The Ever Expanding Backpack of State

It strikes me that government is something like a backpack.

If you're planning to take an all-day hike, you'll want to take some essentials: a Swiss army knife, some snacks, a compass, and a few other things, depending on where you are and how long you'll be out.

But if you're only going to be out for a day, there's no need to bring a tent, sleeping bag, cooking gear, and waders (unless you're going fishing). That stuff would just weigh you down.

There's a sweet spot between carrying too little and too much, depending the nature of the trip and what the hiker is willing to risk lacking versus unneccessarily lugging around. Too little can leave you in a bind, while too much slows the hiker down and makes the journey less pleasant.

So too with government and the productive sector. The core functions are right there in the Constitution: national security, courts for adjudicating disputes, regulating money, preventing restrictions on intrastate trade, and so forth. The benefits far outweigh the burdens for these.

Corporate welfare, earmarks, and the criminalization of just about everything represent the dead weight. The benefits for the few special interests are dwarfed by the burdens for the rest of us.

You can also get too much of a good thing--like a hiker with 50 pounds of food or a government that maintains armaments far greater than necessary to ensure self-government and the protection of vital interests. And there's the grey area.

But as the government burden increases, the private (productive) sector strains more and more under the weight, its (metaphorical) steps slowing. Hong Kong becomes the United States, which becomes Germany, which becomes India, which becomes Zimbabwe, Haiti, or North Korea, each of which is in almost utter collapse.

No wonder that the markets continue to tank: accumulating burdens with no prospects of relief in sight.

Fairfax Budget Blues & School Choice

The County of Fairfax in which I now live is facing large budget deficits. I've just started to go through the Proposed FY2010 Budget, but I was struck by this image of proposed expenditures.

Spending on schools is a huge portion of the budget: $1.79 billion, or 54% of 3.31 billion, and that figure may exclude some relevant costs.

The projected enrollment for the current 2008-2009 school year is 168,384. If enrollment doesn't change that much, that works out to almost $11,000 per student per year.

Some have touted vouchers and education tax credits as the silver bullet to education quality problems, but they seem to be overlooked in budget discussions. We usually assume that spending less gets you less--and shortchanging our children's futures is obviously unacceptable--but isn't it possible that at least some of the spending isn't adding much to their education?

Andrew Coulson over at Cato crunched the numbers to see what would happen if Illinois, Texas, Wisconsin, and New York adopted an education tax credit, and he finds massive cost savings.

If savings in Fairfax County are anything comparable, something like this could take care of the budget crunch, improve choice, and enhance educational quality all at once. At least it's worth a look.

More budget analysis to come...

Free Market Environmentalism

Utah Governor Huntsman has been calling for Republicans to be more moderate on environmental issues, apparently putting him at odds with the bulk of his party.

What is it about environmental issues that so turns off conservatives? After all, many of them are outdoor recreationists, and all of us value clean air and water.

Most likely, conservatives recoil from the redistributionist, anti-market, anti-corporate, and collectivist strains within the modern environmentalist movement that impose bureaucratic micromanagement on private decision making.

Current environmental statutes impose heavy burdens on the private sector, but some of them have significant public benefits as well--especially those that reduce air pollution.

Is it possible to have more effective protection of air, water, soil, biodiversity, and climate while reducing the costs of those efforts? Absolutely yes.

What to do:
- Transfer control over local problems to local authorities. It makes no sense to restore land to agriculture quality (as Superfund requires), when it's intended to be redeveloped into a factory, a shopping center, or a parking lot. When 'federal' money is at stake, no one cares about the cost, but more local decisions would better weigh costs and benefits.
- Replace current pollution control requirements with a pollution fees. This allows emitters to decide how best to reduce pollution and gives them a continuing incentive to reduce emissions. To maintain international competitiveness, the funds from these fees should be used to reduce taxes on investment.
- Address climate change first through 'no-regret' policies, then through emissions fees that pay for reduced taxation of savings and investment. No-regret policies are good economic policies that have the side benefit of reducing greenhouse gas emissions. These include ending all subsidies for agriculture (including fishing and forestry), energy (fossil AND alternatives), and rural and coastal development; removing all trade barriers; encouraging adoption of tradable water permits, especially in the West; and moving towards privatization of transportation infrastructure.

This list is hardly comprehensive, but it's a good starting point. Current laws to protect the environment are horribly inefficient and counterproductive, and many bear the stamp of political opportunism rather than sober policy analysis. Environmental protection can also be fiscally responsible and economically wise.

Governor Huntsman is quite correct if he means that Republicans would be wise to adopt a free market environmentalism.

Democrats could keep their political edge on those issues by beating Republicans to the punch on adopting incentive-based environmental policies. Of course, that would mean giving up micromanagement of the private sector.

Markets v. Government: What Works?

In the wake of the financial crisis, I keep hearing claims about the discrediting of free markets. To begin with, there's a compelling narrative that the financial crisis was caused by government intervention rather than free market excess.

As to whether government intervention can get us out of this mess, it may well be that individuals and businesses--especially in the financial sector--need to reduce the amount of debt they carry. This podcast argues that this process of deleveraging (reducing debt) is necessary and may take years, but that government policy is trying to prevent this. But delaying spring cleaning keeps the house dirty.

The turmoil in heavily regulated financial markets sheds light on some important questions: which parts of the economy are we happiest with and which make us miserable, and does any link exist between government involvement and our level of satisfaction?

As a middle-class consumer, what works well for me?
- The internet.
- Retailing.
- Reading material like books and magazines.
- Restaurants

What drives me crazy?
- The post office (a government monopoly on first class mail).
- Flying (government owns the airports and air traffic control system, runs the security).
- Health care (government uses tax dollars to pay for half, tilts playing field against individual coverage, regulates health provision and insurance, and on and on).
- Commuting to work (government ownership precludes road expansion or other ways to reduce congestion, such as variable rate tolls).

Now, is there a pattern, or am I just cherry picking?

Well, whenever I've come across something that doesn't work the way it should, I've almost always found that politicians have messed up the incentives for producers to respond appropriately to their customers.

Does greater intervention yield greater dissatisfaction? I have no doubt.