Misconstruing the Cause of Waste
Bloated governments at all levels have a new mantra: they’re going to “cut waste.”
Governor Schwarzenegger recently launched a media campaign focused on balancing the budget by “cutting wasteful spending.” President Obama goes much further and argues that he must socialize whole swaths of industry, from autos to health care, because government can best “cut waste.” As he explains it:
The more we can reduce those unnecessary costs in health care, the more money we have to provide people with the necessary care.
Once again, the president has it backwards. But in flouting economics, he reveals his stance on a much deeper issue, one which is determining the fate of the country: individualism vs. collectivism.
Individualism — the country’s founding idea — holds that each man is a moral end in himself. As such he possesses inalienable rights. Foremost, the right to think and act freely; derivatively, the absolute right to his own money and property. On this view, everyone is free to choose and evaluate their own goals and values, and then act to achieve them, including trading their money or goods for those of others.
So how does this apply to waste? Waste, by definition, means “spending to no avail or profit.” But observe that when men are free to pursue their own values, they’re incentivized to act carefully. Notably, they evaluate their purchases to ensure that what they receive is worth more to them than what they give up — they profit from their exchanges. Moreover, because everyone is free, competition arises naturally, pressuring suppliers to succeed by offering the best prices.
Accordingly, under individualism, waste is minimized by each person, one transaction at a time. Indeed, the “cost discipline” which free markets are so famous for emerges from this very fact.
Contrast this to the collectivist approach favored by our current politicians. Under their view, the individual isn’t an end in himself, but merely a cog in the machine, a means to the group’s “good.” His rights are subordinate or non-existent, and the government decides what he can and can’t do based on some indefinable “public interest.” This idea — that government should forcibly override the thoughts, judgments, and property of the individual — is largely responsible for our welfare state and its ever-increasing government controls, taxes, and deficits.
Milton Friedman’s famous thought experiment: When do you spend more carefully, when you’re buying something for yourself or when you’re picking a gift for someone else? Government spending is like selecting a gift for someone else with other people’s money. This is not how waste is eliminated.
Without government intervention in the health care market, most Americans would see no benefit from the advances in medical technology over the past fifty years. There is plenty of waste in a private market, but not all of this waste is in the form of money. Human potential is also wasted in the private system, that does not value human beings, but instead protects merely their money.
I want an option for medical coverage that doesn’t line the pockets of these folks, thanks.
Peace.
DS
When the goal is equality of results government control is the way to go. And that is what Obama seeks. The more efficiency mantra is just tossed out as a sot to those who question the huge costs of the undertaking.
Obama’s blunder about comparing the post office to FEDEX or UPS proves he knows which system engenders efficiency. He doesn’t care, its not his goal. Universal health care is.
This brings to mind, for me, the add-ons on TV offers: buy this product for $X and we’ll throw in this injection molded plastic widget with a $20 “value” for free! There’s a huge disconnect going on in these cases. The widget that the marketers is disingenuously claim a “value” of $20 is in fact a “price” they’d like to charge for the widget that they must give away as a pot sweetener. Price is what someone charges; value is what someone will pay.
Government isn’t wasteful or corrupt.
Government IS waste and corruption.
Our Founding Fathers knew it and created a structure to minimize government. Our current leaders think they are smarter – they aren’t.
AMIT GHATE
this current adminisration doesn’t care about those things.
they are marxists (sorry if that term isn’t pleasant for you) and their agenda is nicely outlined in their books on how to achieve “utopia”
they don’t care about the economy any more the Robert Mugabe does.
WAKE UP …Obama said he would do what he is doing and there are enough people who think they will get more free stuff at the expense of the “rich” and they gleefully look forward to this happening. ….there is a blood lust in this group waiting to get out.
STOP thinking obama will see the light ..he is an ideolog and will push toward his goal no matter what.
Anthropologically, to paraphrase The Bible, “In the beginning, there was government”. Small groups of hunter-gatherers had no concept of individualism, they were completely collectivised and government, in the form of a council of elders, ruled over day-to-day life. The fact that this arrangement sucked was precisely why the human species moved away from it. We see the beginnings of this movement in Homer’s Iliad, where Achilles tells Agammemnon that even though he is the king, Achilles is the better man. The beginnings of meritocracy and individualism. That these “progressives” now want to return to collectivism shows that they’ve learned nothing from history and are not progressive at all, but regressive. I side with Achilles over Agammemnon any day.
They say inflation is caused by too much money chasing too few goods. I believe this is partially incorrect. Inflation can also be caused by too much money being spent on nothing. The government is a perfect example of this. Rules, Regulations, executive directives all add to a montrous pile of paperwork that needs to be completed in order to comply or face heavy fines. And what do we get? nothing. The government is like a terrible parasite, it needs a constant stream of money and regulations to expand the government workforce to make sure we are doing things their way. If the government was a private business, they would have gone out of business long ago.
Thank you for a succinct and concise Randian Libertarian view — finally!
But it’s really too late. Going Galt is all that’s left for a couple of generations to come.
TROLLS: To understand it, look up ROAD TO SURFDOM (Hayek), HUMAN ACTION and BUREAUCRACY (von Mises), FEDERALIST PAPERS and the LETTERS OF JEFFERON (Mapp).
Big government is like a toilet that will not flush, yet its content remains full of waste while the government tries to flush the toilet & flood the floors with water & waste.
“Without government intervention in the health care market, most Americans would see no benefit from the advances in medical technology over the past fifty years.”
Could you please point to the government mandate that forced the invention of the MRI? The CAT and PET scanners? Robotic surgery machines? The heart-lung machine?
Thank you for this excellent, concise explanation of the principle of individualism vs. collectivism and how it manifests on an economic level.
“Waste” is exactly the purpose of so-called “stimulus” spending. What else explains the desire to rob the income of some in order to purchase literal junk as is the case with “cash for clunkers”? The idea that these policies reduce “waste” serves as a smokescreen to give them pseudo-credibility. Thanks for exposing this for what it is: a statist welfare scheme to redistribute the wealth of those who earned it to those who have not.
Recall, if you can, the Grace Commission in the early 1980′s that determined 40% of all government spending was wasted.
And that was before the spending explosion of recent years.
11. BackwardsBoy
right on …the government has only hindered invention and inovation. it is very much against their interests to advance anything (their goal always has and always will be preservation and growth of their ranks …read union jobs).
this health bill will stop most advances in inovation and may even retard it. YES I MEAN GO BACKWARDS.
there really aren’t enough caves for everyone to live in.
The Grace Commission in 1982 determined that 40% of government spending was wasted, and that didn’t account for the amount not Constitutionally authorized.
A favorite claim of the Marxists before the 1990′s was that Capitalism was wasteful, not realizing (conveniently) that spending ones own capital was the best protection AGAINST waste.
Fantastic article! And right on point.
15
I can’t find an exact reference online, but I remember someone saying that the evolution of Communist dogma on waste and efficiency went something like this (using shoes as an example):
Stage 1: Capitalism is wasteful and a rational system like Communism could produce the same amount of shoes with fewer resources
Stage 2: Communism’s internal enemies are undermining our systems of production, hence we cannot produce as many shoes as necessary. If we eliminate the internal enemies, we will have enough shoes
Stage 3: Shoes are overrated
Good work Amit!
It is time that people realize that the health care system is not going to get fixed with some politician’s new magic formula that just takes the same ideas but puts different numbers on them. The corrections will come from exactly what you wrote about. Dissolve Medicare and Medicaid, lift restrictions, free the market. Competition will rise and prices will fall.
If the government wants competition the way to create it isn’t to allow a competitor that is free from all economic rules.
–TK
Amit is completely on target. I especially liked the fact that he identified the fundamental source of the problem. Waste is not merely one or two bad bureaucrats spending money wildly. It’s caused by government overstepping its proper bounds. The proper function of government is to protect individual rights, but otherwise leave people free to live their own lives, spend their own money, and seek their own happiness.
When government stops protecting individual rights and instead starts violating them through programs that redistribute wealth, then this sort of waste is inevitable. Hence, to solve the problem of waste, we have to limit government to its proper function (e.g., military, police, law courts).
For a good discussion on the nature of individual rights and why these are the only proper functions of government, I highly recommend these two classic essays from the Ayn Rand Institute:
“Man’s Rights”
http://www.aynrand.org/site/PageServer?pagename=arc_ayn_rand_man_rights
“The Nature of Government”
http://www.aynrand.org/site/PageServer?pagename=arc_ayn_rand_the_nature_of_government
Thanks, Amit, for a terrific analysis!
I find this to be an excellent shorthand description of what is being done to this country.
We have a government that practically falls over itself [Dems and Pubs] trying to find elaborate, sleazy, profligate ways on how to spend-spend-spend our hard earned money (more often than not for political reasons rather than pragmatic or even logical ones).
WE ARE FEEDING THE MONSTER.
I’m effing sick of the lot of ‘em, the bastids!
I note that the author of this article is both a stock trader and an engineer by academic training. Therefore, his view that Socialism will not work is based on more than just opinion. He understands that any active adaptive system needs mechanisms for self-correction. In addition, he understands that any adaptive system requires the constant input of energy to continue operating. Our economy is just such an adaptive system. Money constitutes the input energy or its equivalent. The classical Socialist paradigm produces no additional energy, but “redistributes” that which is already available among the active members of the system.
This understanding of the economy does not give a free pass to Republicans. If they “redistribute,” then they are no different than Democrats or Socialists. It is the proper understanding of thermodynamics that distinguishes between demagogue and scientist. The reason “Capitalism” works at all is because it has the ability to abandon [energy] waste and because it is more efficient in extracting energy from the environment outside of the active system.
Frankly, that is why pillaging was such a popular pastime in primitive societies and why the search for oil is our current equivalent of pillaging. The trick is to maintain our humanity in the face of the thermodynamic requirements of survival.
I submit #2 Anonymous as exhibit “A” of the psychological divide between those who favor an economy tightly regulated and “managed” by a collectivist government versus one driven by the dynamism, energy and creativity of a free market. That divide is based on an emotional conviction that activities motivated by financial gain are inherently sinful because they are deemed selfish. Of course the remedy for this is the belief in the need for a collective construct or central authority, whose aims and motives are ostensibly selfless and altruistic.
This is the collectivist’s fantasy government model. I say fantasy because it completely ignores the a human trait much more powerful than the quest for gain in the monetary sense: That’s the quest for personal power and perogatives- which is the currency of choice in the realm of government and politics. From that comes the gain in strictly the monetary sense, as we’ve seen countless times as D.C. “players” go in and out the revolving door of paid lobbying and government service.
For me personally, I’d much rather be left to the mercies of the worst egg-sucking Wall St. manipulator than a Washington D.C. true-believer bureaucrat/politician who wields power over me supposedly for my own good and that of other citizens.
Amit Ghate correctly identifies the key issue: individualism vs. collectivism. I am pro-choice on all economic matters, including “universal health care.” I have a right to decide for myself where my insurance and health-care money goes. If I waste it, that is my problem. I have no right to exploit others — through taxation, subsidies, or regulation — to pay for my waste. Likewise, they have no right to exploit me. The goal should be total separation of Medicine and State.
For a thorough look at the economic and ethical issues involved in the health care debate in particular, see:
http://www.theobjectivestandard.com/issues/2007-winter/moral-vs-universal-health-care.asp
One needs a study on how much spending in each government dept. goes to wages and benefits for staff. In Canada it ranges from 50% to 80%. So if 50% to 80% of your health care dollars goes to government oversight, how much is left for your health? Now insurance companies pay their staff too, but that doesn’t come from your taxes and yes they have to be more efficient as they have shareholders to answer to. Oh what is a shareholder? Oh, insurance can make money – oh my god!!! And give it back to taxpayers who invest??? Oh my god!
“Obama has it exactly backwards:…”
How wrong you are! The way you spend your money on your frivolous pursuits is waste, the way Obama spends your money on his causes is efficiency.
If we are to consider waste or an inefficient government; we should look at preventing our own oil companies from exploring for oil and gas, while Obama the Wee Weed Man gives two billion dollars of our tax money to George Soros to drill for oil and gas off the coast of Brazil with his new fledgling company. I realize that drilling off shore is ten times more expensive, but are we providing Soros the money because this is risky business or because he is the main financial backer of Obama? This is an important question that deserves an answer.
I find it to be self defeating to give our money away to foreigners, while we have thirty million people out of work. It can be argued that we are creating a clean environment at the expense of the financial welfare of our own country, for what, so that George Soros can ruin it for us. Don’t get me wrong, I think the energy programs and environmental lobbies are just another Marxist trick to gain control of us and our money. But if they are going to use lies to gain control they should stick to one set of lies. That is the most honorable thing for them to do at this point.
Of course there are more questions. Will Soros repay this money or are we just financing his business ventures now that he has installed his “Yes” man as our President. Personally, my business is down considerably this year, I don’t think I can afford my share of two billion dollars so that Soros can drill for oil on our money.
If this is an example of sound government control of business decisions, we are in big trouble.
How mad would George Soros get if we said, “On second thought, use your own money to explore for gas and oil.”
Are we saving the planet so that others can drill for oil and compromise the environment? This is rotten to the core. Corruption on this scale is probably grounds for impeachment after the election next year, once the bloodletting of Progressive Socialists parading as Democrats takes place in Washington.
Education is an area where there is tremendous waste of money — and tragic waste of minds and lives.
See: http://mgtutoring.com/blog/2009/08/24/modern-education-a-trojan-horse/
and more here: http://mgtutoring.com/blog/category/education/
I fight this waste in my tutoring practice. My students get high-quality training in reasoning like they will get almost nowhere else.
#9: “TROLLS: To understand it, look up ROAD TO SURFDOM (Hayek), HUMAN ACTION and BUREAUCRACY (von Mises), FEDERALIST PAPERS and the LETTERS OF JEFFERON (Mapp).”
A-HOLES: To understand the consequences of deregulation, LOOK AT THE ECONOMIC CRISIS WE’RE IN.
#24. That was the most amazing article I have read on the subject. And it also blows away anything these trolls say and is so true (jharp – 1/4 of all levels of government budgets – and that was in 2007) It is over 30 now:
“Canada, each citizen is forced to pay for his neighbors’ medical care in the form of taxes that are higher than he would otherwise pay. The Canadian health care system consumes nearly a quarter of total federal, provincial, and local tax revenues, which is more than in any other Western country except Iceland.40
In the name of “equal access” to health care, doctors (with rare exception) are forbidden to provide essential care to patients outside of the system, and citizens are forbidden to spend their own money on medically necessary care for themselves or their loved ones. Doctors are penalized for accepting money from patients for medical services that are covered by the government system. Private spending for state-covered medical care is illegal; everyone is forced to wait his turn on the government waiting list or “queue.”
There are waiting lists for MRI scans, heart surgery, chemotherapy, and every other essential medical service. The government uses these waiting lists to control costs. For instance, to avoid paying too much for heart surgery, the government limits the number of surgeries it will pay for each year. This imposes another cost on patients, one in addition to the money they have already paid in higher taxes: the cost of their time.”
“Of course, certain Canadians can and do attain preferential placement on the lists; politicians and celebrities use their pull to move up the waiting lists—something that ordinary Canadians bitterly refer to as “queue jumping.” And wealthy Canadians can avoid the waiting lists altogether—by traveling to the United States to purchase the care they need.
On the patient side of the equation, the people most harmed by the single-payer system are average Canadians and “the poor.” ”
The history of socialism and social medicine is there, but somehow Obama is going to pull the rabbit out of the hat and make it all work.
“Only government is big enough to handle this crisis.” -B Obama-
We are Borg.
Amit Ghate has done a terrific job of exploding another of the many fallacious arguments against freedom in medicine. More importantly…and I know I’m not the first to acknowledge this…Mr. Ghate identifies the basic philosophical conflict that will determine the future direction of American healthcare and of America generally. Only capitalism is consonant with the premise that the sovereign individual is the standard of value, because it alone bans predatory force in human relations. All other social systems (including welfare statism and democracy) embody collectivism to some degree, with the rulers as omnipotent representatives of the collective. This cannot be stressed too often or too strongly. Collectivism is tyranny, and the only humane antipode to it is individualism.
I also have to address correspondent #2, Anonymous. His comments bring to mind a passage from Francisco’s “money speech” in Atlas Shrugged:
“Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter.”
Anonymous condemns the money earned by the people who produce the valuable products and services without which there would be no healthcare debate. He demands “government intervention in the health care market” to grab by force for himself the “benefit from the advances in medical technology” so he doesn’t have to “line the pockets of these folks”… the very folks in the “private system that does not value human beings” who produce the goods that can keep Anonymous and his ilk healthy and alive.
Read Francisco’s money speech, then draw your own conclusions about the ethical character of Anonymous:
http://www.capmag.com/article.asp?ID=1826
Also relevant to his comments is Harry Binswanger’s “The Dollar and the Gun”:
http://atlasshrugged.com/book/dollar-and-gun.html
#29 Bibio44:
I will only cite recent examples that demolish that cherished leftist canard. We’ve had lots of government oversight and armies of bureaucrats shuffling mountains of paper all throughout the rise and ultimate collapse of these high-profile companies: Enron, WorldComm, Tyco.
We had the “best minds” on Capitol Hill (Barney Frank out front) testifying with utmost conviction that Fannie Mae/Freddie Mac were completely sound and that there was absolutely no justification for tightening credit rules and reasesssing the degree of risk in the mortgages they held.
Yes, we’ve had plenty of oversight, the problem is the government isn’t much good at it most the time. Their priorities will always revert to the political – not what makes good fiscal sense (cit: Fannie/Freddie). Furthermore, it doesn’t matter if there’s a Democrat or a Republican in the White House, the large, disconnected Federal bureaucracies are riven with institutuional sloth, incompetence and malfeasance and they are virtually immune to significant reform of any kind.
Given these conditions, heavy regulation on the front-end (laws passed to PREVENT companies from engaging in fraudulent practices) won’t work that well because the agencies in charge will always be late to the game and out to lunch. The truth is that the sharp, criminally unethical business types will almost always be able to get in and wreak havoc while Federal bureaucrats stare out the window picking their noses. All the government can do is comb through the wreckage, throw some people in jail and then testify before Congress on how we need more regulation. This cycle continues and will continue forever until the government outlaws all commerce.
Large, centralized bureaucracies are inefficiency and stupidity incarnate. I’m sure many employees inside such entities are earnest and mean well but the system in which they work doesn’t function very well on even it’s best days. If you still have unbridled faith that the federal government is fully capable of effectively stopping waste and fraud, then you must be one of those people who believe Hell is merely a good system that happens to be run by bad people.
32. I agreed with most of that speech, however, “The love of money is [indeed] the root of many evils.” However, the love of money is not the desire to work for it, but rather greed and covetousness- allowing money to become one’s obsession. Those who make money an idol will do anything to obtain it. The love of money is what leads to corruption and crime. Nothing good comes from putting money first in your life.
Racist.
Warmonger.
Hope! And Change!
So, DS (#2), why don’t you and the other supporters of health care conscription create that option? There is no shortage of wealth among Obama’s supporters, and, as we all know, his supporters make up the smartest human beings ever to be born into this world. Surely with men- and womenfolk of your inestimable genius at the helm, you could easily create that non-profit HMO that supplies reasonable, affordable health care the way you think it should be provided.
You talk about the choices you want, as though the rest of us are supposed to care (we will if you pay us), but strain with all your desire to strip the rest of us from having any choices. That’s beyond hypocritical. It’s parasitic. But it also reveals what this is really about: power and revenge. You want revenge against all those who have made choices that are not in accord with what you like, and you want the power to force them to do as you wish.
Waste, by definition, means “spending to no avail or profit.”
No profit defines “waste”? Funny, that’s how most Leftists and religious conservatives define “noble”.
You want waste? Zeke Emanuel Will Show You Waste!
The Brothers Emanuel. Part One: Ezekiel–the Jewish Mengele
All successful, high achievers, all activists, all leftist ideologues in the Saul Alinsky mold, and all Chicago Democrats, the brothers Emanuel–Ezekiel, Rahm, and Ari–are easily the most politically influential trio in the history of America.
Rahm Emanuel may be the most visible as President Obama’s ruthless Chief of Staff but behind the scenes in his capacity as Obama’s “Deadly Doctor,” Ezekiel, an oncologist and “medical bioethicist,” also wields enormous power as the president’s Special Advisor for Health Policy.
Ari, the baby brother, a prominent Hollywood talent agent, is on the political periphery.
This band of brothers, all of whom studied ballet in their youth, spring from the marriage of Benjamin Emanuel and Marsha Smulevitz. Their father was an Israeli-born pediatrician and former member of Irgun, an Israeli terrorist organization, their mother the daughter of a radical union organizer.
Those nuts rarely fall far from those trees.
There’s no shortage of chutzpa in the Emanuel clan. It could also be termed Odyssian hubris or arrogance, as in, We know what’s best for you so just shut up, sit down, and keep your opinions to yourself!
According to Wikipedia and other sources, the family patriarch changed his surname from Auerbach and adopted Emanuel, meaning, God is with us. In Hebrew, Rahm means high or lofty, Ezekiel strength of God, Ari lion or eagle.
Dr. Ezekiel Emanuel, “architect of Obamacare” who takes issue with the Hippocratic Oath, is remarkable in that his views on health care are eerily reminiscent of Hitler and the “Angel of Death,” Josef Mengele.
For a Jew, that actually exceeds remarkable and enters the realm of bizarre.
Last month, Rep. Ron Paul posted an article on his website on Zeke’s views on his health care architecture, including a video on Obamacare’s “depopulation policy:” . . .
(Read the rest at http://genelalor.com)
As the Vodka Pundit said recently in regards to gov. waste “dude, it’s a feature, not a bug”.
A-HOLES: To understand the consequences of deregulation, LOOK AT THE ECONOMIC CRISIS WE’RE IN.
Spoken like someone who’s never actually had to read a book of regulations. I doubt that if you started reading today and continued for the rest of your life, you’d be able to finish even 10% of the pages and pages of regulations covering the financial services industry.
In a totally free market, person A freely enters into an exchange with person B, where he gives X in return for Y — and both are better off.
If A didn’t want Y more than he wanted X, and if B didn’t want X more than he wanted Y, then the exchange would not have taken place — and yet, overall, there is no more X and Y after the exchange than there was before.
But what if A couldn’t just get Y, but instead had to take a bundle of things with it? And, similarly, X was wrapped up in a package of mandates. The simple X for Y swap, where each party could be easily satisfied and could easily evaluate the quality of the items given and received, would become extremely complex, and would increasingly be more about how the f in “X+efg” was far less bad than the k in “Y+jkl”. It may end up that the A’s aversion to k might so far counteract his attraction to Y that the exchange never takes place at all. Which would be a shame since all A and B wanted to do was swap X and Y, after which they’d both feel better off.
Government has ensured that people cannot simply exchange their efforts for money, but must also include labor laws, health insurance, pension plans, and taxes in their calculations of relative value. Is it any wonder that neither employer nor employee is ever really happy with the package?