Private spending not always more productive

info@islandpacket.comJanuary 7, 2013 

On Dec. 28, state Sen. Tom Davis wrote, "Private individuals, guided by the free market to produce what consumers need, always spend money more productively than politicians and bureaucrats."

This assertion is not true. Private spending on gambling, tobacco, assault rifles and pornography are not more productive than public spending on roads, libraries, etc.

Private spending guided by free markets only produces optimal results in theoretical economics, using a set of assumptions that do not apply in today's economy.

In addition, externalities, costs or benefits that are not transmitted through prices, cause market failure. Consider electricity that is produced by coal-fired power plants that pollute. Because the cost of pollution is not fully reflected in the price, electricity is overproduced and this imposes costs on society, such as damages to crops, buildings and public health. Artificially low electricity prices also inhibit development of higher-cost substitutes, such as renewable energy. Because markets are imperfect, government can intervene in the economy to improve productivity and social welfare.

Too much government -- a bloated public sector -- is a danger. Likewise, government that runs on a shoestring poses dangers, as evidenced by the deteriorating condition of the state's highways and the recent failure to prevent hacking into the tax database. Politicians should be looking to strike a balance.

Michael Bunamo


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