The Business Of Government

by Dr. Scott Freeman

Most would agree that the Federal Government is involved in areas of economics and business which are better left to a competitive market. Few seem to agree, though, when each of us is asked which areas they are. If this nation ever had a philosophy on the role of government, it has long since disintegrated into isolated absolutes that carry little meaning. Slogans like "capitalism not socialism," "big government vs. small," or "no taxes" can succeed in inflaming emotions against government, but are no basis for broad economic policy. Sometimes we even vote unwittingly against our own self-interest in this fragmented economy.

Consumer goods and services, real capital, employment, financial capital, and real property are usually allocated most efficiently in a competitive market, which discourages inefficient allocation and use of resources, and promotes profitable demand-filling activity. A problem arises with public and social goods, whose very nature precludes their production by private industry. These include public health and safety, infrastructure, public education, national defense, and environmental quality. We can debate forever the desirability of some goods, but there is no market that can provide them.

It has been many years since the U.S. last had the free market economy observed by Adam Smith. Today large concentrations of economic power (monopolies, oligopolies, monopsonies) exist in most of our interactions with business. These include energy, air travel, public utilities, professional sports, health care, and giant retailers. An unconstrained monopoly generally results in higher prices, lower output and employment, waste of resources in inefficiencies and in maintaining barriers to entry, and slow innovation when compared to a competitive market. J.K. Galbraith wrote that concentrated economic power on one side of a market begets concentration across from it. Predictably, labor unions, advocacy groups, and programs directed toward balancing monopoly power are dismissed as "special interest groups."

As economic power becomes more concentrated and economy-related issues grow increasingly national and global, State governments are largely ineffective to deal with them. We end up with a patchwork of 50 sets of policy, often favoring local industry. As seen in so many States during this economic cycle, they themselves have become another economic concentration the individual has to deal with. Eisenhower warned of the military-industrial complex; it appears this complex has taken in more members and has enjoyed all the prosperity of late, not always to the benefit of the household sector.

A most insidious concentration has occurred in the financial markets. Boundaries have become so porous that institutions can create risks with impunity, then reap their profits from middleman fees and destabilize the national economy. Their fear of big government didn't deter the institutions "too big to fail" from asking Congress for help in meeting their executive payrolls.

It is ironic that the most vocal critics of government's role have their own investments in U.S. economic policy. Monopolies have been able to sustain and enrich themselves through the abundant examples of political influence, subsidies and incentives, and noncompetitive contracts for privatizing services. Any suggested change sets off an alarm on somebody's financial statement, triggering another round of slogans and misinformation. This country will never agree on any defined role of government in a system riddled with corporate money interests.

Every recession brings about renewed popularity of Keynesian economics. Expansionary fiscal policy can provide a short-term boost, but does nothing for long-term sustainability while debt piles higher. More economists are recognizing the need for sustainable growth in the face of dwindling natural resources, population growth, environmental damage, and increased poverty. Other developed economies are moving in this direction, but it’s not likely to happen here. We will continue to listen to whoever stirs our outrage, and defend our own private dung heaps.

We are losing ground to other national economies as they modernize and look long-term. U.S. households grow less relevant as we're carved up by multinational corporations who recently have been awarded carte blanche to bankroll election campaigns, and we measure our standard of living by the S&P 500 Index.

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