Notes Book

The Flickering Hole

I admire and respect Austrian Economists, and I agree with almost everything they say. But when they say government is a black hole, I think they are missing something. The black hole theory says that energy goes into the government and nothing comes out. Economic analysis would be simpler if that were the case, but in fact, something does come out.

It is easy to prove that government can't do anything as efficiently as a non-coercive organization. A government gets its money by threat of force. That threat wouldn't be credible unless force was sometimes applied. Therefore, a government must maintain the means of applying force; cops, jails, armies, lawyers, bureaucrats, etc. Also, the application of force destroys economic assets, up to and including human life. A non-coercive organization does not have expense of maintaining a credible threat of force. All it needs is the threat of withholding products or services from people who don't pay. And the non-coercive way does not require the application of violence and its attendant costly destruction.

One might think that a rational government would realize that the threat and application of force is socially inefficient and destructive, and therefore would try to minimize the threat and use of force. It could be argued that the US Constitution is an attempt to create such a government.

Even the worst government needs to maintain the fiction that it is performing services for its citizens, so it must do at least enough useful work to provide a fig leaf with which to bamboozle the public. This usually comes in the form of services for the extremely wealthy, and the extremely poor. These are the two classes of people who can give the government the most trouble. The wealthy have resources with which to cause the government a lot of trouble, and the poor have little to loose and they can be extremely dangerous in large numbers, so a stable government must keep them from becoming too numerous or too desperate. The middle classes make the mistake of believing in the system, and are therefore the people most victimized by the system.

It's no accident that there was a vast expansion of welfare programs during the troubled times of the 1960s. If the government hadn't bought off the desperately poor, there would have been a lot more rioting, and very serious problems for the government.

But governments routinely overestimate how much they can get away with, and fall. If stealing a little is good, then stealing a lot must be better. An organization that makes it's living by the threat and use of force will see its first priority as increasing the means of using force. The term “rational government” is an oxymoron. Crime does not pay, even in a society where most people are criminals. A government is a social cancer that increases in size until it causes the social system on which it depends to collapse.

In contrast, an organization that makes its money selling a product will invest in better ways to make and deliver the product.

But governments do provide some services. One problem is that there is little or no rational correlation between the prices paid and the services received. The extremely wealthy are beneficiaries of “Corporate Welfare” or similar programs. The extremely poor are beneficiaries of poor peoples welfare, and the vast middle class just does the work and pays the bills.

Also, the distribution of government services varies according the political winds that happen to be blowing at any particular time.

When government policies change, the economic environment changes. Services or cash payments to one group of people may be cut off, and some other group may reap the benefits. This is true whether the policies are publicly known or secretly implemented. This it true whether the government is democratic or totalitarian. Policy changes obviously have a greater impact if taxes and regulations subsume a greater percentage of total economic activity. In the US system, it doesn't require an act of congress to substantially change the real economic policies of the government, or even a change of presidents. Changes in even fairly low-level personnel or policies can have a substantial impact.

The larger the government, the greater the incentive to gain control of the cash flow, and policy changes become more frequent and more extreme, and the struggle to gain control becomes ever more fraudulent and violent.

So when the Austrians say, “Government is a black hole”, they are expressing a distaste for the concept of government with which I entirely agree, but they are also failing to consistently acknowledge the very important effects of government policy on the economy. Accurate analysis requires that all relevant factors be included. The Austrians do have much to say about the negative impact of Government on economies, but they could perhaps be saying it a little more consistently and in greater detail.