Why Are Some Government Operations Better Than Others?

By Robert P. MurphyLibertyChat.com contributor

In a recent post at EconLog, George Mason economist and anarcho-capitalist theorist Bryan Caplan first praises Murray Rothbard’s scathing indictment of government operations. Here’s Rothbard:

On the free market…the consumer is king, and any business firm that wants to make profits…tries its best to serve the consumer as efficiently and at as low a cost as possible. In a government operation, in contrast, everything changes. Inherent in all government operation is a grave and fatal split between service and payment, between the providing of a service and the payment for receiving it…[T]he government bureau acquires its income from mulcting the long-suffering taxpayer. Its operations therefore become inefficient, and costs zoom…Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a mere annoyance to the government someone who is “wasting” the government’s scarce resources. In government operations, the consumer is treated like an unwelcome intruder…

Caplan explains in his post that this analysis from Rothbard used to impress him (Caplan) greatly. Yet, Caplan goes on to explain, the older he got, the less he agreed with Rothbard’s cynical description of government enterprises. Here’s Caplan expressing his new-found dissatisfaction with the Rothbardian critique we quoted above:

Rothbard’s words explain far too much.  Since graduating high school, I’ve seen a lot more government enterprises.  I’ve paid more attention to the ones I already knew.  And I’ve worked in a government enterprise for seventeen years.  Their performance is almost always disappointing.  But contrary to Rothbard’s story, their performance is rarely disastrous.  The U.S. Post Office almost always delivers my letters in three days or less.  One hurricane aside, I always have clean tap water for pennies a gallon.  And most public school teachers put on a smile every morning and try to share some knowledge with their students.

Caplan then goes on to offer possible explanations to solve this mystery.

But I dispute Caplan’s entire approach. One reason his examples don’t fit Rothbard’s conclusion is that they don’t match up with Rothbard’s premises. Yet another problem is that Caplan is being far too generous in defining what a “disastrous” performance by government would be.

PROBLEM #1 FOR CAPLAN: TWO OF HIS “COUNTEREXAMPLES” AREN’T REALLY COUNTEREXAMPLES

On the first point: Rothbard is clearly talking about government enterprises that receive funding from taxpayers, who have no control over this revenue flowing to the enterprise in question. So this doesn’t describe the Post Office, and it doesn’t describe a standard water utility. You have the power to give $0 to the Post Office and your water company if you so choose. These operations (typically) enjoy government-granted privileges, and may receive low-cost loans and other subsidies, but strictly speaking the Post Office and the typical water company are selling a product voluntarily to their customers, who have the legal right to withhold payment if the service is too poor.

Furthermore, the government privileges granted to these institutions are not universal. The Post Office enjoys a monopoly on first-class letter delivery, but FedEx, UPS, and other companies compete for the rest of the traffic. Furthermore, the ease of electronic communications (sending email, setting up automatic “Bill Pay” through your bank’s website, etc.) has further eroded the Post Office’s “power” over the average person’s life. As first-class mail volume has collapsed, the Post Office has had to lay off 238,000 employees–a third of its total workforce–since 2003. So it’s not surprising that they actually deliver letters most of the time; they would go out of business altogether if they consistently screwed that up.

Of the examples Caplan lists, government-operated schools is really the only one satisfying Rothbard’s premises. That leads to my next main problem with Caplan’s post:

PROBLEM #2 FOR CAPLAN: HE’S WAY TOO STINGY WITH DEFINING A “DISASTER”

Caplan agrees that government enterprises produce shoddy results, but he thinks Rothbard was being too histrionic in his denunciations: Where are the outright disasters, huh? I mean, a lot of grade school teachers smile at little kids.

But why is smiling at little kids the criterion for a non-disaster when it comes to government schools? What about the fact that almost 80 percent of NYC high school graduates lacked basic reading, writing, and math skills? What about this report from 2004 (I’m just googling things quickly to give the idea) claiming that students are twice as likely to suffer from violence in government versus private schools? What about the fact that mass school shootings typically happen at government, not private, schools? (Fortunately the sample size is too small–and there are more government than private schoolchildren–to draw strong conclusions from that observation, but a mass school shooting is certainly “disastrous,” notwithstanding smiling teachers.)

Look, people have a natural degree of friendliness toward each other. If I walk by someone in the park, I might nod and say “hi” even though nobody is paying me to do that. Humans naturally like little kids. So it’s not a mystery why many schoolteachers–whether working in the private or government sector–smile at their students.

There’s a similar situation with utility water. For one thing, a growing number of Americans don’t trust the water coming out of their taps. Despite the inexpensive unit price of tap water, Americans spent some $12 billion on bottled water in 2012. That would be an odd thing to see, if people really trusted the water coming from the government-picked monopoly. Furthermore, there are water shortages all the time in regions suffering from very hot summers, with draconian government rules about when you can water your lawn, and special hotlines set up for neighbors to rat on each other if they hose down their cars on the wrong day of the week.

Finally, let’s consider a host of government enterprises where the citizens are forced to interact with government employees. (This is in contrast to government schools, where parents at least have fallback options, including homeschooling in many areas, if their local “public school” is truly horrible.) For example, consider the IRS, NSA, CIA, Department of Defense, and the EPA. At the local level, consider the police and the courts. Caplan wouldn’t even try to bring up any of these government “enterprises” and ask why they are so surprisingly efficient and courteous, despite their monopoly power and tax funding. If he had made that rhetorical move, his readers would have had Caplan involuntarily committed–oh that reminds me, let’s not forget state psychiatric hospitals and the horrors that occurred inside. Many would consider patients huddled naked and strapped to benches, as well as mass “ice pick” lobotomies in backlogged state mental facilities, to indeed qualify as “disastrous” provision of medical care.

CONCLUSION

We see that the spirit of Rothbard’s analysis stands up, after all. There is not a sharp divide between “purely private” and “totally government” enterprise, but instead there is a spectrum. Some enterprises, like your local grocery store, are purely private–they can’t hobble their competitors and they can’t force their customers to give them money. Others, such as the Post Office, still have to convince their customers to give them money voluntarily, but they enjoy legal monopoly privileges. Still others, like a government school, receive tax funding regardless of how satisfied their “customers” are, but they can’t force parents to send their kids to that particular school, because even attendance laws can be satisfied by private schools or homeschooling (depending on the state). Finally, some enterprises–such as the NSA–can take your money and force you to enjoy their “services” with no choice on your part whatsoever.

The Rothbardian analysis, adjusting for this more nuanced spectrum, would say the grocery store is great, the Post Office and government school are a lot worse but not monstrosities, while the worst people in society will end up messing with you in the NSA and related agencies. And yep, that sounds about right, looking out at the world with open eyes.

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