Chapter 3

“The Business of Government”, The Freeman Dec. 1/06
[http://www.mises.org/story/2396]

This article speaks rather candidly about the pitfalls of a government-run business. Traffic congestion, water shortages, religion or no religion at schools, education of socialism or free enterprise at schools, they all have something in common: they are problems bred by government operations. The author begs the questions why there are no fierce disputes over what kind of steel automakers use to produce vehicles or why television firms don’t have trouble finding capital for expansion. “Is there traffic congestion? Ban all cars! Water shortage? Drink less water! Postal deficit? Cut mail deliveries to one a day! Crime in urban areas? Impose curfews! No private business could survive with kind of thinking. But when the supplier is the government, rather than catering to the customer wants, it directs him to do with less or without.” Also, it would be impossible for a government service to run as a business because the capital is conscripted from the taxpayer, which is inevitable, and because private enterprise gains profit by cutting as much cost as possible. The problem, you see, is that government doesn’t need to cut costs; it can either cut its service or simply raise prices.

Relationship to Ch.3

Government service is always a monopoly or semi-monopoly, there’s nothing to change that. But the government does more than the article gives it credit for. They provide quintessential services like phone service and municipal sewage which, if privatized, would cause a myriad of problems. Why would you pay separate companies for the same services when a natural monopoly is so much simpler? And on the topic of market imperfections, another upside of the government is that they provide consumers with information (eg. nutrition and ingredients label on foods) so they can make the best choice possible. Fierce disputes over things like education are impossible because, ultimately, it’s up to the consumers to see to it what’s best for themselves. As for unmet public goods, services such as national defence and police protection couldn’t be run by private companies due to the sheer difficulty of charging people. Although the article has a point when it points out that private businesses are more efficient and competitive from their motivations. It’s beneficial both to their profit and the consumers alike. This, in turn, creates positive third party effects. The business makes profit, the customers are satisfied, and this pattern continues so therefore there’s more money circulating in the economy. Overall, good stuff.

Addressing the above statement where it tells to do with less or without, that’s only partially true because of the government’s ideal want for equality. They try to evenly distribute income so people are level on the playing field. If prices for products become ridiculously high, the government will set a price ceiling to stop that, and if things are getting out of hand at the other end of the spectrum, a price floor is set. Sometimes it’s just hard to distinguish for certain products/services, do we need the government’s involvement in this one?