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Government is Not the Cure for Ineffiency

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July 01, 2009 – Comments (10) | RELATED TICKERS: F , GM

Originally written on May 21, 2009. 

New hubbub has arisen after the Obama administration announced plans to raise the national fuel mileage limit for vehicles to 35.5 MPG by 2016 . It is said that this is a major step forward to end dependence on foreign oil, promote "green" technologies, and somehow help consumers make better choices, despite the likelihood of it increasing production costs by $1,300 per vehicle. But there is a better way.

Let's stop for a moment and consider what decreases cost and increases efficiency better than any government agency, regulation, or bureaucrat. Competition. Look at the technology industry over the past 15 or 20 years as a great example.

In the early 1990s cell phones and computers cost a bundle, were limited in their capabilities, and were largely a luxury item. These are some of the items that have escaped much of government's grasp and intervention over the past couple decades, and look what happened. Competition flourished, prices decreased relatively quickly (and continue to decrease in many areas of the industry), and the features on cell phones and computers have reached incredible levels. This was not thanks to the government trying to manage the industry and set the standards for consumers. People choose for themselves, competition is free and open, and prices greatly decrease while the quality of the items reach new highs everyday.

The problems with inefficiency in Detroit will not be solved by more government intervention, bailouts, and special treatment. Nor will it solve our dependence on foreign oil. Competition in the market will solve these problems in a far more efficient, reliable, and less costly manner.

The first step is to let the Big 3 go bankrupt if necessary and reorganize into a viable business (or businesses). There is nothing with GM, Ford, or Chrysler that justifies preventing their bankruptcy by bailing them out with taxpayer dollars, and continuing the parenting treatment. They can grow up, accept the consequences of dumb mistakes, and readjust like everyone else. Yes, it would be painful for a year or two, but they would be required to come back with a smart business plan, efficient vehicles, and the ability to compete against the stronger Japanese automakers.

This would do much more good in the long run than the government's endless involvement in the industry. Government limits consumer choice when it prevents an inefficient business from failing and subsequently readjusting to what consumers prefer.

If it is dependence on foreign oil you're worried about, why not open up competition there as well? It makes little sense to ban nuclear power, heavily limit coal production, prevent a good deal of domestic oil drilling, and complain that we are too dependent on foreign oil. Why don't consumers, communities, and states choose for themselves which energy sources are worthwhile, instead of the federal government? Give people the power of choice.

There is not one ideal energy source for every person, community, state, or country. Energy should not necessarily be treated as such a national issue, because at the heart of it energy needs start at the local level. Just look at some of the major problems caused by the federal government's involvement in energy: a costly foreign policy partially built around the prospect of oil, the numerous subsidies to fund inefficient corn ethanol and E85, and even with the cries against CO2 we are prohibited from expanding the one major energy source that does not emit any CO2, nuclear power.

Choice of energy would tear down our need for foreign oil. It makes little sense to put the control of energy in the hands of the federal government, which can't come close to taking into account local energy needs, preferences, and sensibility. Plus, it is the general governing, such as energy policy, that is constitutionally a state issue. The Rule of Law can't simply be ignored when it is inconvenient for the government's agenda.

A level playing field comes best with the free market. People should be free to make their own decisions (through their communities and state governments, if need be) with energy. Oil, nuclear power, coal, solar power, wind power, biofuels, and many other sources all have their ups and downs, and it is ridiculous to think that the federal government can effectively manage and distribute them. Give the market the ability to explore and innovate current energy sources as well as the new alternatives popping up.

The auto and energy industry will likely see increased intervention by the federal government in their affairs, while free and competitive choice slowly slides to the back of the room. People don't have the influence they once had with their own decisions, because the federal government has apparently given itself the power to choose which businesses can fail, which products we can and can't use, and even the power to take taxpayer dollars and hand it to private corporations.

More individual freedom and choice will hardly run our situation further into the ground. Rather, it is the choice and freedom of these industries that will further expand their sustainable development, efficiency, and promote the interests of the people over the long run.

DavidKretzmann.com

10 Comments – Post Your Own

#1) On July 01, 2009 at 3:30 PM, SkepticalOx (99.52) wrote:

While there are great inefficiencies in government, putting your faith entirely in free-markets is naive. Markets are often irrational, because they are filled with irrational participants. 

Case in point: Smoking. In a free-market, people will still smoke themselves to an early death, as well as take their children living in the same house and random strangers unlucky enough to be in a the same restaurant, along for the ride. This is so even when they know that smoking is harmful for their health. Why are there no non-smoking bars in a free-market? The same irrational humans that vote politicians in are the same irrational humans making economic decisions.

Also, the government itself is not inept at helping innovation. The thing which you are writing your blog on right now (The Internet), has its roots from government-funded research. A lot of other things too. 

Yes, I agree that the bailout of the car companies and Wall Street set a moral harzard. I also agree that free-markets and competition are usually the best way to go about things. But government has its place too, especially one that is a democracy where participants in the democracy have votes and a chance to run themselves. Blind faith in free-market capitalism is the same as blind-faith in communism. Both miss out on the fact that humans are flawed beings.

And seriously... I'd be willing to bet that the projection that it'll cost $1300 more for production of these more efficient to be way off. If there's one thing that humans are bad at, it is projecting into and predicting the future. 

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#2) On July 01, 2009 at 3:38 PM, whereaminow (< 20) wrote:

The Internet was not developed by the government. The DARPA Net, a weapons system, was developed by the government.  The Internet grew out of university research projects built on DARPA Net design.

After the government finally gave up control of the project, the private free market supassed 30+ years of government innovation in about 15 minutes.

The only thing that governments do well is exterminating humans, polluting the environment, wasting money, and landscaping.  I wish they would stick to the latter.

David in Qatar

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#3) On July 01, 2009 at 3:39 PM, SkepticalOx (99.52) wrote:

 whereaminow (89.75):

Hence the word roots

 

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#4) On July 01, 2009 at 3:45 PM, whereaminow (< 20) wrote:

Fair enough, but I'm not sure many people are aware that the government's original purpose for the Net was to kill other human beings.

David in Qatar

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#5) On July 01, 2009 at 3:47 PM, SkepticalOx (99.52) wrote:

They kill on behalf on the people who voted them in. People also kill other people without the government's intervention.

This is a human flaw, and not a flaw of the government. 

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#6) On July 01, 2009 at 3:49 PM, ReadEmAnWeep (35.80) wrote:

Well, I agree that competition would increase efficiency/innovation more. But they will go for more profitable things. So increasing mpg isn't top of the list when all other car companies are the same as theirs.

 In design engineering there is a thing called "competition benchmarking". Everytime they get ready to make an improvement on anything (making a new car or releasing a new model). What they do is make a chart listing everything the competition does, how well they satisfy it, how well they could satisfy it, and how much people want that satisfied.

 So that is basically a tool that shows in a (free market) capitalist society innovation is slow when there is no public demand for it. No one will want to lose money, lose of customers due to an increase in price, unless their competition will do it too.

 So government intervention is there to force change by adding to the cost.

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#7) On July 01, 2009 at 3:52 PM, ReadEmAnWeep (35.80) wrote:

"If it is dependence on foreign oil you're worried about, why not open up competition there as well? It makes little sense to ban nuclear power, heavily limit coal production, prevent a good deal of domestic oil drilling, and complain that we are too dependent on foreign oil. Why don't consumers, communities, and states choose for themselves which energy sources are worthwhile, instead of the federal government? Give people the power of choice."

 

Completely agree here

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#8) On July 01, 2009 at 3:54 PM, whereaminow (< 20) wrote:

I'm not denying that SkepticalOx, but certainly in this case I prefer the free market's use of the technology over the government's. Don't you?

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#9) On July 01, 2009 at 3:58 PM, ReadEmAnWeep (35.80) wrote:

"Also, the government itself is not inept at helping innovation. The thing which you are writing your blog on right now (The Internet), has its roots from government-funded research. A lot of other things too. "

Ya, actually most of the huge advancements come from the defense department - which is government funded.

 I think the point here is that - true in a free market you get choices and competition to drive down the price on the choices, but there is absolutley no innovation unless there is a demand for it.

The other comment about smoking makes the point that usually there won't be demand for great things because people are usually dumb.

I think government funding and a free market can both be good things, they just need to be kept in check.

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#10) On July 01, 2009 at 4:00 PM, SkepticalOx (99.52) wrote:

whereaminow

Yes, I never disagreed to the point that the free-market is usually better than when the government puts it's paws in. My point is that the government can be useful in certain circumstances where the market failed.

And Ayn Rand, the person libertarians love to quote, also is the one that stated that "people deserve the government they get". 

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