1) Extraction Costs: There are three ways for the government to get money. All have adverse effects on citizens:
- taxes: any government spending is taken from consumer spending (not even counting the costs of getting it= bureaucracy & accountants)
- borrowing: there is a finite amount of money to be loaned and any money loans to the government (through bonds) is money not invested in private industries (through stocks)
- printing money: leads to inflation (essentially a tax) and too much can lead to disaster (Zimbabwe)
3) Negative Multiplier Cost: Sometimes government spending is directly harmful. For example many regulatory agencies have small budgets, but impose huge costs on the private sector. I see this in the time I spend meeting government requirements for teachers. Not to say all regulations are bad, but undoubtedly regulation decreases output per dollar.
4) Behavioral Subsidy Cost: Many government programs encourage undesirable decisions. Welfare encourages encourages leisure over work. Home loan subsidies encourages consumer debt. Unemployment insurance encourages, well unemployment. Because wealth is determined by productivity, these policies shrink the economic pie.
5) Behavior Penalty Cost: This is the flip side of the last one. Government not only encourages bad behaviors, but it discourages good ones. Although tariffs are historically low, there are still laws that limit American citizens from buying the products that they want. Even cash for clunkers, which I discussed earlier, encouraged the purchase of new cars (within a certain time limit making saving for the purchase difficult) and will in the long run increase the cost of used cars (mostly purchased by the poor).
6) Market Distortion Cost: Government interference blinds consumers to real prices. For example in health care, also discussed earlier, because of government subsidies and the encouragement of employer provided insurance, consumers rarely pay the full price for care and in turn purchase too much. The same is probably true for education.
7) Inefficiency Cost: The industries that the government directly runs (Post Office, education, etc) could be run by private industries more efficiently. This is probably where the heart of the debate lies. Exactly how inefficient government run businesses are is hard to measure.
8) Stagnation Cost: Lack of "what would have been" in innovation. Without competition and a motive for profit, government run businesses have no incentive to improve. When I can get a banana from Costa Rica for less than it costs to send a letter to my neighbor, you know something is wrong.
However, do not think that I don't want government to do anything. I want it do to less sure, but I still need it to do the one thing that no business can do, enforce and protect property rights. The limited amount of the things I would like my government to do can be traced back to property rights. Here's what I mean:
- federal, state, and local military protects my life, liberty, and property
- protection under the law from violent crimes against my life, liberty and property
- enforcement of contracts on behalf of my life, liberty and property
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You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.