Government failure

Higher tax rates correlate with deteriorating government services

By Geoffrey Lawrence
  • Tuesday, March 31, 2009

Advocates for big government often try to justify themselves by declaring they're simply trying to cope with instances of "market failure." Thus they rationalize government displacing the free exchange of goods and services between individuals and sabotaging the livelihood and freedom of those individuals.

Rarely, however, do these advocates ever attempt to demonstrate that a "market failure" actually exists or even define what that would mean. Often, it appears to simply translate into an objection that when individuals are free to exchange with each other based on their own needs or desires, then this freedom "fails" to produce the social outcome desired by covertly authoritarian collectivists who are out to impose their particular goals on everyone else.

From a purely economic standpoint, the term "market failure" is an allegation of tremendous scope that, for support, would require massive evidence. It would mean that markets are incapable of meeting the needs and desires of consumers for a particular product. However, in market sectors where the term frequently is applied, this has not been the case.

Energy efficiency is a good example. Clearly, no "market failure" has occurred here, at least if one is using the term's economic definition. Advertisers regularly bill their products as "energy efficient" in order to lure consumers, while consumers have been shown to value the potential cost-savings from purchasing energy-saving devices. Of course, this desire is naturally tempered by the opportunity cost of paying more for such devices — a point regularly ignored by collectivists.

Individuals may recognize, for example, that purchasing the most expensive high-efficiency washing machine could realize additional energy-cost savings for them. But that additional cost would mean fewer resources available for food, rent or perhaps a more profitable investment.

They may also recognize that technological advancements usually lower costs over time — and thus what purchasing the less expensive model saves now could be applied to the purchase of future mid-range models that save even more energy. This is called economic efficiency. When the term "market failure" is introduced, however, it often reflects collectivists' desire to ignore these economic realities and force every individual to purchase the most advanced models regardless of what other needs they would then have to forego.

Government-mandated energy-efficiency programs, such as those discussed in Nevada, generally impose an efficiency tax on utility customers. Proceeds from the tax then go to provide financial incentives to customers who purchase the "correct" appliances. This is little more than a behavior-modification scheme that would sacrifice economic efficiency and individual freedom to achieve the politically correct "social goal" of supposedly elevating energy efficiency.

The energy industry is just one of those where the term "market failure" is applied without foundation. In reality, the energy behavior-modification schemes envisioned to address the supposed market failure would generate even less optimal outcomes from a market standpoint.

But this realization goes even further: Not only does it undermine claims of market failure — it highlights a much more serious and pervasive problem, namely the widespread fact of "government failure."

Contrary to the situation with declarations of "market failure," allegations of "government failure" are supported by plenty of economic evidence. A recent study by the Nevada Policy Research Institute, for example, showed that government growth in Nevada has not only failed to provide higher-quality services to state residents, but that government growth has actually been associated with a quality-of-life deterioration for Nevadans. A number of performance indicators demonstrate that when tax revenues have been high in the state — crowding out growth from the private sector — the quality of education, public health, public safety and Nevada's transportation system have all deteriorated, relative to low-tax years. The study is prime evidence that when Nevada government expands into roles that would otherwise be filled by the free exchange of goods amongst individuals, it fails to perform at the level of markets.

"Market failure" is rarely, if ever, a demonstrable claim. It is most often a red herring used by collectivists to force certain values onto individuals who do not share those values. This limits freedom of choice and is an affront to the principles of individual rights upon which this country is based.

In Nevada, there is empirical evidence demonstrating that "government failure" exists. Those who would allege the supposed failings of freedom should take note that the failure lies in collectivist control.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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