We’ve talked about the proper role of government regulation as a means of preserving the free market, as opposed to its current agenda of attempting to control it. In the process, it has also been slowly, inexorably supplanting it. As the federal and state governments grow, they take more taxes and put more workers on the public payroll, shifting ever greater segments of the economy from the private to the public sector. For those of you that believe the private sector is nothing but a collection of greedy, corrupt corporations, this is viewed as a good thing. But let’s examine this more closely.

The so-called private sector, when it runs properly (hence the need for appropriate oversight) is governed by the principles of supply and demand. A business’s success is determined by its ability to provide a product or service that someone wants for a price they are willing to pay. The government, on the other hand, decides what we and it needs and what it thinks it should pay those to provide it. Is it any surprise that government has grown like a Goliath and compensation in the public sector has outstripped the private sector dramatically in the past decade? Unworkable, unsustainable salary levels and extravagant defined retirement benefit plans, usually union-mandated, are more rampant in the public sector (~30% of government workers are union labor versus ~7% in the private sector. When this unwise practice overtakes a private sector economy business, such as General Motors, and it fails, predictably, the government steps in to the rescue. In the process the “saviors” decided they had to boost the new car market with a “cash for clunkers” program. It effectively robbed purchases from the future and caused serviceable used cars to be destroyed, setting the stage for the current shortage and attendant rise in prices in the used car market we’re now seeing. Another, worse example of federal ineptitude is their contribution to the housing market crisis. The government decided that people with fewer financial resources shouldn’t be denied the American dream of being a homeowner. So, through quasi-government entities such as Fannie Mae and Freddie Mac they allowed people to circumvent market forces and get mortgages they couldn’t afford. We’ve seen how well that has worked out. As the sector of the economy that uses unsuccessful business practices and shields itself legislatively from market forces (i.e., the public sector) grows, our dependence on a failing system grows with it.

What to do? We need to begin to shrink the size of governments on multiple levels and start returning the workforce to the private sector. Obviously, this will have to be a gradual process to avoid exacerbating the current fiscal crisis. So far, the will to do this appears to be lacking. A clamor for holding tax increases at bay has not been accompanied in Washington by a concerted effort to reduce spending, and haggling over who should take the “hit” could tie this process up for years, years we don’t have. So I propose everyone tighten their belts and we reduce spending across the board to 2008, or better, 2005 levels. Painful? Yes. Necessary? Absolutely.

Or … we can print and borrow more money. Yeah … that’s the ticket.


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