The Economies of Scale Argument

 

This argument makes no sense.

The government has no method of calculation to ascertain the economic value of the service it provides relative to its costs.  It is no good to argue that the government can buy steel cheaper per oz. due to economy of scales because it consumes more of it then the unhampered market.  The government wasted resources for the production of more steel.  Resources that were withdrawn from the production of more urgent items that were deemed higher in value by the consumers.

Thanks for the replies.  Some of them, I can anticipate his answer, and some of them I have never thought of.

1.  He would say that the programs are warranted because the infrastructure in this country is in a dangerous state of disrepair and the old Keynesian argument that having the government do them, or at least contract a private firm to do it (with all the bureaucratic red tape of making sure the firm is unionized and meet EEOC and OSHA standards, yadda, yadda), means that jobs will be created, putting money in consumers' hands that they will then spend.  I don't buy it, but after years of having this same argument, he is not moving.

2.  This is a good point.  We did not address that.

3.  Another great point, and the profit motive and competition would keep those firms motivated to keep the costs down.

4.  We have talked about innovation in general before, and he maintains that it is government ventures, such as NASA and military R&D, have led to most of the innovation of the last century.  His favorite fallback is the development of the Internet, which he says spawned from a government project.  I think these innovations were going to happen without government intervention, but it is difficult to argue what WOULD have happened.  Similarly, I cannot convince him that the world would not have ended without the bank bailouts.

5.  This is probably the strongest argument.  There are no cost controls in government spending.

6.  I have often frustrated his arguments by pointing out that there are finite resources, thus requiring each individual to choose between mutually exclusive goals, and that the choice of one necessarily results in the lost opportunity of the other.  He says I am contradicting myself because I also say that economics is not a zero-sum game when talking about taxes and wealth redistribution (although his arguments seem to imply that there are infinite resources and yet that economics IS a zero-sum game).  It is this kind of illogical obfusaction and trying to untangle it all that usually ends with me just throwing my hands in the air and simply declaring: "You don't get it."

  

RockAFellerX:

1.  He would say that the programs are warranted because the infrastructure in this country is in a dangerous state of disrepair and the old Keynesian argument that having the government do them, or at least contract a private firm to do it (with all the bureaucratic red tape of making sure the firm is unionized and meet EEOC and OSHA standards, yadda, yadda), means that jobs will be created, putting money in consumers' hands that they will then spend.  I don't buy it, but after years of having this same argument, he is not moving.

"Putting money in consumers hands" does not increase the aggregate purchasing power of the market. It only redistributes existing purchasing power. Purchasing power can only be created by increasing the productivity of workers.

RockAFellerX:

4.  We have talked about innovation in general before, and he maintains that it is government ventures, such as NASA and military R&D, have led to most of the innovation of the last century.  His favorite fallback is the development of the Internet, which he says spawned from a government project.  I think these innovations were going to happen without government intervention, but it is difficult to argue what WOULD have happened.  Similarly, I cannot convince him that the world would not have ended without the bank bailouts.

The government just piggy backed on all these private internet projects that were already in the works. Government involvement would have been completely unnecessary if telecom companies didn't have a monopoly on their service. I.e. if a firm cound just enter the market and provide "internet" through telephone lines, it would have been invented very easily. The internet is essentially telephone for computers with some encryption. Its not much to brag about.

But even if you don't buy that, if the government takes 40% of our income, they should be responsible for the vast majority of investment and innovation. If I have $1000, I spend the first 600 on rent and food. If the government takes the rest, I got nothing else to invest in...

RockAFellerX:

I have often frustrated his arguments by pointing out that there are finite resources, thus requiring each individual to choose between mutually exclusive goals, and that the choice of one necessarily results in the lost opportunity of the other.  He says I am contradicting myself because I also say that economics is not a zero-sum game when talking about taxes and wealth redistribution (although his arguments seem to imply that there are infinite resources and yet that economics IS a zero-sum game).  It is this kind of illogical obfusaction and trying to untangle it all that usually ends with me just throwing my hands in the air and simply declaring: "You don't get it."

Economics is not a zero sum game in the value sense. Although at any given time there is a fixed amount of resources, the price system incentivizes conservation AND increased production of resources. So if I start buying a bunch of paper, setting it on fire, and depriving everyone else of that use, I bid up the price of paper ever so slightly and cause more paper to be produced, more trees to be planted, etc.

Badass answer, Esuric.

He said it was far more efficient for the government to administrate many projects than for many smaller entities to administrate one project a piece because of the "economies of scale."

If this is true then free market firms will administer multiple projects.  There is no need for a government.

For example, if it's true that defense is a service most efficiently provided by one firm for 300 million people, taking care of all the various aspects of defense internally, because of "economies of scale", then such a big firm would outcompete smaller or more specialized firms.  (Of course, we have no way of knowing if this is true or not, because economic calculation is impossible without free markets.  We need to get rid of the monopoly in order to discover the most efficient ways of doing things.)

Firms can be just as large-scale as governments can be.  The only difference between a government and a firm is the use of aggression to obtain funds.