Government Constraints

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In my article "Human Action and Economics" I outlined the importance of human action for economic outcomes. In particular, I outlined how people act under certain constraints. In this article I want to delve into human action as it applies to government officials.

We have established that government can only exist by applying force and coercion. If that wasn't the case then government could simply threaten us with the shut down of its services if we don't pay taxes. This is not the case. Even if we don't agree to this arrangement: If we don't pay taxes some federal agent will one day knock on our door and we stand a pretty good chance of going to jail. It's as simple as that.

As we established, humans are selfish and always want to improve their status until they are satisfied. Is there any reason to believe that this would not also apply to government officials? Are they exempt superhuman beings? Based on the simple natural laws of human nature and human action I have to say: No. (I have not yet heard a decent explanation on why government officials should be excluded from this rule. The most popular, but nonetheless primitive, arguments range from "they don't work for profit, so they will act in the public's best interest" to "they have been elected so they need to satisfy their voters").

It applies to government officials just as much as it does to anybody else. The real questions are:

• What means can they pursue in order to achieve an improvement of status.
• What constraints are they under?
• What ideas do they conceive and refine based on those constraints.
• What actions do they finally take in order to achieve the objective of status improvement?
• And most importantly: Do they violate any ethical principles along the way and to what extent does an improvement of their status entail an equivalent improvement for those who pay them?

Improvement of Status

A government official mainly improves his status by increasing his salary. It is paid for from taxes or from government debt. Taxes are income the state receives by forcing people to pay them. There is no other way. The choice for people from the private, non-coercive, productive sector is to either pay taxes or go to jail. (I would also not call it a choice if on election day you can choose between paying 40% taxes or paying 41% taxes by submitting your vote!) Government debt financing is mainly facilitated through the central bank and is a vital part of the exploitative inflation mechanism. Ultimately, inflation is nothing but a more subtle form of taxation. Based on this we can infer: Just as a private enterprise would like to drive prices for its products and services up to infinity (curbed by the constraints of competition), the government official will always try to maximize taxes and government debt and subsequently maximize his/her salary.

Government Constraints

This is the most important question: What constraints does the government official face? We have established that a private entrepreneur who exists without applying the means of force and coercion, in the unhampered free market mainly faces the constraints of qualitative customer demand, quantitative customer demand, resources available, own talents and skills, and competition from other entrepreneurs. All ideas conceived and refined and his subsequent actions taken will depend on these.

The government official, because his existence is contingent upon the application of force and coercion, naturally faces very different constraints.

He certainly does not face the constraint of qualitative consumer demand. He does not need to provide the consumer, the taxpayer, what he is looking for because he will have to pay his taxes either way. The amount of taxes we pay, in other words, the price for government, is not determined by an efficient free mechanism but is based on arbitrary decisions made by a few people in government.

He certainly does face the constraint of customer (taxpayer) quantity. Except for very few exceptions, a government can only collect taxes from people living within the borders of its territory.

He also does face the constraint of his own skills and abilities. The government officials core competency is to exercise power over people. The amount of money he can collect certainly depends on the extent of his skill set to do so.

Of course he is also constrained by the resources available within his government's territory.

Within his nation's borders he is hardly constrained by any type of competition over the products and services that he provides. Government alone provides the service of domestic and international security. Government alone provides the service of printing money. Government alone provides the services of building and managing interstate highways, streets, and high schools. Government alone provides the service of justice. This leads us to a very important point: Within its borders, a government does not face the competition of a free market entrepreneur. We all know that competition is vital for maximizing quality, minimizing prices at a certain quality level, and for keeping humans from exploiting others by, for example, jacking up prices (as I outlined in my example in the article "Human Action and Economics", where a furniture selling entrepreneur tries to deliberately double his prices but is then constrained by another entrepreneur who offers the same product at a lower price.) As it is with any type of free, non-coercive business, we as the consumers always feel very safe with the service providers or producers we pick, and even if we don't, we enjoy the freedoms of picking better ones. This does not apply to the services government provides. Competition in the fields that government controls is almost always outlawed by government itself which happens to have the authority to make the laws.

If the free market constraints fail for government officials, why don't they impose 100% taxes on us? Why don't we live in a completely authoritarian system? Well, if we think about it, governments have tried these kinds of arrangements throughout history. Over time, coercive people have figured out that in fact the authoritarian state is very instable and doomed to fail in the long run. Why is this? Because ultimately a government is constrained by an additional factor, that is rather secondary, if not tertiary for a free market entrepreneur: public opinion.

Government officials hire experts in order to mold public opinion in their favor. Even though some people know that a lot of assertions that government officials make are completely wrong, the ability to persistently tell the same lies again and again and finally mold public opinion accordingly, has throughout history only been in governments officials' favor. Propaganda is one of the most important tools that governments apply in order to attain their ends of convincing the public.

Implications

To sum it up:

• Government officials can only improve their status by earning tax money.
• Taxes only work by the means of force and coercion.
• This circumstance leads to a very different set of constraints: Governments are virtually excluded from the constraint of competition and mostly constrained by public opinion
• Governments mold public opinion by the means of propaganda.
• The outcome of this is that governments never reciprocate in transactions. They receive tax money, but what they do with it is a completely different story. While in the free market one man can only improve his condition by providing products and/or services that others demand, government can make money without providing something that is being demanded. It is only natural that most of the money will end up in the pockets of high level government officials or government contractors without them providing the according value.
  

What is the result of this? We all see it. Everyday. In the fields that government controls we have nothing but problems. However, we fail to comprehend that government itself is the reason for these problems.

• Our highways are full of traffic jams. But who is there to provide better traffic services?

• In almost every major city in the USA there are areas where killings and shootings are a regular occurrence. But who is there to compete in the field of domestic security?

• Public schools are struggling to provide a decent education, especially kinds from poor families suffer. But who is there to compete in the low price education market?
  

• Our money keeps depreciating and inflation raises its ugly head again and again. Business cycles of boom and recession confuse us and constantly undermine the stability of a free, unhampered market. But who is there to provide a money of better quality?

• soldiers are being sent abroad for reasons that no taxpayer understands anymore. We are paying for services that we don't know anything about. Who is to believe that the people who are pursuing these policies are truly doing it in the nations best interest. Discussions on this subject have been crippled to simple phrases such as "We fight for freedom!". The ones who gain from this are usually big government affiliates and "private" contractors that have managed to infiltrate the governmental structure and utilize its power for their own benefit. These so called contractors are essentially nothing but an extension of government and cannot exist without it. They do not face the constraints that a private entrepreneur faces.
  

• Lots of people who immigrate are forcefully deprived of their rights to live and work just like any other human being in this country. Yet they are entitled to generous government benefits. Frustration on both ends, the immigrants and the residents, ensues. Government is failing to integrate people from abroad.

• We hear again and again about scandals, such as ENRON, or no bid contracts for companies such as Halliburton. But do we ever ask the question: Why do these companies actually exist? What is the root of all evil? Could these scandals really have ensued if there had not been a big government to exploit the taxpayer and give the money to those companies. People need to realize that the more monopolized a society (and government is the ultimate monopoly), the more fertile the ground for corruption, lies, and exploitation.

• People who would act independently in a free unhampered market are made lazy benefits recipients by the means of a large governmental welfare and social security system.
  

• Government imposed minimum wage distorts the market and causes persistent unemployment and frustration.
  

Let's be realistic. Government officials don't have the incentives that are necessary to provide quality at the lowest cost possible. The argument that governments actually curb the greediness of the free, unhampered market and ensure social equality is nothing but a huge hypocrisy. If there was a bit of truth in that statement, then where is the alleged social equality in our society today?

Products would be much less expensive, quality would be much better, people would be much more independent, richer and more innovative in a truly free, non-coercive market society without aggressive government intervention.