Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Why Are People So Forgiving of Government Failure?
Mises Institute ^ | April 05, 2011 | Christopher Westley

Posted on 04/05/2011 8:39:10 PM PDT by sickoflibs

Once upon a time, I developed a theory that we have much lower expectations for public-sector performance than we do for private-sector performance.[1] We saw this in accounting standards that — when applied to Enron — resulted in market forces shutting that firm down, while the Department of Defense loses billions of dollars annually. The difference in terms of waste between the two sectors is exponential, but while Enron is held accountable for its ethics, the government gets a pass.

Or consider what we tolerate from the US Postal Service (USPS) as opposed what we tolerate from firms like FedEx Express or UPS. Again, if those private-sector firms incurred the costs and waste that the USPS institutionalizes, they would be long gone, and their assets would be transferred to other entities that market institutions believe would use those assets more efficiently and profitably.

The list could go on. Compare Amtrak to private transportation; the billions of dollars of taxpayer money wasted on producing the Chevy Volt (the only thing electric about this car is that it is shockingly bad) compared to its competitors;[2] the standards applied to public-school students as opposed to those demanded in private and home schools; or the massive waste we accept in those federal transportation and "farm" bills Congress passes every five years, regardless of the party in control.

Such examples are so universally accepted that they are not even worth citing. The result is a huge dichotomy in modern life, and those of us who point it out are often left to feel like the little boy who wondered why there was so much fuss about the emperor's obviously nonexistent clothes.

The result of this dichotomy is government growth, which is inversely related to those characteristics we associate with a free and virtuous society. The result is growing animosity in society between net taxpayers and net tax consumers — and chaos when the artificial institutions, on which so many have become dependent, fail. Consider the sad case of Social Security. If ever there were a showcase for the difference in popular expectations maintained between public and private performance, Social Security is it.

It began in the 1930s, a time of state-orchestrated uncertainty in the economy. Much like today, this uncertainty emanated from multiple, unprecedented, and unpredictable interventions in the market system. (The Great Depression itself would last 17 years, ending when the New Dealers, who were the source of many of these interventions, were repudiated soon after the death of Franklin Roosevelt.) Looking back, what's striking is how limited the program was when it began. It claimed a mere 2 percent of payrolls and provided supplementary old-age payments to retired workers at a time when most people died in their 60s and when the worker-to-retiree ratio was 16 to 1. (It is now 3 to 1, and falling.)

Therefore, Social Security is a good case study of government interventionism in general. Public-sector growth begins on a small scale and develops a dependent class. When the unintended consequences inevitably come about, public officials expand their programs to solve these problems while blaming "forces of greed" or "market failure." While the role of such crises (real or imagined) in instigating this cycle was spelled out by economist Robert Higgs in his modern classic Crisis and Leviathan, the general cycle of intervention leading to unintended consequences leading to broader intervention was explained by the classical liberal Ludwig von Mises in the 1920s.[3]

Roosevelt knew that Social Security was primarily a political triumph.[4] In a story related by historian Arthur Schlesinger, Roosevelt told a visitor warning about the program's economic inconsistencies,

I guess you're right on the economics, but those taxes were never a problem of economics. They were politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes, no damn politician can ever scrap my Social Security program.[5]

He was damn right, too. Whenever the laws of economics rose against the politics of Social Security, Congress consistently expanded its benefits and raised payroll taxes to create more dependency. Much of today's unemployment results from the increased costs this program places on the labor market.

Nobel laureate Edward Prescott has shown that while Social Security's legal burden is shared between the employer and the employee, the economic burden is placed largely on workers, who receive lower wages and fewer employment opportunities. As a consequence, Prescott argues that employees respond to decreases in wages by further decreasing labor supply. (In economic terms, Prescott is highlighting the consequences of a highly elastic labor supply.)[6]

Congress's management of this program over the decades can only persist in a world in which people hold lower expectations for public-sector performance. It reflects the dominant Keynesian bias for short-run adjustments, because (as Keynes argued) the long run never arrives anyway. In the long run, we are all dead. A truer aphorism would say that in the long run, we are all screwed.[7] In the case of Social Security, this has become an actuarial certainty.

The numbers do not look good. Social Security was in surplus when the 78 million baby boomers were at the height of their earning power, but it is now in deficit; retirees are increasing in number and starting to collect some of the wealth that was coercively transferred from them into this Ponzi-like scheme. Its unfunded obligations were listed in the tens of trillions well before the stresses of the 2008 financial crisis and the various expansions in government since then. Boston University economist Laurence Kotlikoff recently calculated that, due to decades of spending like this on Social Security and other entitlements, the difference between funded and unfunded liabilities totals $202 trillion.[8]

Adding insult to injury, the Congressional Budget Office ran more than 500 possible simulations reflecting different possible outcomes for the program, given its current fiscal health. The purpose was to measure which generation among the cohorts born in the 1940s, the 1960s, and the 1980s would not receive Social Security benefits.[9] The results, published in October 2010, were not promising, as recently spelled out by Bruce Krasting in Business Insider. Krasting writes,

If you were born in the 1940's the probability that you will receive 100% of your scheduled benefits is nearly 100%. The people in this age group will die before SS is forced to make cuts in scheduled benefits. If you were born in the Sixties things still do not look so bad. Depending on how long you will live the odds (76+%) are pretty good that you will get all of your scheduled benefits. However, if you were born in the Eighties you have a problem. The numbers fall off a cliff if you are between 30 and 40 years old today. In only 13% of the possible scenarios you will get what you are currently expecting from SS. If you were born after 1990 you simply have no statistical chance of getting what you are paying for.[10]

Krasting thinks the end result will be age warfare, as younger generations realize they are being forced to pay for the fiscal irresponsibility of previous generations. The youths with whom I come into contact are as mad as hell — at least those who have studied the issue. University of Nottingham economist Kevin Dowd, in a speech to young people about the welfare-state promises for which they will spend the rest of their working lives paying, asked the question, "Do you want a life of toil and slavery, followed by ultimate destitution, or do you want to stand up for yourselves and fight for the chance of a decent life? It's your choice."

Indeed it is. Social Security is a microcosm of politicians' tendency to let short-term political benefits blind them to the economic problems inherent in welfare and warfare programs. More importantly, this government program highlights the dichotomy between public and private expectations. Social Security only persists because we have been conditioned to approach public-sector performance with lower expectations. In the long run, we are forcing future generations — possibly including the one I find in my economics classes today — into an easy choice.


TOPICS: Business/Economy; Editorial; Government; News/Current Events
KEYWORDS: epicfail; government; misesinstitute; schifflist
Navigation: use the links below to view more comments.
first previous 1-2021-33 last
To: sickoflibs
Why Are People So Forgiving of Government Failure?

Simple.

Because the majority of people have rejected the true God, and have elevated government as their "god" and idol.

21 posted on 04/06/2011 3:31:14 AM PDT by SkyPilot
[ Post Reply | Private Reply | To 1 | View Replies]

To: sickoflibs
Krasting thinks the end result will be age warfare, as younger generations realize they are being forced to pay for the fiscal irresponsibility of previous generations.

I agree with this statement. The survivors of the abortion culture will ultimately end up euthanizing their parents.

22 posted on 04/06/2011 3:56:04 AM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
[ Post Reply | Private Reply | To 1 | View Replies]

To: kearnyirish2

Damn — you beat me to it. LOL.


23 posted on 04/06/2011 3:57:04 AM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
[ Post Reply | Private Reply | To 3 | View Replies]

To: kearnyirish2
...our healthcare workers will be Division of Motor Vehicles employees with 4 more years’ education.

That is too surreal...I think I'm going to be sick to my stomach...in a closet somewhere.

24 posted on 04/06/2011 4:34:47 AM PDT by Earthdweller (Harvard won the election again...so what's the problem.......? Embrace a ruler today.)
[ Post Reply | Private Reply | To 3 | View Replies]

To: peeps36

Clueless is learned behavior. Much of it comes from the improper practices in America’s “schools” of “teaching” reading. The people though never understand for long.


25 posted on 04/06/2011 5:38:10 AM PDT by Theodore R. (John Boehner just surrendered the only weapon with which he had to fight. What does OH see in him?)
[ Post Reply | Private Reply | To 8 | View Replies]

To: pacpam
I think that's not quite true. For example, the USPS gets no-interest loans from the treasury, which is the same as if the taxpayers paid the interest charges for normal loans. Also, don't forget that the USPS is exempt from many taxes and fees, which is the same as if the taxpayers paid those fees on behalf of the USPS.
26 posted on 04/06/2011 9:55:25 AM PDT by Jubal Harshaw
[ Post Reply | Private Reply | To 16 | View Replies]

To: Jubal Harshaw

Labor is the biggest cost of most companies- about 70%. The USPS pays it’s employees salaries from product sales and also pays health care costs and pensions from the same product sales. The taxes or lack of, you reference is minimal in comparison. The USPS has even been directed by the Feds to pony up billions and billions from current revenue for past retirees payments by OPM when the USPS was part of the Federal gov’t before 1972 - not sure of exact date. But my point is USPS is NOT funded and run by the Federal Gov’t as all other Federal agencies are funded and run. They are inept or efficient on their own.


27 posted on 04/06/2011 11:19:23 AM PDT by pacpam (action=consequence and applies in all cases - friend of victory)
[ Post Reply | Private Reply | To 26 | View Replies]

To: Alberta's Child
The survivors of the abortion culture will ultimately end up euthanizing their parents.

That's something, isn't it?


Built with SUSE Studio

If you can't appreciate the pure beauty of the violin after hearing this, something's wrong with your ears.

28 posted on 04/07/2011 3:37:38 AM PDT by rdb3 (The mouth is the exhaust pipe of the heart.)
[ Post Reply | Private Reply | To 22 | View Replies]

To: rdb3
It sure is. Kinda makes me think about how nature has a way of "running its course."

(That is an awesome Booker T. Washington quote on your profile page, BTW.)

29 posted on 04/07/2011 11:37:15 AM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
[ Post Reply | Private Reply | To 28 | View Replies]

To: Alberta's Child
That quote cuts to the heart of the matter, doesn't it?


Built with SUSE Studio

If you can't appreciate the pure beauty of the violin after hearing this, something's wrong with your ears.

30 posted on 04/07/2011 12:56:24 PM PDT by rdb3 (The mouth is the exhaust pipe of the heart.)
[ Post Reply | Private Reply | To 29 | View Replies]

To: rdb3
It sure does. I put that up there with a great quote I heard from a guy in my industry who is one of the best project managers I've ever dealt with. When facing a difficult situation on a project, he told me: "A real leader is someone who is willing to tell people what they don't want to hear."

These are the pearls of wisdom that carry me from one day to the next.

31 posted on 04/07/2011 1:15:47 PM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
[ Post Reply | Private Reply | To 30 | View Replies]

To: sickoflibs

Because close to the majority of them are morons who think if we don’t have a strong, powerful government, when the [insert terrible apocolypse here] comes, there won’t be a concerted effort to survive!


32 posted on 04/08/2011 5:25:28 PM PDT by Axenolith (Government blows, and that which governs least, blows least...)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Axenolith; jeltz25
RE :”Because close to the majority of them are morons who think if we don’t have a strong, powerful government, when the [insert terrible apocolypse here] comes, there won’t be a concerted effort to survive!

Speaking of which, I am really terrified about the shutdown tonight. Is it going to shutdown our electricity, water, cable/internet and phone? Will the grocery stores still have food? What about the police and firemen? Will this be as bad as the Y2K predictions?

:)

I was just about to hit post and the cable channels announced a deal to be reviewed by the members at 9:45pm , but not what it is. Does this mean the world wont end tonight ? :)

33 posted on 04/08/2011 6:32:49 PM PDT by sickoflibs ("It's not the taxes, the redistribution is the federal spending=tax delayed")
[ Post Reply | Private Reply | To 32 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-2021-33 last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson