How efficient is government spending? Understandably, this question could lead to many discussions. To begin with, government spending can be in multiple forms: first, direct expenditure, such as the government actively funding a project or activity; second, incentives or subsidies, used to encourage certain activities; and finally, the prescribing of laws to outlaw something in favor of something else.
To begin the discussion on government efficiencies, I want to focus on how helpful their spending is—direct expenditure.
Many people do not realize that our government involves itself in fabrication, manufacturing, or product creation. Many local cities or counties, for example, have plants to make gravel, street signs, or garden mulch. I believe these functions are commendable. I am not discouraging them.
However, other larger functions are not. For example, since 2000, government solar farms have become popular. These have generally turned out to be a waste of taxpayers’ money. Another example that illustrates the inefficiency of government spending is Obamacare, a government-run healthcare insurance program.
The American healthcare system is not efficient. Citing the lack of equality and helping the most vulnerable, the Affordable Care Act (AKA Obama Care) was unveiled to America in 2010. It came with grand promises. Perhaps the biggest of them is that it would be cost-efficient. It would save the nation money. As it turned out, it was anything but.
The website alone cost the taxpayers $840 million to launch. Even throwing in a lot of money, the website was still full of bugs. This is opposed to a typical website, which would cost about $1.5 Million. The bureaucracy surrounding the government process was too large for money to solve. Then, the ongoing maintenance cost on the system has been a nightmare anyway that you look at it.
In 2020, 35 million people enrolled in Obamacare, with a hefty price tag of $4.1 trillion per year. How is it “Affordable?” Governments and their spending are not efficient.
Staying with the theme of health care, we can look at another more positive example, LASIK. This is a procedure that uses a laser beam to reshape the cornea. It became available in the US in 1998. At that time, a typical procedure cost approximately $5,000. Although LASIK was approved by the FDA, it did not receive any government funding. You could not expect your insurance company to pay for it. Today, with careful shopping, you can have a LASIK procedure done in Idaho for less than $1,000. Especially with inflation in mind, the price drop was very significant.
Anybody can see that government interventions are…inefficient. In the case of Obamacare, it removed the responsibility of payment from the patients. This, in essence, removed the patients’ input from the caregivers. It corrupted the relationship between the buyer and the seller.
Big pharma, in turn, can charge whatever amount they want. In the real world, prices go down in a mass purchase. In the case of governments, market forces do not apply.
Another factor is that Obamacare, like many government programs, added an intermediary to the trade. This intermediary, or middleman, also comes with bureaucracies that make transactions inefficient. Judging by the yearly Obamacare expenditure, the added bureaucracies cost Americans a lot more than we imagine.
There are many other examples: welfare, flood insurance, etc. Government interventions are inefficient because the government provides the legalization for the use of force. That concept does not apply well in trades. The proper role of government is to ensure that trade is fairly conducted. I teach a weekly Constitution class. In February, we will shift our discussion to a classic book, “Economics in One Lesson.” The first discussion will be about what Economics actually is. In everyday terms, Economics is Trade. And it is most productive when the parties involved are free from third-party interference.