By: Joe Messerli
“Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.” — Ronald Reagan
It’s no secret the U.S. government is an insanely chronic overspender. The U.S. national debt is already over $20 trillion as of 2018, with a projected growth of over $12 trillion in the next decade alone. What makes those numbers so depressing is just how little return we get from all that spending. Government consistently underperforms the private sector when it comes to results. Federal Express and UPS have exploding profits while the U.S. Postal Service experiences regular losses and may need a bailout. Health insurance companies like United Health, Aetna, and Cigna are thriving while Medicare and Medicaid are dominated by waste and fraud. The examples are endless. Most people know government is less efficient but can’t explain why. Let’s examine the reasons.
- Government workers aren’t provided with the same salary, bonus, promotion, and stock option incentives. The pay for most government jobs is controlled by statutory, union, and budgetary rules. Thus, managers have limited, if any, ability to raise salaries for the best employees. And unlike private corporations, there’s no ability to award stock options or bonuses to bring out the best effort. Promotions are usually based on seniority. Add it all up and there’s almost no incentive for workers to go above a mediocre level of work effort in government. If the smartest and best employees can make several times more money in the private sector, why would they take a government job?
- Poorly performing employees have far more job security. In the private sector, poorly performing employees lose their jobs quickly. In government, union and employee protection rules make it very difficult to get rid of a bad worker. So with no incentive for great work and limited ability to fire, government workers often settle into a minimum level of effort needed to maintain their jobs.
- Government jobs are normally boring and don’t provide the self-actualizing careers available in the private sector. Government work is usually mundane, repetitive work on a 9 to 5 schedule. Think of the DMV, Medicare/Medicaid claim processing, permits & licensing processing, and so on. Boredom leads to a certain level of lethargy. Compare that to the private sector companies like Google and Apple where employees can change the world, have fun, and strive to reach their potential. It is far more likely to bring out the best in employees.
- Government agencies max out their budgets whether they need to or not so future budgets aren’t cut. Since budget deficits are exploding out of control, politicians look for anything possible they can cut. If a department managed to perform all their duties one year on 25 percent less budget, they may decide to make the budget permanently 25 percent lower. Thus, departments raise their spending to max out their budgets to avoid any permanent cuts. The last month of each fiscal year is almost always the most costly as departments rush in last minute orders to use up the unallocated budgets whether they need to or not.
- Government contracts are often rewarded as political payoffs to campaign supporters. Prices of contracts are often jacked up to reward campaign supporters. Or even worse, they’re rewarded for completely unnecessary projects.
- Contractors raise their prices on essential services because they know the government has the money to spend. Economics are governed by the laws of supply and demand. For example, government will always allocate money for education, defense, health care, and utilities regardless of how much they cost. The providers of these services know it and hike their prices accordingly. It’s part of the reason we have the highest spending of any country in the world in health care and education despite low performance rankings in both. Why do you think school textbooks cost several times as much as entire courses in the private sector?
- Inefficient programs often have their budgets increased to “fix” the problem. Only in government can you be rewarded with more money for poor performance. A perfect example is education. American students poorly perform in standardized tests compared to other countries. To “fix” the problem, politicians push for greater spending. Scores drop farther. Even more money needs to be spent to fix the problem, right?
- Money is often spent for political reasons rather than any justifiable business expense. Regardless of how much spending is needed or the cost/benefit ratios, it’s political suicide to make budget cuts in certain areas (e.g. defense, medicare, education, etc.). Also, particulars of various programs are made for political reasons. For example, most people would agree that members of the military deserve pay/benefit increases. But should the same increases go to lifetime desk workers in the Pentagon as soldiers serving on the front lines in Afghanistan?
- Politicians can pass laws requiring citizens to pay for certain items (e.g. health & car insurance) which disrupts supply and demand economics. It’s no surprise health insurance premiums soared when Obamacare passed, forcing Americans to own health insurance. Previously, if insurance rates got too high, Americans had the option to pay out of pocket or self-insure. No longer is that an option. Why do you think most health insurance companies actually came out in favor of the legislation?
- The culture of government offices isn’t geared towards high-efficiency or excellence. Try visiting almost any government office and then immediately go to a private sector office. Observe the pace and efficiency of work. Observe how often in comparison employees stand around talking. Private companies cannot get away with consistently poor work habits since competitors would eventually run them out of business. The culture is very different in government with the guarantee of continued operation.
- Politicians often micromanage and make decisions that should be left to experts and those more knowledgeable of the area. There are endless examples where politicians stuck their nose in areas they know little about. For example, allocating budgets for specific weapons programs in the defense department rather than letting generals choose how best it’s spent. Another example is choosing where road/bridge construction takes place rather than letting transportation efficiency experts decide. Politicians can also go into cover-your-ass mode when an expense gets out of hand. An example is the Bradley fighting vehicle that cost so many billions it was made into a movie called The Pentagon Wars.
Simply put, to get the most out of limited national resources, government should only be in charge of services that can’t or won’t be provided in the private sector (e.g. national defense, police & court system, etc.). Throughout history, you can almost plot a perfectly inverse relationship between level of central government control and national prosperity. It’s why socialist and communist nations inevitably struggle economically while free market ones thrive.
“The best minds are not in government. If any were, business would hire them away.” — Ronald Reagan
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Written by: Joe Messerli
Last Modified: 12/14/2018