences. Employees don't get raises for meeting goals, but rather for years of employment with the company. Employees who fail to meet goals are allowed to stay with the company as long as they want to. The company's motto is: Adequate Is Good Enough. 

What would you expect to happen?  Beta employees who are ambitious and can meet goals realize they can make more money working at Alpha. Alpha employees who can't or don't want to meet their goals get fired or quit and go to work at Beta.  Over time, what happens? Alpha ends up with more of the better performers, Beta ends up with fewer.

Now if Alpha and Beta are both in competitive industries, Alpha does well and grows; Beta shrinks and eventually goes out of business. But what if Beta has no competition? What if they can literally force their shareholders to give them money to stay afloat? They just keep getting worse and bigger.

It's just that way with the public sector and the private sector. The private sector attracts more of the ambitious goal-oriented employees; the government attracts the less ambitious people who seek employment security over accomplishment. Neither will ever be made up entirely of one type or the other, but the skews will be in opposite directions.

Economics 101: That which you reward you will get more of. That which you penalize you will get less of.

Growth and Productivity. Simple Math

The clueless (e.g. the media and politicians) keep asking why economic growth has remained slow. The answer is simple mathematics (which might explain their inability to understand it). More and more resources are being shifted away from sectors with high productivity into sectors with low productivity (e.g. government, education, and healthcare). These low productivity sectors are all ones that government subsidizes, so it should not be a surprise. Neither should the resulting slow growth be a surprise.

Government Urges People To Gamble Away Their Retirement

Every week most of us hear the exhortations from our state governments to buy lottery tickets. The average lottery player spends about $150 per month in the US and ranges from $46 in North Dakota to almost $900 in Massachusetts. Participation in lotteries is heavily skewed to low income households -- i.e. the ones that can least afford to lose their money, i.e. the ones who when they reach retirement age tell us that they have not been able to save any money.

Let's consider an alternate scenario, one in which the states exhorted these people to be prudent rather than reckless. Imagine that the average person were to put $150 per month into an IRA account. With reasonable investment return assumptions, those people would have about a half million dollars in that account after 45 years!

Government is supposed to be serving the best interests of the public. Clearly in this case they are working only to serve the best interests of government.

The End Is Near and It's Going to be Awesome.

Jonah Goldberg today reviews Keven Williamson new book, " The End Is Near and It's Going to Be Awesome: How Going Broke Will Leave America Richer, Happier, and More Secure..."

This is a fabulous book even if you don't buy into his  somewhat optimistic (IMO) thesis that government as we know it is in a retreat that will be accelerated by the overwhelming level of public debt and unfunded government liabilities. He believes that once the disorder is behind us, we will seek new ways to organize and serve each other that are more grounded in the lessons learned from our current experience with government. -- much as the United States was founded on the lessons learned from living under powerful monarchies.

The basic economic point (which you would think obvious, but apparently isn't) is that the driver of nearly all material, technological and economic advancement is voluntary exchange. That when government seeks to substitute its alternative "wisdom" for that mechanism, it throws sand into the gears that drive that economic progress. As Goldberg puts it, "That’s be­cause politics is governed by the Deweyan fallacy that planners are smart enough to run other people’s lives and businesses. Mean­while, the realm of Nockian social power is fueled by the Hayekian insight that freedom fuels problem-solving." 

That's a complicated way of putting a brilliantly pithy insight: "Indi­vidual liberty yields the iPhone. Politics protects the post office." The fundamental reason this happens is not really so much that government planners are stupid; it is that voluntary exchange (i.e. free markets) quickly quashes bad ideas. When Apple marketed the Newton PDA, it failed. They didn't keep spending money trying to force people to use it; they learned, regrouped, and eventually brought out the iPhone. That does not happen in government. Government typically doubles down on its failures. The phrase  "The public will just have to learn to . . ." is well recognized in marketing circles as a death knell. In government it is simply SOP. If the square peg does not fit in the round whole, government insists that the hole change itself to accommodate the peg it wants to produce. Thus the Chevy Volt.

Where The Jobs Aren't

According to employment forecasts from the BLS here are the 30 occupations that are expected to experience the largest job growth between 2010 and 2020. Only 5 of them require a college degree or higher while half require a high school degree. Yet we are encouraging more and more of our young people to borrow huge sums to get higher educational credentials while allowing more and more to fail to obtain a high school diploma. Only government could take its own market research and construct policies exactly opposite to what that research suggests.

Rank	Occupation	Entry-Level Education	Jobs in 2010 (1,000s)	Jobs in 2020 (1,000s)	Increase (1,000s)
1	Registered Nurses	BA	2,737.4	3,449.3	711.9
2	Retail Salespersons	Less than HS	4,261.6	4,968.4	706.8
3	Home Health Aides	Less than HS	1,017.7	1,723.9	706.3
4	Personal Care Aides	Less than HS	861.0	1,468.0	607.0
5	Office Clerks, General	High School	2,950.7	3,440.2	489.5
6	Combined Food Preparation and Serving Workers, Including Fast Food	Less than HS	2,682.1	3,080.1	398.0
7	Customer Service Representatives	High School	2,187.3	2,525.6	338.4
8	Heavy and Tractor-Trailer Truck Drivers	High School	1,604.8	1,934.9	330.1
9	Laborers and Freight, Stock, and Material Movers, Hand	Less than HS	2,068.2	2,387.3	319.1
10	Postsecondary Teachers	Doctoral	1,756.0	2,061.7	305.7
11	Nursing Aides, Orderlies, and Attendants	High School	1,505.3	1,807.2	302.0
12	Childcare Workers	High School	1,282.3	1,544.3	262.0
13	Bookkeeping, Accounting, and Auditing Clerks	High School	1,898.3	2,157.4	259.0
14	Cashiers	Less than HS	3,362.6	3,612.8	250.2
15	Elementary School Teachers, Except Special Education	BA	1,476.5	1,725.3	248.8
16	Receptionists and Information Clerks	High School	1,048.5	1,297.0	248.5
17	Janitors and Cleaners, Except Maids and Housekeeping Cleaners	Less than HS	2,310.4	2,556.8	246.4
18	Landscaping and Groundskeeping Workers	Less than HS	1,151.5	1,392.3	240.8
19	Sales Representatives, Wholesale and Manufacturing	High School	1,430.0	1,653.4	223.4
20	Construction Laborers	Less than HS	998.8	1,211.2	212.4
21	Medical Secretaries	High School	508.7	718.9	210.2
22	Supervisors of Office and Administrative Support Workers	High School	1,424.4	1,627.8	203.4
23	Carpenters	High School	1,001.7	1,197.6	196.0
24	Waiters and Waitresses	Less than HS	2,260.3	2,456.2	195.9
25	Security Guards	High School	1,035.7	1,230.7	195.0
26	Teacher Assistants	High School	1,288.3	1,479.3	191.1
27	Accountants and Auditors	BA	1,216.9	1,407.6	190.7
28	Licensed Practical and Licensed Vocational Nurses	High School	752.3	920.8	168.5
29	Physicians and Surgeons	Doctoral	691.0	859.3	168.3
30	Medical Assistants	High School	527.6	690.4	162.9

Somebody Else Made That Happen

Every now and then the President inadvertently provides a blinding insight into his thinking. As with Joe the Plumber four years ago, this week he provided another one:  “If you’ve been successful, you didn’t get there on your own. If you’ve got a business — you didn’t build that. Somebody else made that happen.”

Here is the "logic" of the President:

Successful people are successful because others (primarily government) provided them the means that enabled their success. Ergo: The fruits of their success rightfully belong to others, not them.

By his reasoning the produce of the farmer rightfully belongs to the owner of the land, the maker of the implements he used, the county that built a road to the farm and the distributor that shipped his produce to market.

One small part that he misses (and it's not clear whether this is intentional or just out of ignorance). The land and tools and the road were PAID by the farmer on mutually agreeable terms. The terms did NOT include the other parties confiscating more of his revenues if he had a bumper crop. He paid his taxes to the county for the road. He paid a rent to the owners of the land and the tools. Now he potentially could have negotiated terms which gave them large payments in the event of a successful crop and little or no payment in the event of a failed crop. He didn't. And the reason he didn't is because highly able and motivated farmers can make more by assuming more of the risk. The people who would see such terms favorably are those with low abilities, motivations and expectations.

This, in a nutshell, is the President's vision. He wants to transform the terms under which the people of the United States have always labored. Instead of encouraging people to take risks in search of high rewards, he wants to compensate people for failure by confiscating more of the rewards from success. The President would probably characterize this as "fairness". That's debatable. What's not debatable is the economic fact that such a change in terms results in fewer people taking the risks that drive the success. Since economic growth is directly related to the number of people risking their talents and capital, this can only be path to lower economic growth.

Disability Pays

The number of people getting Social Security disability payments has increased dramatically over the last three years. Do you think this is because work has suddenly become more dangerous?



Or do you think it might be that not working is becoming increasingly lucrative?

Those That Can . . .

This week the Congressional Budget Office published a report that, not surprisingly, showed that the Federal government pays its workforce 16% more on average than the private sector -- primarily through lavish retirement benefits (we don't pay you to work; we pay you to retire). What was even more interesting was that the degree of "overcompensation" was inversely related to education level.



 In other words, if you're highly capable, the government doesn't want you, but if you're not, they'll overpay to get you to work there.

This gives a new twist to the old adage. Those that can, do. Those that can't, work for the government.