However if Intel was trying to build an Interstate road they would certainly be less efficient than government.
Bad example. Not that the government might not be more efficient than Intel, but the government doesn't usually build roads. Private companies usually do, the government usually pays for the roads which isn't the same thing. Government efficiency concerns might not be so big of deal when the issue is moving lots of money around, esp. when its just cutting a check to transfer money rather than paying for roads which requires some government oversight of the private contractor.
And then there are areas where efficient or not, government is reasonably the only game in town. Perhaps the most obvious example being defense. (not that government contractor mercenaries, or even private sector paid security forces are utterly impossible, but both leave questions of loyalty and reliability, both might run in to economy of scale problems if you had many competing forces, or lack of competition if you had few, and the later also runs in to free rider problems)
On the second you didn't provide a link so I have no idea what study you are talking about. But some projects are by nature inefficient.
Its not an issue about the project being inefficient, its about the cost of the distortions caused by raising money for the project through our complex tax system.
The study was an attempt to quantify the issue. Any specific estimate of the size of the issue would be rather debatable even with studies to back up the claims, but the issue itself doesn't rely on the study.
The basic idea is that government activities have to be paid for by taxes (borrowing is essentially delayed payments through taxes unless the debt is monetized, and printing/monetizing the payment normally causes even larger, probably much larger dead weight losses).
Since government activities have to be paid for by taxes you have to consider the negative effect of those taxes. One measure is simply, if you spend a dollar, you tax someone a dollar.
But there are indirect negative effects that go beyond that. Higher taxes discourage investment, risk taking, and harder/longer work by skilled individuals. Also higher taxes distort investment and other decisions.
The distortion effect would be small with very low taxes, or with very simple taxes, but we have taxes that aren't very low, and aren't at all simple. We have to consider the real world cost of generating a dollar with our actual tax code, not some theoretically ideal tax code.
Since we have such a bloated mess of a tax code, and since tax rates are higher enough to have an impact on peoples decisions, there is a sizable additional cost, beyond the "to spend a dollar we have to tax a dollar" cost. That additional cost is called deadweight loss.
The study I referenced (which I'm pretty sure I liked to, but can't find now, I can only find non detailed references to it from Greg Mankiw) estimated the deadweight loss of an additional dollar of spending by the federal government as 70cents/70%. (With the deadweight loss for current federal spending being lower, as this effect climbs with spending, the 70% is for the marginal dollar, not the average current dollar.)
I haven't seen any detailed study that would say its much lower than that, but I know some economists (without having study data behind them), would guess that the factor is smaller than 70%. But even if it is smaller its not zero, or negative. |
