Thursday, March 1, 2012

Yes, Starve DC!

I am writing this from Alaska! I am glad to be here in this extremely warm weather :)

Frank refers to Ketchikan and the "Bridge to Nowhere" as an example of government waste (agreed). Basic public choice economics teaches us about concentrated benefits, diffused costs; rational ignornance; and rent-seeking. Moreover, just as we assume individuals maximize utility and firms maximize profit, public choice analysis assumes politicians are rational as well and want to maximize votes. All of this comes to play when people ask, "Why is there so much wasteful government spending?" Of course, if I am a House member representing a district in Napa County, I will be in favor of tariffs on foreign wine in order to "save American jobs." Now, most of you I bet do not know wine tariff policy because you are rationally ignorant. But even if you did find out that because of government intervention you are paying an additional $5 dollars for that bottle of wine, you are not going to take the next flight to DC and talk to that representative. But, of course, it is in the self-interest of special interest groups to "wine and dine" politicians and politicians in turn will respond because they know they can get campaign contributions and they know that most voters are ignorant.

 Frank is correct in pointing out that information is much more available today at a low cost so many government actions are brought to light; however, because there is so much information to digest, people will still be rationally ignorant of many policies. And, to be blunt, many voters have no clue about basic economics. This is an empirical fact (see GMU professor Bryan Caplan's work).

As for Keynesian prescriptions for the economy, I will say study some Austrian perspectives of what really caused the Depression and what really causes the boom and bust cycle (business cycle). I will also say please remember the broken window fallacy when people argue that government spending "stimulates" the economy. If you have not read Henry Hazlitt's Economics in One Lesson, do so immediately!

My main complaint in this chapter is his comparison between government waste and private waste. Government gets money by taking it from me (some would argue when government takes money it's called taxation; when a person takes money from another person, it's called theft). In the private sector, I get money by earning it doing something of value for someone else. While I might think it ridiculous to spend thousands of dollars for a birthday party, that spending isn't taking money from other people! And if I want to build a larger mansion, I am not hurting anyone else! Finally, Frank seems to be implying that he knows or can measure the utility people get when adding on to their mansions. I am not sure how he does this.

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