The Fallacy of the Public Sector

Murray Rothbard

Below is a link to a great article published from the Mises Institute entitled The Fallacy of the “Public Sector” from Murray Rothbard first published in 1961.  (http://www.mises.org/daily/5601/The-Fallacy-of-the-Public-Sector)

The article addresses: 

  1. Debunks the progressives and statists fallacy that the “Public” and Private sectors are equally productive in our economy – they are not, not by a long shot, or any shot
  2. The “Public” sector only exists at the expense of the Private sector (consumers/citizens and investors).  – a truism, no matter the civilization
  3. Government bureaucracies and lawyers do not produce any wealth for our nation – our country is awash with government oversight and litigation   
  4. “Any reduction of the public sector, any shift of activities from the public to the private sphere, is a net moral and economic gain”  said Ludwig Von Mises – true today as in 1961
  5. When our government is challenged to do better, say balance the budget, they tell citizens to stop complaining …  trust them.  – yes comrade
  6. Direct Democracy and a coercive government is mob rule – yes, two wolves and a sheep deciding on dinner is not the government our Founders bequeathed

My observations of a few key economic principles and truths addressed by the article:

  1. Debunks the progressives and statists fallacy that the “Public” and Private sectors are equally productive in our economy.  They are not, for many and multiple reasons besides logic and common sense.  The Private sector is measured in terms of productivity, the sum of products that satisfy the needs and desires of consumer and investors balanced with risk through voluntary transactions.  Through decades of government propaganda, “productivity” for the so called “Public” or government sector is measured — miraculously— “by how much it spendsand with no risk (the government equates spending with productivity, and with no risk, yikes, no wonder we’re screwed); and it “lives and acquires its revenue by coercion and not by voluntary payment.”  Think about that.  Our government’s primary motivation for success is spending as much as possible of other people’s money, our money, with no risk or generally accepted accountability, and they bankroll their no risk spending through propaganda and coercion of citizens.  No wonder, unionized government employees love, and fight so hard for these jobs and our two progressive political parties offer feckless solutions to our problems.  Who wouldn’t love such a job, and the power?  Did I mention the power?
  2. The “Public” sector only exists at the expense of the Private sector (consumers/citizens and investors).  It is an indisputable fact that every dollar the government spends is taken from the Private sector or borrowed for payment by future generations (currently, 40¢ of every dollar spent by the Feds/This Generation is borrowed).  The “Public” sector, Mises points out “necessarily lives parasitically upon the private economy”.  Common sense tells us government administrative costs to accept and sped $1 is at least 50-70¢.  Progressive central planners (Progressive Democrat and Republican Party apparatchiks) tell you they can spend money smarter and better than we the people they take it from (now called an investment by politicians to further fool the people).  In fact, they tell us they are so smart, they can take a dollar from a citizen, and after expenses, turn it into $1.50 or more of GDP consumption (the Keynesian multiplier effect).  Does anyone really believe our government can take a dollar from anyone, spend 50¢ or more for administration, and then turn the 50¢ balance into $1.50 of productive consumption/investment, a 300% return?  This math comes from legislators who believe Food Stamps and paying people not to work is the best way to stimulate the economy and to create jobs.  This type of math defies physics, logic and economic sense no matter what Keynesian’s and Mr. Krugman may say to the contrary.   To me, Paul Krugman having a a Nobel prize for Economics is as silly as President Obama and Yassir Arafat having Nobel Peace prizes.  Factually,   GDP growth for this post recession is 9% below the average post WWII recovery as presented in a just released CBO report (What Accounts for the Slow Growth of the Economy).  Historically significant Mr. President.  See below for the chart the President did not want released before the 6 November election. (http://www.cbo.gov/publication/43707)
  3. Government bureaucracies and lawyers do not produce any wealth for our nation.  None, zero, Zip, Nada.  Their motivation is to produce rules, regulations, and process for which we, as a country pay dearly.  A little/non value add cost, that drags down our economy through malinvestment and the standard of living for all.  Progress for Progressive statists is more and more and more government control, less and less individual liberty, more and more litigation, and less and less prosperity.  Think about it, nothing is produced, no wealth created by this alliance.  Much energy is expended, pieces of paper are passed, money is exchanged, yet nothing is created.  Lawyers are paid by the hour and have no incentive to solve a problem.  Government employees measure success by how many more rules and regulations they write, not the efficacy of their actions.  To be Above Average or Excellent on your personnel review, you must spend more, or regulate more than the guy before you.  It shows you care and are a team player.  It’s how the system measures success, and you get ahead.  No matter common sense, logic or what is best for we the citizens. 
  4. When our government is challenged to do better, say balance the budget, they tell citizens to stop complaining about tax increases, just accept them; we must have them, trust them.  We cannot reduce spending, the universe would stop and unicorns would rule the earth, and that wouldn’t be good for minorities, the poor, our children or even white people for that matter.  When questioned, they become smug and “annoyed” with we the people for wasting resources.   For example, the central planner’s solution for traffic jams is to tell/coerce people to not use cars; a free market solution would be to build a better, more productive highway.  It costs government run Amtrak $16 to make a hamburg they sell for $9, they will lose $4B this year.  The postal service is going to lose about $16 billion this year.  The Government takes over our healthcare, 1/6th of our economy in a significant manner starting in 2013. According to new CBO estimates Obamacare will cost taxpayers $1.3 trillion over the next 10 years and significantly negatively impact our deficit/debt, and these are just the first estimates which are always wrong and low.  We get the government we deserve said someone smart once. 
  5. “Any reduction of the public sector, any shift of activities from the public to the private sphere, is a net moral and economic gain.”  This was as true in 1961 as it is today.  In my opinion, it’s unfortunate the GOP is seemingly inept at making this case. 
  6. Direct Democracy and a coercive government is mob rule, with no protection for minority ideas, views, speech, behaviors or distinctions.   Our Founder’s were quite clear and instructive on this matter.  Our Constitution was designed to respect and protect minority and individual rights (the smallest minority).  It is why our Founder’s created a constitutional republic with enumeration of powers, equal justice, checks and balances, and a Bill of Rights. The Middle East is enjoying a dose of direct democracy right now.  How’s that working out for them and us?  You get the government you deserve is the saying. 

Just a few thoughts from

one ctserf.

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