The reason the private sector is more efficient than government is not because it doesn’t make mistakes, but because it has mechanisms to purge mistakes and move resources to higher-valued uses. Government policymakers do the opposite—retaining failed programs year after year because they find it difficult to cut their supporters off from the gravy train.
As a result, resources get stuck in low-value uses, and the economy becomes less and less efficient.
Even if politicians were willing to make tough spending tradeoffs, government activities do not generate the price and profit signals needed to allocate capital and labor efficiently. The more the government expands into industries such as health care, the more destruction that is done to market signals, which makes it even more difficult for policymakers (and consumers) to pursue rational plans.
A further problem with government expansion is that federal programs are often horribly mismanaged. President Barack Obama wants to expand subsidies for energy research, for example, but he should know past federal energy subsidies have led to boondoggle after boondoggle.
Similarly, Obama thinks he can improve federal efficiency, and perhaps he can make some improvements. But he cannot change the fundamental factors that make the government such a poor allocator of resources.
— Chris Edwards
