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The Opportunity Costs of Government Planners
One of the disadvantages of a complex tax code is that a great deal of human mental effort is wasted trying to figure it out. If a person has ten productive hours a day, any time spent doing busywork is a direct reduction on the amount of time that can be spent doing something productive that might actually create wealth (which, for those so inclined, could be taxed). This is one reason why I was so impressed during my recent visit to Singapore: The government there makes everything easy for productive citizens. The border crossing takes seconds, taxes are simple, even renewing a driver’s license happens as fast or faster than anywhere else in the world. All of this frees up the productive citizen to go and get some real work done.
The problem is compounded when one looks at government support for scientific and academic research. Highly educated and intelligent people — following the grant money — pour their creative energies into stupid and senseless fields. Think of what they could have accomplished if they were not following the research priorities set by not-invented-here senior scientists or, worse, ignorant and corrupt members of the government.
Incentives work out to the same result. Electric and hybrid cars are a triumph of technological achievement. But given low fuel prices, they are — and will remain — uneconomic unless government diverts taxpayer dollars to create subsidies. So all those hard-working and creative engineers have been essentially wasting their talent, building the wrong things because Rep. Nancy Pelosi thought it would be quite nice if there were more hybrid vehicles.
I know countless “smart” people who are nothing more than hamsters, running on a pointless wheel. What a waste of talent.
Thanks for nothing, Uncle Sam.
Published in General
Great work iWe.
Indeed.
(Bastiat lives.)
Healthcare is this way in spades. We have a dozen smart people making paper comply with regulations that don’t really improve the care we give.
I attended a talk a couple of years ago given by Scott Anthony from Innosight, a consulting firm focused on innovation and new growth opportunities. Scott mentioned that he packed up his family and moved to Singapore. Innosight opened an office there. The main reason for choosing Singapore was the ease of creating new start-ups and piloting new business models and ideas.
Your post reminded me of Scott’s talk. In the U.S., we have moved to Crony Capitalism. Carly Fiorina spoke about this often during her presidential campaign. Big companies encourage selective Government regulation because it creates “barriers to entry” and reduces the number of potential competitors. I write “selective” because they like regulations until they suddenly find themselves on the wrong end of some Government regulation.
I wish we could get back to having much less regulation. People love to use “Safety” concerns to justify many of these regulations. I say “caveat emptor” and let individuals decide if they want to buy a good or service as long as they understand the risk.
Indeed. From doctors to administrators to diversity specialists…. the wasted energy far exceeds the productive energy. At best, wasted time is a net loss. But when the time is used to make other people even less productive (think of those who write regulations or add bureaucratic loops), then we enter death-spiral territory.
The Pentagon has been here for a long time, and it just gets worse. Take a smart person, put them in a bureaucracy, and see what can be achieved!
If redirecting people’s energies into unproductive channels isn’t bad enough, we’re also redirecting them into activities that actually block productivity. The regulations that Pelayo mentioned (#4) are a big example.
Another is the requirement that companies and universities hire “diversity” consultants whose purpose seems to be little more than generating grievances. Along this line are the “grievance-studies” offered at many universities, which produce people who would be toxic to any workplace. Imagine the day-to-day stress of dealing with someone who is constantly parsing your words and actions for any excuse to be outraged.
Is there any better example of “wasted effort” than research on ways to reduce Global Warming?
In addition to encouraging wasteful and pointless enterprises, our leaders also discourage productive ones. Bernie Sanders is running on a platform that includes “leaving it in the ground” and banning fracking. Because, of course, we should avoid putting people to work in the oil and gas industry, gaining more energy independence, and producing more clean natural gas.
I firmly believe that with the right leadership, there could be an effective but not overly intrusive way for the government to encourage the greater use of natural gas as a motor fuel. It would be transformative for our economy and beneficial from numerous standpoints.
Just deregulate and reduce or remove incentives of any kind (like preferential tariffs or taxes). The market will go toward natural gas if the economics actually add up.
A cheese guy’s take on it.
1. Traditional capitalism . You have two cows, you sell one and buy a bull. Your herd multiples and the economy grows. You sell them all and retire.
2.Bureaucratism. You have two cows. The State takes both, shoots one and milks the other, then throws the milk away until there are outraged voters. They then make cheese from the milk ,pay to store the cheese for five years and then throw the cheese away.
We all know this and would be pressed to name a federal regulation that does more good than harm, yet it keeps getting worse no matter who we elect. This last election was the first time I remember all our candidates except one, attacked the regulatory regime. Carly articulated it better than the others. Of all of them guess who we nominated? It is the sledge hammer of the administrative state, along with the tax code the primary vehicle for crony capitalism, the source of our economic stagnation, disappearing entrepreneurial activity and new business start ups and decaying income distribution. However, it is too complex to be fixed from within. Like the tax code it must be tossed and begun from scratch or not begun again at the Federal level at all.
The Wall Street Journal had an article yesterday Nuns with Guns about the impact of Dodd-Frank (avoid the movie “Nude Nuns with Big Guns if you google this). I read the WSJ using Kindle and this is behind a firewall, but some of the points are:
The mind boggles at the amount of non-productive work going on.
[Edit] I should have pointed out the source of the title – it was from a presentation at a Barkleys compliance meeting where the executives shared images of how they viewed the other team. Bankers were viewed as cowboys on horses, Compliance officials as “Nuns carrying guns”
Actually that is the point, it can’t be done even with saintly brilliant leadership. Every sector is too complex, changing too fast even if isolated from all related, competitive, complementary sectors which, of course isn’t possible. Markets work not because some clever business leaders figure it all out. Rather they move forward, frequently creating new markets, into an unseeable future adjusting to prices and returns which the clever ones can do because they are all linked to all complementary, competitive known and unknown global economic activity through the incredible information system called prices.
Just so. The temptation to think that government can “get it right” is precisely what has led to the current situation.
We cannot predict the future. And when we try, we are certain to make things worse than they otherwise would be. Recall Japan’s technological superiority in the 1980s, running right into the tree of investment in memory chips. The US had major memory chip companies, too – Intel made a different bet, absent any guidance from the government, and won.
Yes, but: A president who used the bully pulpit to advocate for natural gas would be a great help, and I don’t think that would be too meddlesome.
Natural gas as a motor fuel is quite compelling from a price standpoint, compared to where gasoline prices normally reside. Its adoption does suffer from the chicken-and-the-egg conundrum. When liberals encounter such a conundrum, they usually advocate intrusive, market-distorting actions by the government, frequently to promote pie-in-the-sky ideas such as wind and solar, which, to paraphrase a business school professor of mine, amount to nothing but a “pimple on the a** of progress”.
If there were a variety of natural gas vehicles available, I would happily purchase one along with a natural gas tank-filling appliance for my garage. These things have existed but are limited in number and come and go with regard to availability. If I’m not mistaken, there is one natural gas car model that is currently manufactured by a Japanese maker.
It may not matter that much. Infrastructure costs are still real, and must be accounted for. The volume and cooling problems are not trivial or solvable.
There are some 23 million NGVs in the world today – they have a real foothold, though almost entirely for fleet vehicles. If there really ends up being a substantial economic “win” for natural gas vehicles, then they will, over time, come to dominate.
In a world with less regulation and government interference of other kinds, the best fuel will win.
Nevertheless, it is clear to me that the government subsidies that have enabled Tesla to be in business has meant thousands of good and smart people have been developing all kinds of things that, at least for their primary purpose, will end up as complete failures. It is a terrible waste.
There was a time when gasoline was a waste product dumped in rivers by Rockefeller . They were after lamp oil.
There is nothing bigger more harmful than the legal code on buisness. The complexity time both in actual man hours and thruput time plus the extra people you have to hire for quality control steps so you don’t accidentally break the administrative law is a huge drain. Don’t get me wrong many of the laws actually force companies to put in place good business practices that help. However most of these business practices are sound for medium and large business. The risk verse cost a different in a smaller business. So yes there are benefits with some of the regulation especially in large firms (because they would be doing it anyways) it is just the cost way exceads the cost.
I would love to document all of the time I waste every year just reading up on the myriad of regulations, the changes in their interpretations, the new regulations promulgated, the compliance time required… except that it would depress me very greatly.
And my business is a small concern to boot. I’ve taken on the role of company bureaucrat because no one else there has a head for it. If so much of my time is wasted at my little concern – how much worse it must be for larger companies with bigger targets on their backs.