Government is Overhead

The first area any business cuts during an economic recession is overhead: Items purchased and people employed who do not directly contribute to profitability. This could include eliminating travel junkets, buying lower-quality office supplies, or cutting clerical positions. This is reasonable and responsible, since the areas that make money are operations and sales and marketing, not administration.

Government, like administrative tasks in business, does not contribute directly to the expansion of the economy. Rather, government’s job is to ensure the proper interaction of economic and social activity, prosecuting fraud, theft and other crimes and establishing certain norms by which people live and work so that all exchange is fair and equitable.

Today, our government does far more than this. Leftists tell us it must spend more money to create more jobs, and so it does. They tell us it must regulate age-old behaviors that are seen as “unfair,” and so it does. They (along with many conservatives) tell us it must save businesses from their own failures, and so it does.

But this is counter productive

That is because government hardly makes anything. Other than roads and a few other infrastructure projects, the government doesn’t make economically productive resources. One could argue that it also builds the schools, but these are in general so poorly operated that it would be hard to argue they do much more good than harm. The vastly superior education received in private and home schools is evident in every sample of standardized exams. So there is very little that the government does that promotes economic activity.

Of course, there are things the government must do, such as defend the nation from attack (military), decide disputes (judiciary), register certain activities and regulate some behaviors (bureaucracy), and investigate crimes and prosecute the offenders (law enforcement). Even regulating access to shared resources (such as waterways, the air and airwaves) could be seen as legitimate activities, on a limited scale, of government, since they would be difficult for private entities to regulate effectively.

However, few of these activities directly relate to economic expansion. Certainly, police protect property and safety, and courts help decide issues of law and dispute. The bureaucracy cannot simply cease its functioning or we would have a chaos of unchanging regulations that no longer fit to current technology and economic needs. At some level, the government must continue to function.

Unfortunately, unlike private business, our government has not chosen to reduce this overhead, but to expand it. It has borrowed greater sums of money and threatens to raise taxes on businesses and individuals. These activities are counter-productive. Think about it: A company (substituted as an analogue for our national economy) faces a sudden reduction in income. In response, it puts more of its resources into administration (government). These same resources cannot be used in operations or marketing (the private sector) until they are earned back by those same departments. Even if the administrative department hands over some of its newly found resources, it must pay somebody (bureaucrats) to regulate and account for that transaction, reducing the available resources and the effectiveness of these transactions.

In this way, we can see how the Stimulus and other such government “bailouts” have actually been counter-productive. Rather than allowing the private sector to find its own median, the government has stepped in to regulate the economy. It has pulled resources out of the productive areas and expended them in non-productive areas, whether that be paying for government activity or to “bail-out” non-productive businesses.

Many say that, without the government stepping in to “save” the economy, the recession would have been much, much worse. This is hogwash. Instead of allowing companies to declare bankruptcy and have their assets (in whole or in part) purchased at a marketable price, they were “saved” with money borrowed or stolen from the businesses with which they could not compete and the individuals with whom they transacted. We are told these businesses are “too big to fail,” and so the must be saved.

The reality, however, is that there is no such thing as “too big to fail.” No matter how large a company is, bankruptcy does not mean its resources are lost, nor is such a “failure” too great for our economy to bear. Even if the largest company in the world, Wal-Mart, were to declare bankruptcy tomorrow, it represents less than 3% of the nation’s economy. Further, bankruptcy would not likely result in a complete shut-down of the business. Rather, its various stores, distribution centers, trucks and inventory would be sold-off to pay its debts, and the new owner would operate them like before. Some resources might be shut down, but the majority of the company would continue to operate in some fashion, or at the least its most valuable resources would not go to waste. The same is true of manufacturing companies, banks, service providers, and more. This is what economists call “creative destruction,” and in part it drives the innovative processes in our economy.

Government, since it is overhead and largely does not create anything, acts like a sea anchor on the ship that is our economy. A sea anchor is a bit like a parachute for the water, intended to slow or stop a ship when the waters are too deep for a traditional anchor. Our economic ship is sailing in a certain direction, towards prosperity, but we carry this sea anchor for a variety of reasons. The larger the sea anchor, the slower our forward progress. If the sea anchor is too large and the winds too slight to furl the sails, the currents can actually pull the ship in a completely different direction, away from prosperity and toward parts unknown.

Reduction of overhead is the only responsible action our elected representatives have if they wish to assist in expanding our economy. Cutting the government, the overhead, and releasing the resources has absorbed to the private sector is the most productive activity our government can undertake.