“The ultimate decision about what is accepted as right and wrong will be made not by individual human wisdom but by the disappearance of the groups that have adhered to the ‘wrong’ beliefs.” – F. A. Hayek
Back during the Cold War, the story goes, certain aspects of the Soviet economy were “negative value added” – by producing something, they made it worth less than its raw materials. The example I’ve seen from place to place is of several variants of Soviet tractors, which are claimed to have been worth more as raw materials than as assembled tractors. So ineffective was their operation, and so inefficient were Russian factories of the day, that they actually would have been better off not building the tractors and just selling the material on the open market.
One wonders if we’re not starting to see the same thing over here. Perhaps not expressly of “negative value added” production, but rather of people choosing to walk away from the most obvious solutions to their problems (err, situations) because a far more “difficult” road is actually more economical. Let me give you an example, and then some more.
My wife homeschools our three children. While homeschooling has often been used as a means of removing children from “corrupting influences” within the public school system, there is a growing trend toward homeschooling for academic purposes. I can attest that our primary interest in homeschooling is a belief that we can educate more effectively and efficiently than the public schools in our area. And, just so I’m clear, we live in an area with excellent public schools. Even so, we have come to the conclusion (as have quite a few others) that the “overhead costs” of public school outweigh the comparative monetary advantages, and one can do a better job at home.
This is, to my mind, a sign of massive failure on the part of the government-run system; when a person comes to the conclusion that they can pay their taxes into the public system and still be better off without availing himself of its services. Note, we don’t get to deduct the portion of our taxes paid into the school system since we don’t use it (nor does anyone else). No, we still pay for everybody else’s kids to go to school (in some small proportion), and choose not to take advantage of the “goods and services” for which we’ve already paid. It is sunk cost. And somehow, in the economic calculus that we all do (even if subconsciously) to understand what is the best road forward, we see this form of schooling as of lower added value than the homeschooling alternative. (Are we right or wrong? time will tell. Is the answer the same for everyone? probably not.)
I’ve seen a number of articles recently, about a somewhat disjoint set of situations, that all describe similar “negative value added” scenarios – the utter failure of our government system (bureaucracy) at achieving reasonable, economic ends.
Consider, if you will, a host of articles discussing the privatization of police functions:
- Private security patrols on the rise in the Oakland hills
- Houston neighborhood turns to private security firm for protection
- As cities lay off polices, frustrated neighborhoods turn to private cops
- Chicago proposal would allow private sponsorship of police
The first three articles point to a rise in private policing of neighborhoods. Crime is up, enforcement is down due to budget constraints, and so the people of these neighborhoods pool together and hire security firms to patrol their streets and keep them safe … and it works. But isn’t that what police are for? I mean, don’t we all pool our money together (in the form of taxes) to hire people (policemen) to patrol our streets and keep us safe? Do these neighborhoods get a break on their tax bill because they hired private security? Nope. Yet and still, they have come to the conclusion that it is worth the extra money to do a job they thought they were paying for the first time.
The last article adds a twist. The proposal would allow communities to hire actual police officers who are off-duty (perhaps having their hours cut due to budget constraints). But isn’t that why we hired them in the first place? “But there’s not enough money to do the job” – but there obviously is enough money; these communities have ponied up in a hurry to have protection.
The problem here isn’t that there’s not enough money, and it isn’t that there aren’t enough people willing (and able) to do the job. No, the bureaucratic overhang, the costs of the system, are too much to bear and it is not functioning effectively.
What I also find interesting is just how efficiently the system runs when it has singularity of purpose. The neighborhood pools resources and pays security, who then does the job of making people safe. It’s clean. More than one middle man has been cut out of the process.
While I’m sure these good people are still paying their taxes on top of their private security fees, we have seen the logical end of this absurdity – Detroit. It was recently reported that half of Detroit property owners don’t pay taxes. The Detroiters (is that a word?) will tell you why they don’t pay taxes: they don’t get services. The police don’t come when their called, they don’t patrol the streets, the streetlights are out, the roads are falling apart. Exactly what are the taxes going to if none of the services are being provided?
The system is broken, the bureaucratic overhang is too much to bear, and people are getting fed up. In some cases they’re providing their own security, and in some cases their refusing to pay for services that aren’t provided. It reminds me of a great American turning point …
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. [emphasis added]
In a slightly related bent, Mish had a story on a company called “Blueseed” a while back that is providing offshore office space for start up companies. The idea is that if you go 12 miles off the coast into international waters, the rules and regulations no longer apply and you can get your business going without so much government interference. Now, you may object that “those regulations are here to protect us” … perhaps; but when the competitive advantage of dry land is not enough to keep businesses here, something is broken.
As Mish notes in his piece: “floating offshore hospitals and schools cannot be far off.” Can you imagine? Could the onerous oversight of Obamacare and the litigation-crazy American public drive hospitals 12 miles offshore into international waters so people who actually want surgery or medical care can get it without interference? I think Mish is on the mark with this one. Cash for surgery. No lawyers, no insurance companies, no fuss. “But is it safe?” don’t go if you don’t want to … it’s free choice. But if the system is so utterly broken that you can’t get medical care here, I suspect you’ll be going offshore.
It doesn’t have to be this way. I honestly believe that these inefficiencies in our government-run systems are fixable. Will we choose a better path? Time will tell.