The Motley Monk fave, Veronique de Rugy of the Mercatus Center, hit a bases-loaded homerun in her testimony before the House Oversight and Government Reform Committee.
Ms. de Rugy recently discussed "public choice theory" to explore how government actors operate according to self-interest. But, rather than dealing with abstractions, de Rugy provided evidence from the Department of Energy's loan program (the American Reinvestment and Recovery Act of 2009 program that funded Solyndra) to explore how public choice theory works in reality:
- First: The loan programs transfer the risk from the lenders to nation's taxpayers. With the loan guaranteed by the full faith and credit of the U.S. government, banks had less incentive to vet applicants for the loans thoroughly.
- Second: The loan guarantees created incentives to shift resources toward subsidized products. How so? They are "safe" assets which attract private capital, independent of the project's actual merits. More viable projects cannot attract funding, while subsidized projects thrive.
- Third: The loan guarantees fuel political incentives, fueling crony capitalism. (To think that the President accuses the Republicans of crony capitalism!)
In sum, de Rugy demonstrated how government solutions to most problems not only fail to solve them but also often make those problems worse.
In the free marketplace, individuals are incentivised to act prudently when they make purchases, invest, and save. It's in their self-interest to do so because the marketplace rewards individuals for acting wisely, effectively, and efficiently. And, those individuals keep a very close eye on how their money is working relative to the hoped-for rewards.
In contrast, government actors use taxpayers' money not their own money. Not confronting the same type of risk that individuals confront when making important financial decisions, government actors are not incentivised to be prudent. Why? It's not in in a government actor's self-interest to do so because there is little, if any, reward for acting wisely, effectively, or efficiently. Government actors also don't closely monitor how the money is working because they calculate it's not worthwhile to spend the time that's necessary to follow the money carefully. After all, it's not their money. So, what incentive is there to follow the money when there are incentives to move on to other purchases, investments, or savings?
To think so many people actually believed the narrative sold by the President and his minions in Congress that the American Reinvestment and Recovery Act of 2009 would demonstrate how expanding the number of government programs would solve the nation's problems!
And, that's to say nothing about Obamacare now that it's being rolled out.
The Motley Monk suggests trying the following mental experiment: Apply "public choice" theory to Obamacare. What would it mean in actual practice?
Any surprise at all that's happened? Failed computer systems. Fraud. Crony capitalism. Discontinued policies. Where are the incentives for government actors to keep a very close eye on how the taxpayers' money is working?
Let the discussion begin...
To read Veronique de Rugy's testimony, click on the following link:
"Why Government Institutions Fail to Deliver on Their Promises: The Public Choice Explanation."