Dennis Wassem’s opinion piece “Governmental Taxation Undermines Its own Aims” in the Sept. 27, 2011 edition of the Nexus attacked the “narrow worldview” of the “disposition and abilities” of government that was recently advanced by Massachusetts Senate candidate Elizabeth Warren. The article lays two charges against Warren’s argument for more social spending: that the government is not always benevolent and that privatizing public infrastructure and civil institutions maximizes their efficiency.
The first contention is true but nonetheless a non sequitur. It is uncontestable that the federal government routinely and savagely tortures people, for example. However, criticism of government malfeasance does not imply that it should be inactive. The War on Terror is no excuse to end Medicare. Instead, a wise society seeks to mitigate the harms associated with the government while maximizing the benefits.
The article’s second argument does directly address Warren’s message and rests on an economic assumption that would have Adam Smith spinning in his grave. It maintains that any service or product that is provided by the government can be more efficiently provided by a private entity. It supports this idea with a sloppy outline of the free market principles found in The Wealth of Nations. Unfortunately, this classic dropped off best sellers lists long ago and very few people actually read it. Many key points are forgotten and neglected when it is applied in modern contexts. Most importantly, Smith argues that decentralization of market power maximizes market efficiency — insulation from government influence is a means to that end, not the goal itself. A free market is not guaranteed by an absence of government regulation but rather by the diffusion of production and consumption over many competing and independent parties. The more complete this diffusion, the closer the market approaches the behavior of Smith’s free markets.
As Tuesday’s opinion piece notes, private grade schools and high schools are often higher quality and more efficient than publicly-run equivalents; however, it neglects to mention that for-profit universities charge Ivy League rates for worthless degrees. The deciding difference between these two private education systems, according to Smith’s arguments, is that the former is often administered by small organizations while the latter is controlled by corporate titans. Another open secret in The Wealth of Nations is that Smith does not claim that private profit is always the best way to support the public good. Rather, he maintains that the government should administer such projects that cannot yield profit to any “small number of individuals” but “more than repay it to a great society.” He cites as examples services such as fire fighters and education and infrastructure projects like roads and bridges.
The truth is that Smith was no ideological zealot though his intellectual corpus is often abused for such zealotry. The modern global economic environment scarcely resembles that of the 18th century and his arguments are often fallaciously extrapolated to support ideas that he vigorously opposed. Smith’s opposition to the concentration of economic power has been cast down the memory hole with the rise of the neoliberal economic order which he surely would have attacked as thinly
