Right-sizing government

Can the assertion “Government is too big [or too small]” ever mean enough to support a serious conversation, much less a policy decision?  How about “California [or the US; plug in your own jurisdiction larger than a small town] can’t afford [plug in a program]”? What could such  statements mean, or be shorthand for?

To begin to talk about pseudo-ideas like these, I think we have to take two or three steps back and disentangle some language. California, for example: the word slides around, sometimes in the same sentence, from meaning all the people and enterprises in the state to meaning the state government to meaning the state government as currently funded. Pronouns are especially weaselly here: yesterday, John Boehner justified the job loss from the public sector decimation his party proposes with a casual “we’re broke!”  But who is the we in that utterance?  Let’s, then, immediately distinguish a society as a whole, and especially its economy, from the special agency – government – it might decide to task with a larger or smaller set of its productive activities.  There’s often lots of flexibility in choices like this: in Europe, the fine arts are usually presented by government agencies, while in the US our museums and symphonies are typically private non-profits; European child-care and pre-school is mostly municipal, while ours is mostly private enterprise. The society isn’t broke, whether or not the government has spent all we gave it last year; we (the whole society) could easily “afford” to shift a lot of activities into the small government part of it if we find it wise.

If you have loosened the stone libertarian mind-vise enough to admit that there is such a thing as a market failure, and enough intelligence or education to understand that market failure is a technical property of a good or service and implies no rap on markets, you will be OK with the idea that government is exactly the right agency with which to get stuff we want that the market won’t supply (enough of) by itself, and to avoid stuff we don’t want, like pollution, that the market will overproduce. If you have a heart, you will also be OK with ideas like “death by starvation is cruel and excessive punishment for ‘not having been able to save enough to retire on’, even for ‘having been too careless to save enough’, certainly for ‘having been unlucky enough to be smitten by illness or accident'” and you will find government is also well suited to correct some important unfairness and injustice, even when the best it can do along these lines entails some moral hazard and bad incentives. It’s worth noting that absent slavery, every productive activity, whether managed (or obligated) by government or by private enterprise, is in the end carried out in the private sector: public schools are built by private contractors, and government workers are economically just small private businesses with no employees.

As is true at every moment of every year, we have governments doing the tasks they have been given so far, and consuming economic resources to do so. Among those are some tasks a reasonable person might ask not be done at all, like making a second, redundant engine for the joint strike fighter, and tasks others might think better done entirely in the private sector, like building and operating a bridge or a piece of highway.  We also see tasks not being done at all that some claim should be, and would if government were assigned the work, like stabilizing the climate, and tasks (some claim) would be better done by government than however they are being accomplished in the market. We could ask similar questions about everything in and out of the public sector, but for some of them, like whether the army should be shut down and left to the market, it’s hard to get grownups to waste time on the conversation, so the political debate tends to focus on programs at the deliberative margin of the public-private boundary.

The only way a sane person can want to move tasks like these in or out of the government part of society’s productive ensemble is to ask whether doing so will give us more of the stuff we want(physical and other)  than we would have to give up to get it. The fancy name for this test is cost-benefit analysis, and of course it’s as much art as science because the accounting requires that we judge the value of things that don’t have market prices, like a fair trial and a polar bear and health and whether our kids learn music in school.  The size of government and tax rates are completely irrelevant to choices like this; they are  incidental consequences of making good decisions on proper grounds.

Here’s an example from NPR this morning: all across the northern US, diesel school buses owned by, or contracted for, by government school districts uncontroversially carry kids back and forth to school.  The school district could tell parents to get their kids to school themselves, and give out the phone number of a private bus company; government would be smaller, but except for a lot of wasted time on the parents’ part arranging bus transport in phone trees, nothing important would change. About the same amount of fuel, buses, tires, and driver labor would be used up, and about the same value created.  If arranging this service privately were so complicated and daunting that people started driving their kids to school, of course, the costs of the private system might be much higher, wasting parents’ labor as private chauffeurs, using much more fossil fuel, and congesting the roads.

Among the costs of school busing, whether private or public,  is asthma and respiratory disease caused by the diesels idling for hours to keep the buses warm, polluting the pickup areas with toxic chemicals and soot. It turns out that a propane heater in the bus would allow us to get the same transportation service and save a lot of illness and medical care. How much? According to the EPA, twelve times as much as the heater costs. As the heater isn’t free and the bus company doesn’t pay for the asthma, these heaters are a market failure and undersupplied unless the government does something.  What can it do?  There are several ways to skin this cat.  We could have government issue a job-killing oppressive regulation administered by jack-booted thugs to require that every school bus not only have headlights and good brakes but also a propane heater if operated north of some latitude.  We could raise economy-crippling taxes and pay school districts all or part of the cost to install these heaters.  We could gin up a nanny-state intrusive public relations campaign to motivate parents to demand that their kids’ buses have and use heaters.  The differences among these are interesting and getting it right can save some resources, but at the level of this discussion, if they get the heaters installed and operating, they all cost about the same and provide the same benefits.

Amazingly, EPA has zeroed out the clean diesel program that gets this 12:1 bonanza in the president’s budget. How could this be a good idea? Well, it will make government smaller. A bad idea? Pollution from vehicles is a classic market failure; the market won’t abate it and in this case, it hasn’t, even though ending this particular pollution creates twelve dollars’ worth of health for every dollar’s worth of propane and metal it uses up. Not putting heaters in the buses will also make taxes lower, but the locals will pay at the doctors’ office and the drugstore, twelve times as much. Deciding this question on a “less government” or “lower taxes!” criterion simply destroys net value, in this case in the form of children’s health, impoverishing the citizenry in the name of a vacuous slogan.

What can it mean that we “can’t afford” heaters in school buses? One could better ask, can a society afford to sicken its children this way -  when this incredible bargain, where a dollar gets you twelve, is offered for sale, can we afford not to buy all we can get? We are spending the tax dollar it costs privately for things that aren’t even close to being worth what we could get for that dollar in this deal, so we can obviously afford the trade.

Neither of the two decisions, public vs. private provision of school bus transport, and public provision vs. non-provision of bus heaters, is illuminated in the slightest degree by their effect on tax rates or on the size of government, and “can’t afford” in a context like this is simply a lie. Taxes are too high when there are programs in government that create less value than they use up, and too low when there are programs that would create net value if we assigned them to government.  Government is too big or too small by precisely the same rules.  Trying to make the conversation simple enough for Fox News analysts to rant about by reversing these rules of inference (which actually seem pretty simple to me) is monomaniac lunacy, or cynical mendacity in the service of selling advertising time or getting votes, or both; it’s not politics and certainly not governance.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

15 thoughts on “Right-sizing government”

  1. The sad thing actually is that we have to go through lengthy arguments like this.

    Consider the following proposition: “There are some things the public sector does well, and some things the private sector does well. The basic task of legislative processes at all levels of government is to decide how to allocate these jobs, and how to pay for the public sector’s share. Sometimes it makes sense to take a fresh look at the allocation and see if it needs to change”.

    My guess is, once you peel off layers of ideology, most Americans would agree with this statement. But unfortunately only one political party agrees with it. And the other one has abundant monetary, media and intellectual resources at its disposal, enough to drown out civilized debate and to convince a sizeable chunk of the electorate that a reasoned proposal for reallocating some public and private sector roles is in fact an assault on liberty. As a result, every time there’s some new challenge facing society – every time! – we have to go through the rigamorole of arguing first principles. It’s a very wearing, toxic process, and as often as not the wrong choice gets made.

  2. I agree with Basilisc and note this quote too:

    “…(T)he most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.”

    Who said it and when? James Madison in Federalist Paper no. 10.

    To listen to Tea Party people, FoxNews, most modern Republican leaders and business libertarians, James Madison must be worse than Ralph Nader and Michael Moore combined.

    Of course, the aforementioned folks like to quote the later Madison from time to time, the one who was strolling deeper and deeper into the States Rights realm whenever anything directly related to slavery came up…:-)

  3. I like the idea that you think persuasion and ideas matter here and not propaganda. I think it’s not unreasonable to conclude that policy is not being made at all by rational examination of effective approaches to problems.

  4. Note, btw, that in significant ways it’s previous attempts to hand government functions over to well-connected private businesses that have led to the market failure and inability to capture savings that we’re talking about. If the buses weren’t being operated by private contractors of (at least around here) doubtful probity, and if previous generations of cuts hadn’t already gotten rid of most school nurses and free public clinics, the profit numbers would be obvious to a municipality.

    (Living as I do in a small state capital, I’m in one of the few places where “we can’t afford it” makes local sense — rather more than half of what would be the downtown business district is occupied by state and federal office buildings and their parking lots, leading to a demand for city infrastructure that the town itself arguably does not have the tax base to supply. Market failure of a different kind.)

  5. I agree that the big and relevant questions aren’t being asked. I wish they were.

    Then again, Franks already detailed this ad nasueum in his book The Wrecking Crew. Viewed through that lens, what Boehner and Paul are saying makes perfect sense. They are trying to destroy the current system.

  6. Wouldn’t propane give off fumes, or be liable to explode? In a better world, someone would make electric or hybrid buses with double-paned windows, and school districts would use their bargaining power to buy them – maybe with bond money if necessary — and they’d last 20 years (okay, maybe not that long). I say, we *can* afford it. We all breathe.

    In LA the Metro did one thing right and bought compressed natural gas buses. Makes a *huge* difference if you’re behind one. They’ve gotten rid of pretty much all the old ones I think. Our problem here is too much heat, not cold. But I think most of them have AC. Don’t know how much they cost.

  7. So, Professor, I seem to recall a work by some of your colleagues (not sure which, have to go dig it up) called Twelve Questions, that was sort of relevant. I wonder what others would think of it. I found it very depressing at the time, but worth reading.

  8. Count me as one of the heartless.

    Mitchel, I think the recognition of class divisions by Madison and his peers is one of the reasons they were frightened of democracy!

    “government is exactly the right agency with which to get stuff we want that the market won’t supply (enough of) by itself”
    To be nitpicky, we’d have to first establish that government actually will supply us with that stuff without similar failures. I could have said “God is exactly the right entity to supply us”, except he either doesn’t exist or isn’t very responsive. Since the distinguishing feature of government is its Weberian monopoly on force, your latter statement about policing public bads is on firmer ground (though if the government is dysfunctional enough we might decide to just put up with the bads).

    Regarding these northern busses, why is that a responsibility of the federal rather than state & local governments? Much of the country is not in the north. A national carbon tax might be levied for revenue generating purposes, but the revenue would presumably be spent for national (rather than sectional) purposes.

  9. Excellent illustration of an important concept that too many people don’t seem to understand!

    NCG, there are hybrid buses. I live in Champaign, Illinois where the old buses are rapidly being replaced by hybrids.

  10. The arguments you make are sound and perfectly reasonable as long it is the people with children who are paying the cost. To someone with out kids, one cent spent on the transportation of kids is a cent too much. It is clear to me that we need new people to replace the ones who are dying and that those new people need to be educated. To this end I see the subsidization of a child’s education by myself. However, just because kids should be educated does not mean everything in their life should be subsidized. Transportation solutions makes the lives of the parents easier, they knew said children needed to be educated when they decided to have kids, let them deal with how they get to and from the centers for education.

  11. Thanks, commenter No Kids for making a truly depressing point. This is a pluralistic society, and a badly malfunctioning one at that. Somehow we have discovered that the other fellow, the other group, the other race, the other wealth category is getting something they don’t deserve. Even though we are Americans.

    Of course he must be right, that any generally beneficial policy must be abandoned if even one freedom-loving American might not personally benefit.

  12. Mere Mortal,

    I support paying for a child’s education, that is a generally beneficial policy which does not benefit this freedom-loving American. So clearly whatever garbage you made up about my point wasn’t actually my point.

    When someone tries to argue a cost-benefit analysis, which is no doubt correct in conclusion of cleaner buses, the question remains as to whether or not an individual (or voter in this case) feels it necessary to even pay for the program in the first place. Yes if we are going to do something, it might as well be done correctly. When someone says “Government is too big” what they are really saying is “I’m am subsidizing the choices of others.” If paying for buses out of the communal fund because is done because it is “good for the children” where does it end? Should we pay for their clothes so they aren’t teased? Their lunches so they don’t get fat or starve? As per Mark’s previous Reductio ad Absurdum point, when does it end?

    I suspect this post doesn’t apply so much to people who in generally do not wish to subsidize the choices of others but to people who agree that something like school buses are necessary but then do not wish to pay to have it done correctly, or take advantage of future savings for investment now.

  13. I think mere mortal has it. Even before you consider the CO2, congestion and safety issues associated with non-bus arrivals at school.

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