Tuesday, May 15, 2012

Competition of servants

(Free markets are a competition of servants)

This article illustrates what libertarians mean when they say that private entrepreneurs will be always more effective than the government. The government lacks the concept of innovation. It doesn’t know when to risk and when not to. And it’s above competition.

The last point is especially important. It’s not true that every entrepreneur out there is smarter than the government and can provide better service. But if the subject of the article was a bad entrepreneur (if he was bad at predicting and providing what the public wants), his money would simply go away to those who knew better. (In fact, when he was losing money, that’s what was happening.)

The market "overall" knows what to do best because it has millions of separate entities making different decisions and competing. The terrible 1% is 30 million people. 30 million separate entities — and that’s not even all the entrepreneurs on the market in the US. The federal government is just one entity. It consists of a few hundred Congress members, a president and nine judges (plus their staff). Most of these people have no proven business skills. All of them lose nothing if some government project (like war on poverty) ends up a failure. And they have nobody to compete with. (In fact, oftentimes, if someone competes with them successfully, they simply outlaw the competition. I.e., they make use of their monopoly access to the violence to weed out those who provide a better service for the public.)

Of course, if the government tells J.P. Morgan: "We will pick up your losses", then the free market flies out of the window. J.P. Morgan can try much more risky things than it normally would. Except it’s the free market that gets blamed when J.P. Morgan messes up and results in billions of losses and needs to be bailed out. Then, the "progressives" cry out for more regulations. Because it was too much freedom and too few regulations that caused the problem. Not the fact that the government encouraged recklessness.

The above is true about any kind of business. It’s true about casinos; it’s also true about charity (including medical charity). If people want to give charity, they should do so through competing organizations, whose business-models the customers themselves can pick. Not through a massive web of bureaucracy.

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