David R. Henderson  

Government Jobs Are At Least as Important as Private-Sector Jobs

PRINT
Specialized Labor... Vacation Bound...

Check out this segment from CBS News. Obama is questioned by a woman who just lost her government job--in the zoo. Obama, after hearing where she works, says:

1:25: "Workers like you--for the federal, state, and local government--are so important for our vital services. And it frustrates me sometimes when people talk about "government jobs" as if, somehow, those are worth less than private sector jobs. I think there's nothing more important than working on behalf of the American people."

True, he could have meant by "working on behalf of the American people" that anyone who serves others--at McDonald's, at Exxon, at Home Depot, etc.--is working on behalf of the American people. But does anyone who has followed Obama closely over the last two or so years have any doubt that he was referring, in context, solely to government jobs?


Comments and Sharing


CATEGORIES: Labor Market



COMMENTS (48 to date)
Randy writes:

I do find it interesting though that the political class is beginning to recognize that the productive class is calling them out. It is no surprise that they are responding with propaganda, but the fact that they are responding at all is a sign of progress.

David R. Henderson writes:

@Randy,
Good point.

Lint writes:

Even more amusing is the implication, then, that the only way to serve the American people is to first fleece them, then provide whatever service you deem appropriate. Or work for someone who does.

Cyberike writes:

I certainly didn't expect the haters to show up here. After all, professors are also public employees. My take is that one good college professor is much more valuable than ANY private employee.

Public employees are providing for the public good. You could possibly say that private employees do the same, but that would lead to the conclusion that public employees are at least as valuable as private employees. My point is, public employees are being vilified far beyond what is rational.

CBBB writes:

It's really irrational to vilify public sector employees like this. You can say what you want about fleecing people and providing useless services or whatever you want but at the end of the day the voters want these sorts of services. If you don't believe try running for office based on an explicit campaign to abolish most government services and see how far you get.
You might not like them but apparently most citizens do and you need employees to implement these services.

Will writes:
My point is, public employees are being vilified far beyond what is rational.

I think that is largely correct. But I believe this issue of "importance" is a red herring. There are of course important jobs in the public sector just as there are in the private sector. And there are of course unimportant jobs in public sector just as there are in the private sector.

The key difference is the feedback loop that identifies, reacts to and amends said unimportant jobs. In the private sector, though far from perfect, it is relatively quick, efficient and, overall, accurate. In the public sector it is cumbersome, reactionary and, often times, arbitrary. So much so that when there is an announcement of government layoffs, it is always met with extreme opposition.

The end result of this is a job culture that sees employement not as means to end, but as an end in and of itself. In other words, a culture of entitlement.

Such a culture is irrational. And that, I believe, is why you are seeing the so-called "irrational" vilification of government workers.

Lint writes:

@Will

Took the words out of my mouth. I would like to add that college professors are not always worth as much as people think, and this is coming from someone studying to be one.

Foobarista writes:

One other fun issue with unimportant (which I take to be unproductive) jobs in the public sector is they are the last to get axed. When doing layoffs, public-sector managers always go for the ones that hurt the most: get rid of teachers and fire houses, leave the DMV bureaucrats and school-district paper-shufflers alone.

CBBB writes:

@Will

Still this really isn't the fault of the individual government employee if they work in an environment in which it is more difficult to measure productivity.
I also think a lot more unproductive people get a pass (and can even prosper) in the private sector then some are willing to admit. This is the case in any sufficiently large organization, public or private.

Randy writes:

Re; "irrational"

It is not irrational for people to want stuff for free or nearly free.

It is not irrational for a political organization to exploit people who want stuff for free or nearly free, by pretending to provide stuff that is free or nearly free, after first taking a choice cut of every transaction.

It is not irrational for people who have been exploited to eventually realize and react to that fact.

Will writes:

@ CBBB

Of course not. But when your employer has spent the last half century passing off costs to third parties (aka taxpayers), you're going to get chewed out for being merely associated with that employer when those costs need to be accounted for.

I'm not saying it's fair. I'm just saying it's reality.

Shangwen writes:

David, what about all those people who work for the UN? The USA has only 5% of the world's population, so UN workers must surely be worth twenty times more than private sector workers in America.

Tracy W writes:

CBBB: Public employees are providing for the public good. You could possibly say that private employees do the same,

Or you could observe that many private employees provide for the private good, which is at least as important as the public good, and in some cases more important.
For a start, food is a private good - it is rival, in that if I eat a piece of food I prevent anyone else getting nutrition from it (I am excluding some scenarios on the basis that they are too sickening to discuss further), and it's excludable, in that it is possible for me to provide food for myself without providing it for you. Oh, and if you don't have food, you die.

Similarly drinking water is a private good, it's rival and excludable. There may be public good aspects to limiting the spread of contaminated drinking water, but the private good aspects are even more important - while some people survive drinking contaminated water no one survives drinking no water.

So food and water are simultaneously private goods and are more important than public goods for the survival of humanity.

The difference between private goods and public goods comes down to the best way to provide them, not their importance in and of themselves.

I'll also note that a lot of things the government provides nowadays aren't necessarily public goods, eg education (while education is non-rival, it's excludable), medical care of non-infectious diseases, subsidises for energy production, etc.

Kerem Oner writes:

You can not seperate the words from the man. Taken in proper context, Obama is simply displaying his deeply held belief that only noble, worthwhile jobs are those that are provided by the government. He has to say it because literally 100s of millions in AFSCME type union campaign donations are at stake.

Remember his 2001 PBS radio interview lamenting the fact that under our constitution we have failed to achieve redistributive justice? Remember all his associations and outright statist appointments? Remember his childhood and college year associations? Who are they? The saying goes "tell me who your friends are and I'll tell you who you are".

He is a Marxist. Period. No arguments.
That explains the daily vilification of corporations and the 'rich'. First it was bank and insurance executives. Now it is oil company executives. Tomorrow, god knows - but you can rest assured a target will be chosen and attacks will continue.

We have become a semi-totalitarian state under this regime. It is pure fascism - complete with cronies (GE, Google, Facebook, etc.) lining around the corner to do his bidding.

Tracy W writes:

CBBB:

It's really irrational to vilify public sector employees like this.

On reading through, as far as I can tell the group being vilified here is either Barack Obama, or the political class more generally. After all David Henderson quotes Barak Obama, and it's the political class that is the one that generally puts forward general concepts about the nature of society, not every single government employee including the night watchman.

And vilifying the opposition is what most politicians do, and yet they still often get elected, so I don't think it's necessarily irrational.

As for voters wanting these services - the question is which voters? Very often, a service that is wanted by a well-organised group of voters will get provided not because it's wanted by a majority but because the average person has a job, and a family, and likes some leisure time, more than they want to get informed about every single policy that the government is considering.

Greg Colvin writes:

Some years back a young man just out of MIT joined our team at Oracle. He said "I've never seen anything that government does that a business couldn't do better." I replied, "You obviously haven't been in business for very long." After some months of dealing with a huge business from the inside he was starting to see my point of view.

In particular, when layoffs came down, individual productivity was hardly even considered. Top management decided what products were less profitable, and what development projects had lower prospects of profitability or could be outsourced, and entire teams got axed.

And if you allow the legitimacy of government at all, and the concomitant right of government to tax (which I think some posters do not) then the biggest part of what government does has never been done effectively by the private sector, i.e. Medicare, Medicaid, and Social Security. I believe the number is that before these programs were established about 50% of our elders were living (and dying) in poverty.

Tracy W writes:

Greg Colvin:

Top management decided what products were less profitable, and what development projects had lower prospects of profitability or could be outsourced, and entire teams got axed.

And do you think that when governments cut spending they do a more subtle job?

then the biggest part of what government does has never been done effectively by the private sector, i.e. Medicare, Medicaid, and Social Security

This has some truth in it. Social Security is basically a big, long Ponzi scheme, and while private parties have tried many Ponzi schemes, they've never been able to suck in the whole population. The government, with its taxing power, has been far more successful at that.

As for Medicare and Medicaid, the US government spends more per capita on this than most developed nations spend on supplying healthcare to their entire population, and yet the health outcomes don't seem to be noticeably better. Which is not to make admiring sounds about other countries' healthcare systems, for example in the UK government healthcare productivity has been falling for years.

James C writes:

@Greg Colvin

what exactly was the point of your anecdotal evidence? as far as im concerned, the young man is a fool for buying into your nonsense when he was originally correct. there is absolutely no service that the private sector cant do better than the government and offer at a lower cost. secondly, so what if large corporations are mismanaged? its the price to pay for acquiring the worst trait of government-overbearing bureaucracy. smaller, well-run businesses will enter their market and drive them out if they make poor decisions.

and im confused how you can claim Social Security is a positive of government. its nothing more than welfare redistribution from working voters to retired voters. how you can defend a program that taxes minimum wage workers and then proceeds to to take that money and give it to millionaires is beyond me. there are millions of Americans who would gladly opt out if the government would stop taxing them, since they have saved for their retirement appropriately. of course doing so is politically nonviable, so the charade will continue until it cant.

and Medicare and Medicaid is a farce. the out of control health care costs is the result of not having price signals. as the costs for both government health programs rise, health care services will continue to be rationed. this will only lead to Americans over 65 being forced to buy private health care despite paying into Medicare for decades. and it is aggravating that people keep claiming that the elderly were living in poverty before these government services. i would also love to know where you got the "50%" number from. why exactly do you think people are better off with these programs rather than being spared paying 15.3% of their salary in payroll taxes for over forty years. i would really like a reply.

CBBB writes:

@James C

I don't think anything you wrote is really correct.
Large organizations whether private or public always have management and coordination issues. Because a large organization is bureaucratic and not optimally managed does not imply that it is unprofitable. I can guarantee you every big company in the world is slow and bureaucratic.
Large organizations exist for a reason and there are certain advantages. The Big Three automakers were poorly managed and yet why was there no proliferation of small, nimble car makers dominating the automobile market in all that time? Large projects especially in manufacturing or construction require large organizations and they will never be optimally managed and yet will continue to exist.

CBBB writes:

@James C

I also doubt the private sector would do Medicare better. There's really just no incentive to setup a business based on insuring people who are likely to get sick unless those people also have tonnes of money.
Now I know a lot of people on this blog don't mind the idea of people dying in the streets but I for one think that's barbaric to say the least. Difference of opinion there I guess.

CBBB writes:

@Will
The taxpayers also vote for all this stuff. If the taxpayers REALLY didn't want all the spending and all the government programs they could elect to get rid of it all. Might take a couple of election cycles but it could be done, I see no indication of the political winds heading in the direction.
At the end of the day the whining about public employees is just the Someone-Else's-Problem Syndrome. The voters want the programs but think they can get rid of the people who run the programs for free.

Bob Murphy writes:

@ Greg Colvin who wrote:

In particular, when layoffs came down, individual productivity was hardly even considered. Top management decided what products were less profitable, and what development projects had lower prospects of profitability or could be outsourced, and entire teams got axed.

What definition of "productivity" are you using? I was expecting you to say, "The company fired people who were making them money, what idiots," but it looks like you're saying the company did in fact lay off the right people, given the realities.

Dale writes:

Bob;

The people who work on individual projects are likely not associated with the revenue of that project. Their productivity can transfer to many different projects that the company may be doing.

The problem expressed is on see in marginal productivity often. The marginal revenue productivity of a laborer depends on what he is building. If a manager tells him to build something that is worthless the worker is worthless. If a manager tells him to build something worthwhile the worker is worthwhile.

The real productivity of the worker doesn't necessarily depend entirely on the product, since they can be given another product and make it just as well (or whatever, depending on skill overlap).

Axing the whole team is likely efficient in terms of managerial energy. Otherwise you have to go into all of your teams and figure out who the performers are in objective measures and see which ones are the best deals to keep. But it doesn't fire the right workers.

As CBBB said, this is just a reality in a big organization.

Re: Tracy

No, he was saying they don't do worse at managing things. And the fact that they don't do worse at managing things makes their other advantages stand out as a defining advantage given the product.

CBBB writes:

Dale has it right.
The problem is a lot of people don't realize marginal productivity is often a relative not absolute quantity. It can change depending on how the workers are deployed. The proper deployment of workers is up to management and they don't always make the best decisions. At the same time executives are less likely to suffer consequences of bad decision making both in the private and public sector compared to subordinates.
The executives hold the power in large organizations and can work together to pass blame for failure down the chain-of-command.

rmv writes:

@CBBB

Re: taxpayers voting for spending and government programs

"The Myth of the Rational Voter" and public choice economics would argue why differently

Tom writes:

If government jobs were really as valuable as private sector jobs, why is it necessary for the government to get it revenue by force through taxes. Surely if government services had such value as the private sector it could raise revenue merely through voluntary payments. It is very curious that these "valuable" government services cannot be funded except by force.

mktlogic writes:

CBBB,

No grocery store has a business model where all of the customers vote to choose between two bundles of goods and the store then provides the most popular bundle to all customers. There is a reason for this: customers, knowing that voting on a choice between two bundles of good or services is not likely to match their wants very precisely, would opt for the a la carte approach currently in common use. Similarly, the decisions people make in voting booths may not reflect their preferences very well. So, please stop expecting others to believe that electoral majorities are a good indication of actual preferences.

Beyond that, even if most voters claim to want something, that's not a reason for the government to be in the business of providing it. Most people want food, sex and comfort, but that doesn't mean the government should be in the business of providing any of those.

Cahal writes:

Drawing the dividing line between the government and private sector simply distracts from the real problem, which is rent vs earned income (or Wall St. vs Main St. in today's world).

I actually wrote a post about how framing issues as state vs market is destructive and slightly nonsensical: http://www.tmmblog.co.uk/?p=1966

Greg Colvin writes:

The discussion so far has handled many of the responses I would have made to my post, thanks. I hadn't expected so much reaction, let alone how angry some of it seemed.

By productivity I meant the ability of a person to produce high-quality products.

As for private companies necessarily being more efficient, don't forget that one big advantage of government services is that they don't need to make a profit, barely need advertising and and marketing, and don't need sales staff at all. All of that can easily run to 40 to 50 percent of a private company's expenses. And if a company succeeds (as Oracle has) in establishing a (near-) monopoly, the profits will be even more, and the service will tend to decline. The business plan for small tech companies is often not to compete with the monopolists, but to annoy them enough that they get bought by them.

My defense off the SSA is personal first: I lost more than all of my assets to a bitter divorce and the property crash, and lost my health to epilepsy, stroke, and more. Without the SSA I'd be dead.

More generally, as CBBB pointed out, private insurers have no motivation to provide for people who are a sure loss, so they don't. And most anyone who gets seriously ill or old is a sure loss. That's why the SSA was created in the first place.

As for the 50% figure, I can't quickly find data going back to 1935, but this paper indicates that thanks to SS: "Elderly poverty in the U.S. decreased dramatically during the twentieth century. Between 1960 and 1995, the official poverty rate of those aged 65 and above fell from 35 percent to 10 percent, and research has documented similarly steep declines dating back to at least 1939." (http://www.nber.org/aginghealth/summer04/w10466.html)

One big advantage of SS benefits over private savings is that they cannot be lost to market crashes, criminal brokers, bad investment decisions, and other such.

As for SS being a Ponzi scheme, so what? So long as the productivity of our population keeps growing faster than the population of retirees the receipts from SS taxes will in the long run stay ahead of expenses. Failing that, we can raise taxes or just print/borrow the money. Up to a point, sovereign nations can run deficits in their own currency indefinitely. The US has been doing so almost continuously since the founding.

As for health care costs: yes, they are out of control. I would argue that the solution is is not eliminating Medicare, but making it universal, so the system can push back on the rent-seeking pharmaceutical companies. Every other civilized country on the planet does something like that, and they get equivalent results to ours for half the cost, and manage to cover all of their people. But the wealthiest nation in the history of the world? We let people starve on the streets. It disgusts me.

Greg Colvin writes:

@Cahal

Excellent! Thank you.

Les writes:

The issue of whether public service or private sector jobs contribute more seems to make little sense. For example, military duty is of great value in protecting us from foreign attack. First responders also perform essential functions. On the other hand, a Steve Jobs, a Bill Gates, a Thomas Edison, and a Henry Ford have made enormous contributions to our lives.

It seems that both public service and private sector jobs can contribute a great deal. But both public service and private sector jobs can also contribute very little. So the issue of whether public service or private sector jobs contribute more seems to be irrelevant.

David R. Henderson writes:

@Les,
Given what you wrote above, you would have to conclude that Obama is wrong. He didn't make the nuanced statement that you did. "Nothing more important," his words, allows for no exceptions.

Arthur_500 writes:

Allow me to support the President's words if not his actions.

There are many jobs that are valuable to our society, if they are not valuable then they should not exist. Ever since 9/11/01 we have used 'Hero', and 'Public Servant' ad nauseum. Just because someone has a government job does not make them a public servant.

Government has developed to protect the employees from politicians so there is no accountability for the average government employee. Accountability is pushed up the chain of command until it resides with an appointee who can't help you.

We need to look at all jobs, public and private, and determine if they are providing a necessary service and if they are efficient. Just because a public employee got laid off does not mean that job was necessary or efficient. It also does not mean that a public employee was necessary to do the task. At least Private employees pay taxes.

Now I have listened to Obama vilify anyone who makes a profit. His speech to Union Workers, who actually make something, last week was hilarious. He is used to speaking to Service Workers and really didn't know what to say to people who actually produce goods. I know he does not know what he is talking about and is on the campaign trail to get re-elected. But aside of that reality, I would agree that there are some public jobs that are valuable, efficient, and appropriate to our society.

As far as Public Servant is concerned, The greatest Public Service would be to elect Mr. Obama out of politics. That Public Service receives no pay but a lifetime of benefits.

Cahal writes:

@ David

'Given what you wrote above, you would have to conclude that Obama is wrong. He didn't make the nuanced statement that you did. "Nothing more important," his words, allows for no exceptions.'

He's just telling them what they want to hear. Surely as a libertarian you're not one to take what politicians say literally!

James C writes:

I also doubt the private sector would do Medicare better. There's really just no incentive to setup a business based on insuring people who are likely to get sick unless those people also have tonnes of money.
Now I know a lot of people on this blog don't mind the idea of people dying in the streets but I for one think that's barbaric to say the least. Difference of opinion there I guess.

personal opinion followed by ad hominem attack. the mark of someone struggling to defend a false premise. Medicare is completely unnecessary. the purpose of insurance is to hedge against risk. health insurance is to protect against medical catastrophe, not against simple doctor check-ups. the same way car insurance doesnt cover oil changes, since theyre expected. in a freed market, people would buy health care insurance that kicks in after a certain amount of medical costs within a given year, anywhere from $1000-$10000, depending on how much personal savings accrued and premiums charged. like ive said already, there is no price signaling. take a simple outpatient procedure like a colonoscopy. i called around in my area on behalf of my father to ask for the cost. not a single person could give me a ballpark figure, and some outright hung up on me after saying they couldnt tell me until after it was done. consumers cannot shop around for health care. once market forces are unleashed, health care providers will race to cut costs, rather than shift all costs onto consumers as they do today, knowing full well insurance companies will pick up the tab after some haggling. this idea that people would die in the streets without government health care is repeated ad nauseum, but that doesnt make it any less laughably absurd.

James C writes:

That's why the SSA was created in the first place.

SSA was created because FDR thought poor people were too stupid to save for retirement.

As for SS being a Ponzi scheme, so what? So long as the productivity of our population keeps growing faster than the population of retirees the receipts from SS taxes will in the long run stay ahead of expenses. Failing that, we can raise taxes or just print/borrow the money. Up to a point, sovereign nations can run deficits in their own currency indefinitely. The US has been doing so almost continuously since the founding.

the US has paid off its national debt twice since its founding. to claim it has continuously run up its debt shows a poor understanding of history. when baby boomers all retire, SSA will go insolvent. raising taxes will never save it. and inflating the US debt away is disastrous for so many reasons i wont get into. its because people like you think this way that people like me have savings in other currencies in other nations, and in gold and silver as well. i hope its all worth it for you when the US dollar is worthless.


As for health care costs: yes, they are out of control. I would argue that the solution is is not eliminating Medicare, but making it universal, so the system can push back on the rent-seeking pharmaceutical companies. Every other civilized country on the planet does something like that, and they get equivalent results to ours for half the cost, and manage to cover all of their people. But the wealthiest nation in the history of the world? We let people starve on the streets. It disgusts me.

you know what disgusts me? people who bring up irrelevant arguments into a discussion. what does starving Americans have to do with rising health care costs? countries that have universal health care bogged are down by debt, and they dont have an globally expanded military to support. all universal health care does is institute price controls and rationing. they do not address the underlying issue that i have constantly repeated-lack of prices.

now lets take myself. i am very healthy for someone my age. so why do i need government health care? im perfectly happy with my Health Savings Account. and universal health care just paves the way for government to dictate how people live their lives. im always been confused how liberals can support both ending the drug war and universal health care. doesnt this mean they support giving free health care to drug addicts? i am against the drug war, as i dont care how people spend their money. but the moment universal health care comes into effect, i will immediately flip my position. i refuse to pay for the lifestyles of others. not to mention that government will attack other life choices. just look at the UK for example. there are already proposals to specially tax smokers and the obese. you need to explain why government health care is good, because right now im convinced youre just another self-entitled American who thinks successful people have some moral and legal obligation to pay for your poor life choices (bitter divorce? really? thats your basis for defending SSA? ever heard of this thing called pre-nuptial agreement?)

Greg Colvin writes:

@james

"SSA was created because FDR thought poor people were too stupid to save for retirement."

Stupid? I guess you don't know many poor people. Historically the poor have been unable to save for retirement because the poor, almost by definition, need all of their income for current expenses.

"the US has paid off its national debt twice since its founding"

I didn't say in debt continuously, I said almost continuously. The debt never stayed paid off for long.

Debt and deficit history

As I understand it (and I may not) there is an accounting identity that says that if net exports are negative a nation has to run a deficit or else the population will be incapable of net savings. And given the graphs at the link above, (and other such data I've seen) showing wide swings in the deficit and debt over the last few hundred years, I'm not afraid that the USA will become insolvent, short of losing WWIII. We've gotten through worse many times.

"you know what disgusts me? people who bring up irrelevant arguments into a discussion. what does starving Americans have to do with rising health care costs? "

My apologies if I disgust you. The relevance is that, given the costs, a serious enough health problem would be almost certain to drive most Americans into poverty, and in most of America that means being driven onto the street, which in most of America means starvation. With so many countries providing universal health care I doubt they could all be bogged down in debt, and doubt that where they are bogged down health care is the sole reason. But I'm open to contrary evidence.

"now lets take myself. i am very healthy for someone my age. so why do i need government health care? im perfectly happy with my Health Savings Account."

I don't know how much money you have in that account, but a serious health problem could drain it very quickly. In 2009 my health care expenses ran to over $60,000 dollars, and remain quite high. And due to the stroke damage and epilepsy I can no longer work very well at all, though I am trying. And $60,000 is small potatoes compared to what some conditions could cost. So I'd guess that you'd need over a million in savings to be sure, in the worst case, of covering your medical expenses and paying your bills for the rest of your life.

"you need to explain why government health care is good, because right now im convinced youre just another self-entitled American who thinks successful people have some moral and legal obligation to pay for your poor life choices (bitter divorce? really? thats your basis for defending SSA? ever heard of this thing called pre-nuptial agreement?)"

James, you don't know me at all, so please don't judge me. I've paid my own way in this world for over 30 years, and had no expectation of needing the SSA. By the time of my divorce my wife of twenty years was mentally ill and unable to work, so I chose to grant her most of our assets and a small lifetime alimony. Bitter or not, I still loved her. At the time my own health was excellent, I retained supposedly substantial equity in our home, and between selling the home and my work as a world-class computer scientist I expected to rapidly rebuild my finances.

Google Greg Colvin

It didn't work out that way.

More generally, most people are not clairvoyant, and so their choices don't always work out. It's too easy, even cruel, to say in retrospect that they were poor choices, and that whatever they suffer is their own fault. Consider that for many Americans their most valuable asset was their home, and their life plan was to pay it off and retire rent free. Is it all their fault that the real estate market was recklessly destroyed?

So among the reasons universal health care is needed are that: medicine is potentially so expensive that most people cannot save for it; the future is too uncertain to know how much to save and in which vehicles; and pharmaceutical companies are so monopolistic (due to government-granted patents) that not even insurance companies have much bargaining power. There are more reasons, for and against, but I written too much already.

I could imagine a more private system that would work, but I think that would entail regulating the the private system to the point that it might as well be public. As for price signals, I think they are nearly worthless in health care. When I needed to have a tube snaked up my groin and into my heart I did not go calling around for the cheapest cardiologist. I went to the one my neurologist recommended as the one he most trusted. And for the most expensive medicines I take I have no real choice at all: I need the medicines, there is only one monopoly supplier, and not even the Canadian pharmacies sell them cheaper.

Tracy W writes:

Dale: No, he was saying they don't do worse at managing things. And the fact that they don't do worse at managing things makes their other advantages stand out as a defining advantage given the product.

But he hasn't proved that. He's asserted that big companies lay people off inefficiently. But governments typically are reluctant to lay people off at all, and when they do I haven't noticed that they don't do any more subtly - they tend to just shut down entire services. Plus government managers, when forced to cut costs, have a tendency to cut down services that are very visible to the public, to try to create political pressures to get their funding back.
In order to show that group A does something better, or at least the same as, group B, you need to look at both what groups A and B do.

Greg Colvin:
As for private companies necessarily being more efficient, don't forget that one big advantage of government services is that they don't need to make a profit, barely need advertising and and marketing, and don't need sales staff at all.

Actually, government services should be making a profit in the social sense. We should only invest resources in providing a public service if it is more valuable than using those resources elsewhere. In the private sector, we use profit as a measure of this, the same idea should apply to the government sector, and there's no reason why the rate of social profit used in the government sector should be lower than the rate of profit used in the private sector. (In other words, say the government can spend $100,000 on computers, or the private sector can spend $100,000 on computers. If the best use of those computers in the private sector would make a profit of $10,000 a year, then the government should only spend that money on computers if doing so provides a benefit to society of at least $10,000 a year.) Of course, many government services probably don't make a profit in the social sense, that makes them less efficient than profitable private sector services.

As for barely needing advertising and marketing and not needing sales staff - what services are you talking about? An ongoing issue with government provision of services is that people often don't know that they exist. That requires advertising. (Another problem is government services that some of the consumers don't want to consume, eg hiring truancy officers to get kids to school). If nothing else, surely you've noticed election advertising?

So long as the productivity of our population keeps growing faster than the population of retirees the receipts from SS taxes will in the long run stay ahead of expenses.

However, SS is indexed to average wages during the earning years, so as the baby boomers start retiring this would require the working age's population productivity to rise exponentially faster than the baby boomers retire. This seems unlikely.

One big advantage of SS benefits over private savings is that they cannot be lost to market crashes, criminal brokers, bad investment decisions, and other such.

Do you realise that these are paid out of taxes? If the people who pay the taxes lose money to market crashes, criminal brokers, bad investment decisions, and other such, then they have less money to pay their taxes, so the SS payments fall.

Every other civilized country on the planet does something like that, and they get...

...healthcare spending rising higher than GDP, and falling productivity.

Les: The issue of whether public service or private sector jobs contribute more seems to make little sense.

You don't mention that food and drinking water are even more valuable than the military.

Arthur_500: Just because someone has a government job does not make them a public servant.

What's special about being a public servant? A farmer is even more essential to humanity's survival than any public servant and farmers only provide private goods - namely food.

Greg Colvin writes:

@ Tracy

I'm not trying to prove anything (this is not a peer-reviewed economics journal) but just give some counter examples to the supposed efficiency of private business. Smaller businesses I think are quite efficient. Larger businesses not so much: they work hard at becoming rent-collecting monopolies, and often succeed.

Another example from the same team at Oracle. Just before my young friend from MIT joined the group we had prepared a plan to replace our very slow Java interpreter with a very fast Java compiler. Management rejected the plan. So I volunteered for a solo project to make the interpreter faster. A year later I had succeeded. But by then my young friend from MIT had, in his spare time, repurposed his senior thesis to create a good-enough Java compiler. He had to keep his work secret so as to not set off management resistance until it was a done thing, but once revealed it rendered my work (and the work of another team member) worthless. This sort of thing was very common at Oracle. Submarine projects we called them.

Another fun game was "schedule chicken". No group wanted to admit they were behind schedule, so we would all race towards the cliff, hoping some other group would be forced to ask for a slip in the schedule and let us off the hook.

And then there was the pleasure of training the Indians who were replacing us, and the extreme salaries, stock options, and benefits being raked in by top management while us peons saw our options disappear to the dot.com crash and our salaries nearly frozen.

I'd say the organization was so inefficient that they survived technically only because engineers can't stand being unproductive. And survived financially only because of Oracle's near-monopoly.

Greg Colvin writes:

@Tracy

I'm not sure what you mean by "social profit" or how to quantify it. Anyway, SSA and the Department of War Crimes take up so much of the budget that the rest hardly matters.

Comparing private health care to Medicare we see that Medicare operates at very low overhead compared to private companies, with their high profits, inflated executive compensation, high marketing costs, and rafts of employes whose jog is to second-guess doctors and deny coverage.

And yes, government services need some outreach so people know they are there, but those budgets pale compared to private companies. Last I looked pharma companies were spending about 20% of revenues on marketing: about the same as what they spend on R&D.

I'm not considering election advertising as a government expense: post Citizen United it will be paid for secretly by unions, corporations, and wealthy individuals. The best democracy money can buy,

As for SS, I think even the trustees see little problem for a long ways out, and that with dismal economic assumptions. The baby boomers are not a perpetual problem, but more like a pig in a python: as the younger boomers enter the system the older boomers will be dying. Dean Baker and Paul Krugman, among others, have argued strongly that SS is doing fine. I believe them, and will leave it at that.

Medical costs are the big danger, and I've already spoken to my preferred solution, which is to replace the insurance companies with universal Medicare. If that solution fails, then we will be down to rationing by ability to pay, which is what we pretty much have now. The results are ugly. One of my nieces, employed but uninsured, came down with cancer. Our Glorious United States and the Great State of Texas refused to help at all. Not even pain relievers. When the pain became unbearable she shot herself.

PrometheeFeu writes:

This may have already been said, but the fact that the public votes for getting more services only means that they think having those services would be nice. And yes, no matter how crappy government provided services are, it is nicer to have them than not to have them. The problem is that analysis fails to take into account the costs of government provision of those services. Chances are, in many such cases, the public is not getting enough "bang for its buck" as you Americans would put it. I have a long commute and I would very much enjoy having a driver to get me to work every day and get me home every evening. However, if the government was to steal from, I mean... tax me, $2,000 extra a month and send me a government employee to drive me to work every month, I would most decidedly NOT be better off. I might be glad for the driver, but I would rather have my money. On the other hand, I am very happy to give money to countless private employees when I purchase goods at the supermarket because I get something I value more in return. So yes, government employees are inherently doing less valuable work than private-sector employees.

Greg Colvin writes:

@ Tracy

I'm not trying to prove anything (this is not a peer-reviewed economics journal) but just give some counter examples to the supposed efficiency of private business. Smaller businesses I think are quite efficient. Larger businesses not so much: they work hard at becoming rent-collecting monopolies, and often succeed.

Another example from the same team at Oracle. Just before my young friend from MIT joined the group we had prepared a plan to replace our very slow Java interpreter with a very fast Java compiler. Management rejected the plan. So I volunteered for a solo project to make the interpreter faster. A year later I had succeeded. But by then my young friend from MIT had, in his spare time, repurposed his senior thesis to create a good-enough Java compiler. He had to keep his work secret so as to not set off management resistance until it was a done thing, but once revealed it rendered my work (and the work of another team member) worthless. This sort of thing was very common at Oracle. Submarine projects we called them.

Another fun game was "schedule chicken". No group wanted to admit they were behind schedule, so we would all race towards the cliff, hoping some other group would be forced to ask for a slip in the schedule and let us off the hook.

And then there was the pleasure of training the Indians who were replacing us, and the extreme salaries, stock options, and benefits being raked in by top management while us peons saw our options disappear to the dot.com crash and our salaries nearly frozen.

I'd say the organization was so inefficient that they survived technically only because engineers can't stand being unproductive. And survived financially only because of Oracle's near-monopoly.

Tracy W writes:

Greg Colvin:

You supply another anecdote about private company, but no comparison with government. You are not exactly making a convincing argument for the relative efficiencies of government from that. (And yes, this is not a peer-reviewed economics journal, but that's hardly an excuse for making stupid arguments - by only looking at one part of the picture you're short-changing yourself, by leading yourself to believe arguments that are not true. Peer-reviwed articles are an attempt to filter out the worst arguments in the field of science because no one has time to read everything, but they're not a fail-safe, nor are they the only place you should be applying critical thinking.)

I'm not sure what you mean by "social profit" or how to quantify it.

By social profit I mean the benefit to society from what the government does. I agree that quantifying it is difficult, this is a reason to think that government services are likely to be less efficient than private services, exactly because these things are hard to measure. Which is rather the opposite from your initial claim.

Anyway, SSA and the Department of War Crimes take up so much of the budget that the rest hardly matters.

If it doesn't matter then the government should stop doing it, even more so than if it's not profitable. So you have gone from asserting that the government services are generally more efficient than private services, to asserting that they hardly matter. This is no more convincing than your earlier claim. (And don't you think that it's outrageous that we should be taxed to pay for things that hardly matters?)

Comparing private health care to Medicare we see that Medicare operates at very low overhead compared to private companies, with their high profits, inflated executive compensation, high marketing costs, and rafts of employes whose jog is to second-guess doctors and deny coverage.

The relevant question is not overhead compared to other costs, but total costs. In NZ, the government-run accident insurance scheme had very low overhead, but very high costs, because they weren't investigating and catching any cases of fraud. The government bought in higher overhead to lower total costs. Low overhead can be a bad thing.
For the case of Medicare in the US, it suffers from fraud., which may well be because it doesn't hire hordes of people to investigate and refuse to pay claims.

I'm not considering election advertising as a government expense

Don't count it as one if you don't want. My point was that advertising happens when the government does things as well, and I gave the example of election advertising in the hope you would have at least noticed election advertising. Politicians think that they need to advertise to get elected, despite not being in the private sector. I notice that you don't give an example of a government service that doesn't need to advertise.

As for SS, I think even the trustees see little problem for a long ways out, and that with dismal economic assumptions.

You are aware that you are connected to the Internet, and that you can search for these things, aren't you? One Google search found me this:

The financial conditions of the Social Security and Medicare programs remain challenging. Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided.

...
After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.

I've already spoken to my preferred solution, which is to replace the insurance companies with universal Medicare.

And I've pointed out to you that the rest of the "civilised world" is facing rising healthcare spending. I can't think of a case where universal single-payer medicine has been introduced and led to lower costs. This appears to have made no impression on you, you haven't even mentioned those observations.

Our Glorious United States and the Great State of Texas refused to help at all. Not even pain relievers. When the pain became unbearable she shot herself.

Ah, this is a case where some more advertising by government services would be beneficial. A quick google search found me, for the US, this page
http://www.suite101.com/content/financial-aid-for-cancer-patients-a35384

Greg Colvin writes:

@ Tracy.

I spent my three decade year career in industry, so I have no inside observations of government to share. But I could go on all day with stories about the greed, stupidity and lack of ethics I've observed in industry. I'd be glad to hear stories from those with experience in government. Even better would be actual data comparing services provided by government versus industry, and that is why we are looking at medical services.

When I said that SSA and DOD take up so much of the budget that the rest hardly matters I did not mean that the rest wasn't valuable, I meant that eliminating the rest would hardly make a dent in the US budget.

Yes, of course I know I'm connected to the internet. Thanks for the link: I read the report last year, but it's good to catch up. The trustees look at the issues from a lot of angles, and I agree that changes will be needed going forward. But I don't see an emergency, and am not sure if I agree with their definition of sustainability. One graph that caught my eye shows that SS and Medicare expenses will rise from about 4% of GDP now to about 6% of GDP in 2040, and stabilize close to that level through at least 2085. That doesn't seem like a budget breaker to me.

I'm not surprised that health care costs are rising world wide, as this OECD chart indicates:

http://stats.oecd.org/Index.aspx?DataSetCode=HEALTH

The chart above also indicates that we spend about twice what everyone else spends, so our growth is from a higher base.

And this chart covers fewer countries, but includes data on life expectancy and infant mortality that indicate that the US is not getting better results from its high expenditures:

http://en.wikipedia.org/wiki/Health_care_compared#Cross-country_comparisons

Most all of the OECD countries have universal, single-payer coverage, which I understand to be part of why their costs are lower. So far I'm not finding data that indicates the effect of a transition from one system to the other, but your not being able to think of a case of savings doesn't count for much either.

Within the USA, Medicate spends substantially (about 3 or 4 times) less than private insurance, despite caring for an older, sicker population, and despite the fraud you mentioned.

http://www.cahi.org/cahi_contents/resources/pdf/CAHIMedicareTechnicalPaper.pdf

As for my poor niece, the web page you linked to is almost entirely private programs. I know that my sister was doing her best to get care for my niece, but am not sure whether they were aware of these programs. The only government program I noticed was Medicare under SSDI, but the SSDI process is too slow to have helped: 5 months to process an application, two more years until you get Medicare. And that isn't the bureaucracy's fault, it's the laws they operate under.

Still, I agree that more government outreach is needed, but don't see that it would need to be anything like what private industry spends. E.g. Superbowl ads. The government isn't trying to attract customers from competitors.

bobroberts writes:

I think that part of the reason most non-government workers dislike government workers is not because they view government jobs not as less productive or useful, but because comparatively they view them as overpaid. I think that there is some evidence to support this view. The same kind of work in the private sector offers less pay and benefits and does not offer the kind of job security a government job does, a less quantifiable benefit.

Also, it kind of turns me off to see government workers up in Wisconsin and around the country complain and protest about the possiblity of a pay-cut or pension reduction. It happens everyday in the private sector. That kind of behavior certainly doesn't improve my view of them.

Greg Colvin writes:

@bobroberts

Whether government workers are overpaid is controversial, as it's difficult to do an apples-to-apples comparison. But if so, the solution may be for the private workers to get better pay.

And the Wisconsin workers were not complaining about taking a pay cut and contributing more to their pension plan: they had already agreed to that. They were complaining about losing the ability to bargain about anything but pay going forward, and even then with pay increases strictly limited to inflation.

Tracy W writes:

Greg Colvin: Even better would be actual data comparing services provided by government versus industry, and that is why we are looking at medical services.

Yes, that would be a good start for you. For a start, consider this article that includes a graph comparing cosmetic surgery, which is paid for out of pocket, with other forms of medical care, which are paid for by third parties. In the US since 1992 the price of medical care went up by almost twice of CPI, but the price of cosmetic surgery went up less than half as much, so it fell in real terms.

And this is why I keep pointing out to you that productivity has been falling in the UK healthcare system - money spent has been rising, but outputs haven't been, as far as anyone can tell.

When I said that SSA and DOD take up so much of the budget that the rest hardly matters I did not mean that the rest wasn't valuable, I meant that eliminating the rest would hardly make a dent in the US budget.

Which is irrelevant to your earlier argument, where you were claiming that government services were inherently more efficient than private services.
You are switching between arguments, without mentioning it, possibly without realising it. You started off with arguing about relative efficiences, and then are now trying to argue about the US budget deficit. But even if the US government was running a massive surplus, that would be no justification for wasting government money providing goods or services that are not useful enough to return at least a normal rate of profit. Government spending should be to provide value, and quite a bit of value, to offset the costs of raising taxes.

One graph that caught my eye shows that SS and Medicare expenses will rise from about 4% of GDP now to about 6% of GDP in 2040, and stabilize close to that level through at least 2085. That doesn't seem like a budget breaker to me.

Not a budget breaker, but a 2% of GDP rise in taxes will be unpopular. Federal tax take is now I understand about 20% of GDP (and the US government is running a massive deficit). Raising taxes to collect another 2% of GDP will be a 10% rise in taxes, for which the payers will get no obvious extra benefits. And that's built on the assumption of a 30% cut in doctors' reimbursements next year, which is current law, but a decision Congress keeps putting off - how likely do you think that is?

Most all of the OECD countries have universal, single-payer coverage, which I understand to be part of why their costs are lower.

Interesting claim. Is there a reason why you understand this that you would like to share with us?
And what do you think about the counterexample of Singapore, were about 66% of healthcare spending comes from private sources? (driven by government mandates incidentally - see http://en.wikipedia.org/wiki/Healthcare_in_Singapore)
And what do you make of the Germans attempting to introduce more co-payments - see http://en.wikipedia.org/wiki/Health_in_Germany?

So far I'm not finding data that indicates the effect of a transition from one system to the other, but your not being able to think of a case of savings doesn't count for much either.

So let me see, the fact that neither of us can think of a case where a shift to a single payer system led to a fall in healthcare spending doesn't affect your confidence in your claim that such a shift will lead to a fall in healthcare spending? I mean, it doesn't mean much that I can't think of one, I agree, but when the advocate of a change can't think of a good example, that should rather count against it, shouldn't it?

In the case of the US, I agree that there is likely a great deal of waste in the system. But that waste all goes into some people's pockets, and they will fight like buggery to keep it coming, even with a shift to single-payer, and public choice theory gives reason to think that they'll likely get away with it (because the benefit to them individually is so large relative to the cost to the individual taxpayer). It would be much more convincing if you could find another case where a shift to a single-payer system was followed by a fall in healthcare spending.

Within the USA, Medicate spends substantially (about 3 or 4 times) less than private insurance, despite caring for an older, sicker population, and despite the fraud you mentioned.

The paper you linked to is about administrative costs. However the paper itself has this to say about total costs:

The average annual cost per person under Medicare is more than double that under private health insurance. In 2003, the average medical cost for Medicare is estimated to be about $6,600 per person per year, while the average medical cost for private health insurance, excluding out-of-pocket cost is $2,700 per person per year.

Of course, Medicare addresses a sicker population, but this doesn't support your claim that it spends substantially less overall.

but the SSDI process is too slow to have helped: 5 months to process an application, two more years until you get Medicare. And that isn't the bureaucracy's fault, it's the laws they operate under.

And that's the government for you. Both the bureaucracy and the laws.

Still, I agree that more government outreach is needed, but don't see that it would need to be anything like what private industry spends. E.g. Superbowl ads. The government isn't trying to attract customers from competitors.

There are very often competitors - eg you can go to school or you can spend time mucking around in the streets. You can go to the police, and to court, or you can go to a private mediator, or you can hire some tough guys to kneecap the guy you disagree with (this is part of why the police spend money on community outreach). And people can just forget to do stuff, which is why you get advertising aimed at "remember to pay your taxes" or "fill out your census form!"

I'll also note that most private companies don't buy Superbowl ads. The ones that do are the ones for which that sort of advertising is very appropriate, or who just made some bad decisions.

Greg Colvin writes:

Hi Tracy, and thanks for hanging in there with me. Understand that I'm not so much arguing as having a conversation, and learning as I go. I'm not an economist: I'm a frustrated citizen.

NCPA: Interesting study. Cosmetic surgery costs growing more slowly doesn't surprise me. It's mostly optional, so if the price is too high people don't do it, and the consumer has some leverage. But how much leverage do you have when treatment is not optional? Especially when the provider has a (government granted) patent monopoly, or is the only hospital or qualified specialist within 100 miles, and so on. Also, how many people are qualified to be "savvy consumers"? You pretty much need a doctor's help to know if and how you are sick, and getting well usually means doing exactly what the doctor orders, whatever it costs. And since there is no way of predicting your future medical costs there is really no alternative to "other people's money" for all but the richest.

I don't know much about the UK system, except that it is fully socialized, which is not what I would want here.

I never claimed that all government services are inherently more efficient than private services. But I think some are. And I agree that government services should provide value to justify the taxes, but still say that DOD and SSA take up so much of the budget, and thus so much of the taxes, that we need to look there first for savings. Personally, I'd nearly zero the DOD, but I'm Quaker.

The significance of the "steady at 6%" figure is that I hear rhetoric implying that SSA expenses will somehow rise until they take all of GDP, or something horrific like that. And that 6% assumes we do nothing to constrain medical costs, which we must anyway, and that the advance of medicine itself doesn't help. E.g. currently we spend a lot of money fixing and medicating inherited conditions. Someday we will patch the genes once and be done with it. And if it comes to a 10% rise in taxes I think that is within historical bounds, and probably less unpleasant than the alternatives.

One reason I think single-payer coverage reduces costs is that it's the main shared difference between the US and most every other advanced country with much lower costs. The other reason is that the single payer has more leverage on providers' prices. Isn't that why Canadians pay less for pharmaceuticals than we do, even when they are manufactured here?

Singapore is interesting, and looks rather complex even from the Wikipedia link you gave. I'm not sure how meaningful the "66% private" figure is, as I'm not sure how different compulsory savings are from taxes. And clearly the government is deeply involved:


Singapore's system uses a combination of compulsory savings from payroll deductions (funded by both employers and workers) a nationalized catastrophic health insurance plan, and government subsidies, as well as "actively regulating the supply and prices of healthcare services in the country" to keep costs in check; the specific features have been described as potentially a "very difficult system to replicate in many other countries." Many Singaporeans also have supplemental private health insurance (often provided by employers) for services not covered by the government's programs.

Germany has had co-payments since the 1980's and raised them in 2004, from what I read in your link. As you might guess, I think co-payments suck. Why do we want to make people think twice about filling their prescriptions? So they can take their antibiotics only until they feel better, thus breeding resistant strains? Seems another case of saving money at the expense of public health.

As for historical effects of change, that would be good evidence, but hard to assemble. Lots of countries, changes spread over more than 100 years, and other things happening at the same time.

And I agree, the vested interests in the status quo are so great that I expect no change until things collapse.

Thanks for correcting me: I was indeed speaking to administrative costs. The full annual cost per person in Medicare is indeed much higher than for the rest of the population. I think that has to be due to the sicker population, given that administrative costs are lower, and the doctors and hospitals are paid less than what the insurance companies pay.

And yes, SSDI hasn't served me well. But I'd have no income otherwise, and if I can survive until August I'll have health care.

And it's late here, so I need to rest, and hope this tract survives the spam filter here. About half of mine don't.

Comments for this entry have been closed
Return to top