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.

The ramifications to waste are threefold. First, by prohibiting certain activities, government eliminates competition. For example, private companies like FedEx are legally barred from competing with the Postal Service -- creating that paragon of efficiency, the USPS. Next, because it can confiscate our money to pay its bills, government has little incentive to control costs. Should it overpay for services, salaries, or pensions, government simply takes more from helpless taxpayers. Finally, because the government has usurped their prerogatives, individuals no longer decide what is worthwhile and what isn’t. Government forcibly disconnects the decision of what’s valuable from the people who actually pay for the values.

For instance, many parents are unhappy with their public schools and would prefer to spend their hard-earned dollars on private alternatives. Yet the government makes their values and choices irrelevant by forcibly taking their tax dollars to support public schools. This “crowds out” potentially competitive private schools. It allows teachers’ unions to extract above-market wages and benefits. And it makes the customers’ (parents) evaluation of the product (education) irrelevant. The poor quality and inefficacy of public education is no accident -- it is the product of government force.

And it’s generally true: government is the source of waste -- not its solution.

Indeed, in areas where government claims to be able to cut waste, it’s only because previous government interference has created it. The field of medicine, for example, is far from free. Medicare and Medicaid, which dwarf all private players, are coercively funded and thus immune to cost discipline or customer feedback. Government’s arbitrary rules and regulations control much of the industry, and its insistence that intermediaries (i.e., insurers) cover any medical need has all but broken the direct relationship between patients and health care providers.

Socializing medicine won’t fix any of this. It will infinitely worsen it.

No, the solution in medicine, or any area of the economy, isn’t more collectivism. Rather, the solution is a return to individualism, including its political implementation: a government focused exclusively on protecting individual rights.