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Unread 4 Jul 2009, 17:00   #1
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Is Bigger Government Better

On American Independence Day, I watch my country in a mixture of bemusement and alarm. The country was founded on the principle that government needed to be controlled so that it didn't oppress the governed. We set up a government which not only enumerated certain principals but did so in a way to attempt to restrict government and its intrusion into the liberty of the citizenry. Governmental power was specifically restricted by the Bill of Rights. The central government was further restricted by investing the various states with all power not enumerated as belonging to the provence of the central government. That not being enough they then split the power into three separate bodies (executive, legislative and judicial).

However, since that framework was set up, there has been a slow but steady creep toward lager and less restricted power on the part of the central authority. This trend has accelerated over time and is now, in my opinion, reaching escape velocity.

The question is, "Will the individual be well served by the increasing intrusion of the government into the lives of the governed however well intentioned. ?" Also, even if one thinks that the current government will wield it's power in a beneficial way, aren't we running a risk that at some point a malevolent person or group may seize that power and inflict it in a most unfortunate way?

I am particularly concerned that young people seem unconcerned with the continued accumulation of power in the hands of charismatic leaders.
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Unread 4 Jul 2009, 17:39   #2
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Re: Is Bigger Government Better

It depends on the goverment type, the restrictions imposed on that goverment (and how those restrictions are enforced) and also on how many people they govern.

A bigger goverment with more control isnt necessarily a bad thing; it depends which area's they want more control in. Such as having a bigger goverment and more taxes, to provide a national health service is a superbly benefical thing. However, having more control to invade your privacy is not.
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Unread 4 Jul 2009, 17:43   #3
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Re: Is Bigger Government Better

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having a bigger goverment and more taxes, to provide a national health service is a superbly benefical thing. However, having more control to invade your privacy is not.
Sadly, one will almost inevitably lead to the other, I fear.
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Unread 4 Jul 2009, 21:43   #4
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Re: Is Bigger Government Better

The problem of a big government doesn't lie with the leaders itself. The problem lies with with government officials, who are just regular people who do not have any insightful vision on the policy they are carrying out. If these people are allowed to intervene in people's lives then - with all good intentions - they just won't stop doing that. It will become their daily business to make up new bullshit at the cost of your freedom to keep themselves busy.

In the Netherlands this has become a major problem in my eyes, where local authorities try to steer everything they can to improve our way of life. Most regulations can actually be seen as an improvement in itself, but bit by bit our freedom to do something wrongly is just being taken away, resulting in very little freedom, as you can only do what your neighbour, who happends to be a goverment official, thinks is right.

Also in other areas officials tend to do more then suitable:
With all good intentions local authorities keep subsidizing projects that they perceive as constructive. Most likely they subsidize projects that are unprofitable for a reason, but hey, the official likes it. The government official just subsidize it because it's his job. It's not his concern how this affects the taxburden or how many projects are currently running. He has proberbly even forgotten why the people gave him his right to subsidize certain projects in the first place.

Of course the resulting giant taxburden has to be distributed fairly. Everytime more money is needed they invent a new fair progressive tax to spare the less fortunate. Personally I have nothing against progressive taxes, however, when they keep inventing new progressive taxes the burden for people with a normal wage can become so high that they can actually end up having less purchasing power then people with lower wages. I'm not even kidding. I've worked with handicapped people and I have actually helped some calculate how many hours they should work for the most profitable results.

The same thing applies to rules they make up affecting other parts of our lives or businesses aswell of course. If the authorities have the freedom to do as they please, then they will do as they please.

So for the abovementioned reasons it's better to keep the government as constrained as possible, to keep the idiots from influencing every detail of your life and casually taking everything too far. This does not necessarily has to mean you can't have a big government, but it has to be well defined.

When considering which responsibilities should be given to the government you have to keep in mind that the government is per definition less inventive then the private market. For quality of services you do not have to look at the government. Noone is responsible for the products they deliver or the production proces and that reflects in the costs. And just like a normal business they sometimes invent new products that noone wants, but as they have an infinite budget this doesn't lead to the market financially punishing the people responsible for their stupidity.

The only thing in which the government excels is increasing the accessibility of services. Unlike the government, the free market aims at profit maximization and can't always allow products to be accessable, If you want accessable healthcare and/or education then a big government is the way to go. Accessability at the cost of efficiency. If accessibility isn't your aim, then the private market is the way to go.
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Last edited by Alessio; 4 Jul 2009 at 22:19.
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Unread 5 Jul 2009, 19:02   #5
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Re: Is Bigger Government Better

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Originally Posted by Alessio View Post

With all good intentions local authorities keep subsidizing projects that they perceive as constructive.
There is an old saying, "The road to hell is paved with good intentions.

Quote:
The only thing in which the government excels is increasing the accessibility of services. Unlike the government, the free market aims at profit maximization and can't always allow products to be accessable, If you want accessable healthcare and/or education then a big government is the way to go. Accessability at the cost of efficiency. If accessibility isn't your aim, then the private market is the way to go.
The problem with this is that more often comes at the expense of quality. The additional problem in the U. S. is that less than 7% of the population is not covered or eligible to be covered by existing programs. Those who are not covered still have free access to the emergency rooms and hospitals where they receive the same care as any other citizen.

Even in education, students from equal backgrounds who go to privately owned schools tend to have much greater success in school and in college than those in government run schools. Much of this is attributable to the constraints placed on individual schools by government regulations. This, despite the HIGHER per student amount spent on government schools.
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Last edited by dda; 5 Jul 2009 at 19:34.
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Unread 7 Jul 2009, 10:50   #6
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Re: Is Bigger Government Better

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The problem with this is that more often comes at the expense of quality.
This might apply to most fields and some loss in efficiency can always be expected, but I think the medical field can cope with it pretty well, as European health care isn't exactly lacking in quality. I'm not exactly sure why this is the case though. Perhaps because the medical field has a quite clear direction which the professionals should work towards, curing the patiënt. And private corporations supply the means to do exactly that. When it comes to education it's also very possible to simply ask the workfield which things should be taught to the students. Schools themselves don't really need a lot of innovation to keep providing quality services. In both cases the actual innovations are done by private organisations.

But when we talk about making health care accessable then we proberbly can't really make a one on one comparison between Europe and the United States anyway, as I can see some problems unique to the US when implementing universal health care. We have constrained the salaries of medical specialists, while the salaries and costs are soaring in the United States. The Universal Health Care will proberbly operate under the current conditions of the private market and vastly increase the demand, which might become a costly practise.

Also, in western Europe the gap between rich and poor is relatively small compared to the United States. And the most poor area's (eastern Europe) do not have universal health care or have a seperate universal health care system from ours. So it's likely that you will have to carry the weight of a lot of poor people.

I am very curious about how it will all work out if Obama implements it.
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Even in education, students from equal backgrounds who go to privately owned schools tend to have much greater success in school and in college than those in government run schools. Much of this is attributable to the constraints placed on individual schools by government regulations. This, despite the HIGHER per student amount spent on government schools.
Well, if the problem doesn't lie with the students but with the schools themselves, as you say, then public schools could just exchange expertise with private schools.
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Last edited by Alessio; 7 Jul 2009 at 20:22.
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Unread 15 Jul 2009, 12:55   #7
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Re: Is Bigger Government Better

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Even in education, students from equal backgrounds who go to privately owned schools tend to have much greater success in school and in college than those in government run schools.
Question is, if the flaws of your local educational system are because the government ran part cannot function well, or because you're just doing it awfully wrong. Finland's been consistently top ten in the World Economic Forum's competitiveness reports for a decade or moreso, and our GDP growth rates have been good. Yet we don't technically even have a privately owned school system; it's mostly public. Sure you can now argue that this is not relevant, because in your situation you can compare public and private solutions, and find that the private runs better: surely this is simply a proof of failure, not impossibility: on the grand scale, the success rates of people going to public or private schools is rather isignificant a question when we can simply look at the economy at large and measure it's success.

Quote:
Because it's not their own money they are playing with and more often then not they do not have to please anyone to get it. In the private sector people have to invest themselves and are financially accountable when they steer their organisation into the wrong direction
The client/agent problem is (as you below sort of imply) not restricted to the government sector. Arguably, the private sector is responsible for inflicting large devastation on the economy too. Because they're not accountable. Too big to fall, who owns General Motors? Who owns 60% of RBS? And who owns 40% of Lloyds? The "accountable private sector who are playing with their own money"? No. Certainly, we can put the blame on the government sector for not hitting out guns blazing on Lehman Brothers or Glittnir, since hindsight is so soothing, but I'm sure at this point someone'd cried for free markets, because, well "they're playing with their own money, and they're only accountable for it alone".

The hedge fund game, the investment banks, et cetera: the agents weren't playing with their own money, and despite the downfall of some of their corps (Lehman bla bla), the agents are going to walk out with. Money. The clients are going to walk out with. No money. Another example of how things can go dreadfully wrong on the private sector due to incentive mechanics would be Enron. Which you kind of summarize fairly well here.

Quote:
It might be a plus that the public sector isn't driven by greed, unlike the private sector, but the downside is that they aren't properly driven by anything else either.
The question is, which parts of the world we want ran inefficient yet safe, and which parts we're willing to leave for the hands of George Soros & co. (hello 1992 pound sterling). There is no quarantee that the board of directors of a stock company would actually have a priority intrest or incentive in ensuring the company is doing good economic profits. Board bonuses, stock values, and such may be more interesting to a modern PLC than actual profit: and nowhere does it state that a booming stock that profits the owners the best (ie. the stockholders) goes hand by hand with safe, solvent economic profits.

Quote:
If they want to maximize their profits they have no choise but to actually try to move their organisation forward
And this is exactly the problem: while public sector may lack the incentive to enhance infrastructure, the private may as well. Who cares about long run economics profits when you can gamble short run? Who cares about solvent loans when you know there's a lender of last resort (I'm provoking someone to tell me it's inherently wrong there's a LOLR to begin with)? Who cares about economic profits when you can go Enron or bust?

Quote:
The government is just another business. A business which wishes to grow and prosper.
I'm sure Lloyds was a ****ing bad piece of business to invest in.
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Unread 19 Sep 2009, 12:27   #8
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Re: Is Bigger Government Better

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Originally Posted by dda View Post
Even in education, students from equal backgrounds who go to privately owned schools tend to have much greater success in school and in college than those in government run schools. Much of this is attributable to the constraints placed on individual schools by government regulations. This, despite the HIGHER per student amount spent on government schools.
This might be the case in the US (as I am not familiar with their education system), but I would have thought that this kind of result could be explained through some form of adverse selection - parents who are most motivated for their children to have the best education would be more likely to prioritise their disposable income into school fees. Thus, these students when they get home have parents who would be more likely to be interested in their child's academic progress (given the financial investment), and beat them with a stick if they're playing PA instead of doing their homework.

(apologies for reply to such an early post, I'm still progressing through the thread).
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Unread 5 Jul 2009, 19:52   #9
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Re: Is Bigger Government Better

:cough:

I know you don't like Obama but pretending he has basically destroyed your country in a matter of months is a tad silly.
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Unread 5 Jul 2009, 21:00   #10
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Re: Is Bigger Government Better

The question involves the proper role of government. While I think that Obama is in the process of ruining the country, aided and abetted by congress and the Supreme Court in many instances. My worry is not so much that Obama will ruin the country, my worry is that the aggregation of increasing power in the central government which allows the government to insert itself more and more into what were individual prerogatives will continue unabated. Once a certain level of control over people, their lives and even their thought processes, then it is only a matter of time til someone decides to abuse that power, possibly with horrible results, is just a matter of time.

Would you have been sanguine with seeing George Bush and/or Dick Chaney with even more power than they had? Unless one is willing to grant this kind of power to their worst case scenario of a leader, then they should be opposing it. However, many Americans would rather play Wii than pay attention.

Sad really. Really sad.
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Unread 5 Jul 2009, 21:03   #11
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Re: Is Bigger Government Better

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Originally Posted by dda View Post
The question involves the proper role of government. While I think that Obama is in the process of ruining the country, aided and abetted by congress and the Supreme Court in many instances. My worry is not so much that Obama will ruin the country, my worry is that the aggregation of increasing power in the central government which allows the government to insert itself more and more into what were individual prerogatives will continue unabated. Once a certain level of control over people, their lives and even their thought processes, then it is only a matter of time til someone decides to abuse that power, possibly with horrible results, is just a matter of time.

Would you have been sanguine with seeing George Bush and/or Dick Chaney with even more power than they had? Unless one is willing to grant this kind of power to their worst case scenario of a leader, then they should be opposing it. However, many Americans would rather play Wii than pay attention.

Sad really. Really sad.
You have noticed that you haven't provided any evidence for your crazy claims?

right?
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Unread 8 Jul 2009, 00:48   #12
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Re: Is Bigger Government Better

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You have noticed that you haven't provided any evidence for your crazy claims?

right?
Evidence and G. D. seems to be an odd concept. However, if you would deliniate which "crazy" claims you wish evidence on, I will attempt to obilge this obsessive need of yours.
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Unread 19 Sep 2009, 12:37   #13
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Re: Is Bigger Government Better

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The question involves the proper role of government. While I think that Obama is in the process of ruining the country, aided and abetted by congress and the Supreme Court in many instances.
I'm an outsider so not completely up to speed with the goings-on in the US political debate, but how is Obama's government already 'ruining the country'?

My limited understanding would suggest that he is getting frustrated at every step by the Congress (particularly the Senate), in the areas of Health, financial services re-regulation, the stimulus package back in January, and I'm sure other things too.

If you have one arm of government trying to do something, and an other arm preventing them from doing it, how are their intentions ruining the country?
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Unread 6 Jul 2009, 00:38   #14
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Re: Is Bigger Government Better

There was a good xkcd on this recently.
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Unread 7 Jul 2009, 21:22   #15
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Re: Is Bigger Government Better

This topic reminds me of this Reagan speech.
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Unread 8 Jul 2009, 17:24   #16
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Re: Is Bigger Government Better

Why are public institutions less efficient when they lack the waste of paying dividends to shareholders?

Why?

Or maybe they aren't.
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Unread 8 Jul 2009, 17:35   #17
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Re: Is Bigger Government Better

Because they often lack responsibility/accountability, a proper long-term motivation to keep them from slacking off and they don't operate in a competitive environment.
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Unread 8 Jul 2009, 23:29   #18
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Re: Is Bigger Government Better

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Originally Posted by Alessio View Post
Because they often lack responsibility/accountability
Really? why? I don't quite understand this point. Why are they less responsible or accountable than private firms? Surely a structure and a culture for this could be put in place?

Quote:
a proper long-term motivation to keep them from slacking off
Why is this any less true with employees in a private company? There are still promotions etc and while there may be fewer redundancies etc this is more a problem with the culture than anything inherent to public companies.

Quote:
and they don't operate in a competitive environment.
Why would this actually matter? Why would competition actually make you any more efficient if your only goal was maximum efficiency/service in the first place? All competition accomplishes is the driving down of profits per customer in an attempt to gain more customers but in a system where you don't seek profit it's needless.
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Unread 10 Jul 2009, 08:14   #19
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Re: Is Bigger Government Better

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Really? why? I don't quite understand this point. Why are they less responsible or accountable than private firms?
Because it's not their own money they are playing with and more often then not they do not have to please anyone to get it. In the private sector people have to invest themselves and are financially accountable when they steer their organisation into the wrong direction. And since commercial organisations usually exist to maximize profits for it's owner it would go against it's very nature to not take financial responsibility.

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Surely a structure and a culture for this could be put in place?
Most likely. That's also one of the reasons why we have a democracy. That's why we hold elections on several layers. So we can hold top officials of all departments of the government accountable in hope they take proper responsibility and send the shitheads away.

But somehow pressing a button every four years doesn't appear to do the trick. For some reason politicians usually take it easy on the people below them. And people do not want to hold our politicians accountable for the messes within their departments and the organizations they are financing, that have no democratic structure in place.
Quote:
Why is this any less true with employees in a private company? There are still promotions etc and while there may be fewer redundancies etc this is more a problem with the culture than anything inherent to public companies.
Oh, I don't know. Have you seen any government officials getting sacked lately? Teachers? Soldiers? Anyone? No?

That only happends when politicians cut down on expences. And politicians do not exactly let the (ir)responsibility of government funded organizations affect their policy. So it appears they simply do not have the need for a strict organisation. When you have an organisation that operates on the same scale as the government, with almost every branche having very little need to take responsibility, you can expect a lot of slacking and very little innovation and efficiency.

Culture might affect how people operate to a certain extend, but the lack of (financial) stimulation is the actual problem. And the artificial alternative, democracy, is lacking. It might be a plus that the public sector isn't driven by greed, unlike the private sector, but the downside is that they aren't properly driven by anything else either.
Quote:
Why would this actually matter? Why would competition actually make you any more efficient if your only goal was maximum efficiency/service in the first place? All competition accomplishes is the driving down of profits per customer in an attempt to gain more customers but in a system where you don't seek profit it's needless.
Because private organizations have to attempt to be either better, cheaper or more appealing to the consumer then their competition. This can be done by running for efficiently, innovating and what not. If they want to maximize their profits they have no choise but to actually try to move their organisation forward. Compare this with organizations in the public sector and you have your answer.

Organizations that attempt to maximize profits do have their own flaws of course. As I said before they can for example chose to only provide services to a certain market segment. Commercial organizations might not be suitable to sentence impartially in disputed matters either. And on markets with a monopolistic character you might prefer a non-profit organization as well. The role of the public sector should be solving issues at points where the market fails, if necessary. Preferably without interfering with the actual or other markets. But when you are just seeking innovations and efficiency then you shouldn't look at the public sector. Those are apparently the points at which the public sector falls behind.
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Unread 19 Sep 2009, 12:54   #20
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Re: Is Bigger Government Better

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Because they often lack responsibility/accountability, a proper long-term motivation to keep them from slacking off and they don't operate in a competitive environment.
I wouldnt be so sure about this. I must acknowledge that I am somewhat prejudiced as I am now a Commonwealth public servant.

At least in Australia, government departments have strict chains of accountability and responsibility which is enforced through freedom of information law and the principle of responsible government.

Sometimes I wonder that government activity and 'frank and fearless advice' is constrained by those FoI laws: if adverse advice is given to the Government, and then made public, the Department is placed in the position of embarrasing it's Minister, which causes ovbious problems for the relationship of trust between the two.

I was talking about this to friends of mine who work in the private sector (actually, in banks), and they actually envied me because they also are burdened by large amounts of documentation should there ever be civil action by either their clients or their customers, who then have to provide those documents prior to court cases.

Also, just because someone is a public servant, doesnt mean that they are a slacker. I work longer hours than most people in the private sector. Annectodal evidence of other (public & private sector) graduates in Canberra would suggest that private sector grads work essentially the same hours. Whether they are as equally productive in those hours or not is much more difficult to measure.

I think, however, that competition is the key factor. A business has to keep looking to make itself more efficient by cutting costs, innovating, adopting new technology, better targeting its products to their customer's needs, because if they dont then they loose money to their competitors. Governments dont really face this - if you dont like the way a country is being run, you cant just switch your subscription to an alternative government. You have to move countries (at least), and that can have significant cost attached to it.

The way most (western) government agencies are funded through annual budgets is that they have great incentives to spend all of the available funds for their purpose, and no less. There is little incentive to save here, pinch pennies there, make things work smarter elsewhere etc. There are big disencentives for underspending as then the department will loose funding the following year, there are also disencentives for overspending (but this is less of a problem for the department - it may embarrass the Minister during Senate estimates/Question Time however).

Competition really is the key.
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Unread 9 Jul 2009, 19:42   #21
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Re: Is Bigger Government Better

Because government enterprises do not have to show a profit, they can, and usually do, have a competitive advantage over private companies. Government can subsidize their own enterprises and, should they desire to, can make it entirely impossible to compete with the government run intety. If nothing else, government controlled enterprises do not have to pay taxes, rather a large advantage right there.

Also, paying dividends to share holders, at least in the U. S., is largely to large retirement funds, thus providing the retirement funds for many groups, including, but not limited to, most government retirement plans. Private profits drive the prosperity which allows government to function in a meaningful fashion.
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Unread 9 Jul 2009, 20:38   #22
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Re: Is Bigger Government Better

What you are now discussing is the myth of the competently run public sector

It is a myth primarily because the private sector is disgracefully incompetent. Unbelievably incompetent and really quite mind blowing once you look at it in detail.

The real issue you see is that for some utterly bizare reason the public sector is worse

So in reality all you need do is raise public sector incompetence to the level of private sector incompetence - job done. But as all every politician ever tries to do is to instead raise the public sector to a utopian (and as yet unseen, anywhere) level of competence, what really happens is nothing.
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Unread 9 Jul 2009, 21:35   #23
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Re: Is Bigger Government Better

The true myth is that government really gives a shit. It doesn't for the most part.

The government is just another business. A business which wishes to grow and prosper. A business whose employees are, for the most part, interestedd in their own little lives and, while not averse to actually do their jobs, see the securing of their jobs much more important than actually accomplishing anything.

A business whose board of directors (elected officials) for the most part don't have a cllue what they really want to accomplish beyond staying in power or increasing their own power.

In other words, about the same as every other business. The difference is that governments have many advantages in power over a company.

They have a monopoly.

They can control or eliminate any competition in any field they decide to dominate.

They can print their own money.

They can throw people in jail who don't play by the rules they set, though, frequently, those rules do not apply to them.

They can take your money or your property under a variety of pretexts which are unavailable to other businesses.

If so inclined, they can kill you or send you out to kill others to clear the way for their business aims.

It is not a level playing field. It is their playing field. Always has been, always will be.

Or, perhaps, as a life-long public employee, I should say it is OUR playing field and always will be.
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Unread 9 Jul 2009, 22:00   #24
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Re: Is Bigger Government Better

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Originally Posted by dda View Post
The true myth is that government really gives a shit. It doesn't for the most part.

The government is just another business. A business which wishes to grow and prosper. A business whose employees are, for the most part, interestedd in their own little lives and, while not averse to actually do their jobs, see the securing of their jobs much more important than actually accomplishing anything.

A business whose board of directors (elected officials) for the most part don't have a cllue what they really want to accomplish beyond staying in power or increasing their own power.

In other words, about the same as every other business. The difference is that governments have many advantages in power over a company.

They have a monopoly.

They can control or eliminate any competition in any field they decide to dominate.

They can print their own money.

They can throw people in jail who don't play by the rules they set, though, frequently, those rules do not apply to them.

They can take your money or your property under a variety of pretexts which are unavailable to other businesses.

If so inclined, they can kill you or send you out to kill others to clear the way for their business aims.

It is not a level playing field. It is their playing field. Always has been, always will be.

Or, perhaps, as a life-long public employee, I should say it is OUR playing field and always will be.
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Unread 25 Jul 2009, 15:57   #25
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Re: Is Bigger Government Better

Just some quick notes:

1) Its fairly obvious that some companies are better run than others. Toyota is well run, GM is not (this might change ofc).

2) Its also fairly obvious that some governments are better run than others. The Norwegian state is fairly smoothly running compared to the Mexican for instance.

3) This can also be said about different parts of the government. Here in Norway our schools are not run very well. But compared to our ministry of defence, they at least seem to work.

4) The US population seems to be favouring spending money "defence" and supporting madmen and dictators, instead of a public health care system like one has in most european states. Even the Iran-Contras scandal and that likes seems not to have stopped this support.
Instead they have a very costly private health-insurance system that costs more than the much better and nationwide systems in Europe.
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Unread 28 Jul 2009, 13:03   #26
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Re: Is Bigger Government Better

Some parts of the public sector are run well some bad. The argument that someone fails and someone succeeds can be turned against and or both sectors, and thus really serves no role.
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Unread 29 Jul 2009, 01:02   #27
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Re: Is Bigger Government Better

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Some parts of the public sector are run well some bad. The argument that someone fails and someone succeeds can be turned against and or both sectors, and thus really serves no role.
But the consequences differ in both sectors.
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Unread 29 Jul 2009, 07:30   #28
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Re: Is Bigger Government Better

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But the consequences differ in both sectors.
Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders. Alternatively, is a company is inefficient, the government must bail it out (the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for). In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.

Surely, you can blame supervision for not intervening on subprime, but, had they done that, someone'd definitely yelled: omg communists intervening on our legit banking business. Truth said, the whole subprime crisis and the credit crunch is a follow-up of a private shadow banking sector failure, caused by poor analyzing of risk, combined with gullible consumers.
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Unread 29 Jul 2009, 19:38   #29
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Exclamation Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders.
The difference though is that stockholders are such mainly by choice (with some possibility of a profit to offset the risk they're taking) whereas taxpayers are not. As a stockholder, if I think GM is unsound or I don't like how it's being run, then I can sell my stock. As a taxpayer, if I don't like how the government is running GM, well, I still have to pay for it anyway.

And if, by some unholy miracle, GM is ever profitable again, I won't be getting any dividend checks.
Quote:
Alternatively, is a company is inefficient, the government must bail it out
No, it need not. Many companies aren't bailed out.

In capitalism, bankruptcy is not a bug, it's a feature. Poorly run companies should go out of business. Subsidizing incompetence does little to reduce or eliminate it; if anything, it only serves to increase it.
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In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.
But private sector failures aren't necessarily bailed out. It's only the same if you accept the premise of crony capitalism, where some companies are not allowed to fail.

I don't accept that premise.
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Unread 29 Jul 2009, 21:34   #30
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
The difference though is that stockholders are such mainly by choice (with some possibility of a profit to offset the risk they're taking) whereas taxpayers are not. As a stockholder, if I think GM is unsound or I don't like how it's being run, then I can sell my stock. As a taxpayer, if I don't like how the government is running GM, well, I still have to pay for it anyway.

And if, by some unholy miracle, GM is ever profitable again, I won't be getting any dividend checks.
No, it need not. Many companies aren't bailed out.

In capitalism, bankruptcy is not a bug, it's a feature. Poorly run companies should go out of business. Subsidizing incompetence does little to reduce or eliminate it; if anything, it only serves to increase it.
But private sector failures aren't necessarily bailed out. It's only the same if you accept the premise of crony capitalism, where some companies are not allowed to fail.

I don't accept that premise.
You are quite right...

... and of course America, being poorly run, virtually bankrupt, and the cause of global economic chaos ought also be allowed to fail.

Just quietly disband, leave your things in the corner, we're happy to take back control.

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Unread 30 Jul 2009, 09:37   #31
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
In capitalism, bankruptcy is not a bug, it's a feature. Poorly run companies should go out of business. Subsidizing incompetence does little to reduce or eliminate it; if anything, it only serves to increase it.
But private sector failures aren't necessarily bailed out. It's only the same if you accept the premise of crony capitalism, where some companies are not allowed to fail.[/quote]

Must was a bit of a poor choice of words, admitted. "May have to" is more like it. TBFT, especially on the financial sector, is a bit of a problem.

Of course, private sector failures aren't necessarily bailed out, and they should, as you point out, not always be bailed out. But the fact that a bail-out feature is there inherently creates a moral hazard. The banking system is a good example of where, the government, has historically paid the price for private sector failure.

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I don't accept that premise.
I was actually considering putting out a more complex reply involving a discussion of why the lender of last resort needs to be there, and why the bail outs are necessary to keep confidence especially on the financial sector despite it creating moral hazard, but I've come to second thoughts. If your point is, that companies that fail should never be bailed out I'm simply better off asking you a question.

How crippling do you think letting the half the financial system go down in a blast would have been? How long do you think it'd take for the market to regain confidence in the system again, when, the system is technically an essential part of resource allocation between corporations? This is, considering that it wasn't only the shadow banking responsible for the subprime packages and toxic waste funds, but a good part of the "actual" banks as well? How happy do you think those few hundred thousand UK and Netherlands clients of certain Icelandic banks would've been if, umm, their savings in these banks had simply defaulted?

I'm not sure if you're actually saying that, the government should, never, bail anything out, but if you are, then I'm keen to hear how you think the financial market would actually work. If you aren't, then I'm sure we can agree that sometimes things must be bailed out mostly due to private sector failure, and the remains are not paid by the stock holders.

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Originally Posted by Yahwe
... and of course America, being poorly run, virtually bankrupt, and the cause of global economic chaos ought also be allowed to fail.
UK is virtually bankrupt. China isn't. We can probably concede that China is one of the best ran (economically speaking) countries in the world: the former communist China, the country where there was massive propaganda outlets to essentially force people to save. Whereas the west was consuming. Private sector success has made China rich?

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Originally Posted by JBG
It's worth remembering that not all the banks which took funds even wanted to take them. A number of them, such as Goldman Sachs, didn't really need anything and only took part under pressure from the US Treasury.
Sure. And some of the banks would've gone insolvent without these funds. The problem generally is, that an poorly run bank going default can cause a chain reaction which ends up with healthy banks being victims of an assault too, which is part of the reason why the EU, the UK, and the US have all been keen on defending the banks. Case 1929-1933 is good for this.

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Unread 30 Jul 2009, 00:05   #32
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Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
(the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for).
It's worth remembering that not all the banks which took funds even wanted to take them. A number of them, such as Goldman Sachs, didn't really need anything and only took part under pressure from the US Treasury.
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Unread 30 Jul 2009, 10:05   #33
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Re: Is Bigger Government Better

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Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders. Alternatively, is a company is inefficient, the government must bail it out (the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for). In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.

Surely, you can blame supervision for not intervening on subprime, but, had they done that, someone'd definitely yelled: omg communists intervening on our legit banking business. Truth said, the whole subprime crisis and the credit crunch is a follow-up of a private shadow banking sector failure, caused by poor analyzing of risk, combined with gullible consumers.
The recent bailouts of some of our banks are a rather unique and politically driven market intervention, partially made necessary by the government itself. Due to the character of banking organisations they are bound to have a sizable web of investors and creditors with interest in each other, making it appealing for political parties to intervene. Some the quirks of the private sector are unappealing, and depending on the character of certain organisations public interventions should be allowed. Unfortunatly, in the case you mentioned, intervention or placing banks entirely in the public sector can't take away some of the major character flaws of banks, as the web of interest and our dependancy on them will remain. But, as I said earlier, taking the quirks out of the private sector should be the very role of the government (and thus the public sector).
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Organizations that attempt to maximize profits do have their own flaws of course. As I said before they can for example chose to only provide services to a certain market segment. Commercial organizations might not be suitable to sentence impartially in disputed matters either. And on markets with a monopolistic character you might prefer a non-profit organization as well. The role of the public sector should be solving issues at points where the market fails, if necessary. Preferably without interfering with the actual or other markets. But when you are just seeking innovations and efficiency then you shouldn't look at the public sector. Those are apparently the points at which the public sector falls behind.
The public sector can't serve any other purpose then assisting the private market when they fail to provide proper services, as the public market has it's own share of unique character flaws, as I explained before. Each sector has it's own advantages and disadvantages making it necessary to make a proper destinction and finding a suitable combination of both. But denying disadvantages specific to the public market is a bit silly.

The example you gave doesn't even really apply to the private market in general, as it is quite rare that organisations are actually bailed out by the central government. Even in a small country like the Netherlands (with 16 million people) on average 28 private organisations went bankrupt each day before the current financial crisis. 9349 organisations in 2004 and 9200 organisations in 2005. And we let those organisations go bankrupt for a very good reason: they aren't profitable.

Bankruptcy can actually be seen as one of the major features of the private market. It's a way to weed out the poor organisations and motivating organisations to improve. The general rule is that in the private sector poor organisations lose their market share, become obsolete and get replaces by better adjusted organisations. A rare occurrence in the public sector, where poor results can often be ignored, thus, as said before, making a proper distinction between both sectors is very important.
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Unread 30 Jul 2009, 10:14   #34
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Re: Is Bigger Government Better

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Unfortunatly, in the case you mentioned, intervention or placing banks entirely in the public sector can't take away some of the major character flaws of banks, as the web of interest and our dependancy on them will remain. But, as I said earlier, taking the quirks out of the private sector should be the very role of the government (and thus the public sector).
The whole system, Goldman Sachs first in line, needs a good kick in the nuts and a revision. And indeed, I agree on the role of the government; to prevent such private sector misincentive and failure from happening: it seems inherent for Wall Street to fail like this, mostly because it's been deemed profitably to systematically mislead people into paying for nuclear waste because "it's surely going to rise in value until 3098", and for some reason people keep believing this.


Quote:
The public sector can't serve any other purpose then assisting the private market when they fail to provide proper services, as the public market has it's own share of unique character flaws, as I explained before.
The public sector must also provide for certain services the private sector is unwilling or unable to technically provide. These include Police, Justice System, Military, and so forth. I for one wouldn't find it hugely amusing if Goldman Sachs bought the Supreme Court and made the descisions there.

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Each sector has it's own advantages and disadvanteges making it necessary to make a proper destinction and finding a suitable combination of both. But denying disadvantages specific to the public market is a bit silly.
Definately. So's denying the disadvantages specific to the private market. So's denying disadvantages in general.

Quote:
The example you gave doesn't even really apply to the private market in general, as it is quite rare that organisations are actually bailed out by the central government. Even in a small country like the Netherlands (with 16 million people) on average 28 private organisations went bankrupt each day before the current financial crisis. 9349 organisations in 2004 and 9200 organisations in 2005. And we let those organisations go bankrupt for a very good reason: they aren't profitable.
This really depends on the scope: injecting capital is a fairly common and a stealthy way of rehabilitatings, and is done fairly often by the government. This time, it's just being done more visibly.

Quote:
Bankruptcy can actually be seen as one of the major features of the private market. It's a way to weed out the poor organisations and motivating organisations to improve. The general rule is that in the private sector poor organisations lose their market share, become obsolete and get replaces by better adjusted organisations. A rare occurrence in the public sector.
I'll ask you the same question: would you have let Wall Street implode? Would you have let the Icelandic banking sector as a whole implode?
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Unread 7 Aug 2009, 13:15   #35
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Re: Is Bigger Government Better

On the other hand, Jeffrey Miron's CNN article seems to imply that he thinks the market should be left to itself: I'd be curious what he thinks the "we agree with the need for bold action to ensure that the financial system continues to function" (which Miron signed) mentioned in your original link to support your cause of "all bailouts are evil" would include? Bold inaction? Bold abolishing of all financial market regulation?
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