The Ridiculous Federal Government Pt. 1

Many people seem to think there are plenty of good reasons for nationalized departments of various forms (agriculture, education, etc.), and the vast majority of folks today believe the military should certainly be controlled by the President of the United States. Let me explain why these notions are so ludicrous.

Imagine you are hungry. Your refrigerator and cupboards are running low on food, however; therefore, you visit a grocery store in search of sustenance. The only grocery store available is a nationalized chain, and prices are constant across the board no matter where you live (in other words, a box of cereal costs the same in San Francisco as it does in rural Alabama). The only difference in a geographical item's price may be found in its final delivery cost (shipping and handling).

A perfect example of this in the modern world (and in the private sector, no less) would be an online store of some kind, so let us say that the type of food demanded does not spoil easily during transport. If you live in a major city with a large economy, you would benefit from prices that do not discriminate on the sole basis of your local economy, because wages are rightfully higher in your area: in other words, the real cost of the food from the online grocery store would be cheaper for you since your wages buy more. This is the way that the economy should work, however, because a larger city would enjoy economies of scale.(*)

More specifically, to see why metropolitan areas should be able to buy items at a discount, let us say there are groups of buyers in two cities: one group is in Los Angeles, California, and the other is in Cheyenne, Wyoming. The geographical area of the group of buyers from L.A. will probably have almost four times as many residents per square mile; therefore, when this group reorders supplies, a cumulative order to the online distribution center will be almost four times as effective, all else being equal. And if the online store uses a larger truck to deliver the food to Los Angeles, only one driver and one trip may be needed, while three or four separate trips/drivers may be needed to deliver the same amount of food to the citizens of Wyoming over the course of time.

The problem with government, however, is that it turns this logical notion of economies of scale on its head. By using income percentages to bill people in Los Angeles and Cheyenne for the same amounts of goods, the citizens of Cheyenne are given more for their money! If a worker in Los Angeles makes $10 an hour, they will pay $1 an hour to the government at a 10% tax rate; let us say this will go towards a federal purchase of weapons. If a similar worker in Cheyenne only makes $8 an hour for the same task, they will only pay $.80 an hour at a 10% tax rate towards the same federal purchase of weapons. What is more, if a war breaks out, citizens of Los Angeles are more likely to be targeted due to their city's greater value! Therefore, the citizens of Cheyenne are given even more security than the citizens of Los Angeles for about 20% off.

The Soviet Union is an excellent example of what happens as a result of so-called centralized planning (which ironically results in decentralized methods of production/distribution). Rather than allowing the invisible hand to distribute resources effectively through what spatial economists call the gravity model (this is similar to the natural models of physics), the Soviets built communities that could not sustain themselves far away from their needed input sources. Once the Soviet Union fell, many small communities became ghost towns. This is why it is so difficult to transition back towards a free market economy once a nation has been centralized for so long.

This is also why a person that argues against federal programs faces an uphill battle as a result of the programs in question having already been in place (bridges to nowhere are not only sunk costs, but more importantly, they result in an enormous number of free riders). Even though a centrally planned economy may not make economic sense in the long-run, it would be almost impossible to convince the unproductive citizens otherwise in the short-run. Usually, such citizens procrastinate in attaining self-sufficiency until the market overwhelms the best efforts of the government's planners, at which point even more suffering results than would have been the case if the situation had been adverted earlier.

*(Brick and mortar retail prices are traditionally higher in populated cities due to relatively higher real estate values in such areas: higher metropolitan rent/property expenses are partially passed on to consumers. This issue was addressed by David Ricardo when he claimed landlords capture the increased production of capitalists while workers remain at subsistence, which is a result of diminishing returns to land. We can reasonably factor landlords out of the equation today thanks to inventions such as the Internet. Furthermore, modern real estate prices are higher than they should be in a free market as a result of the inflationary policies of the Federal Reserve, which also harm low-income workers (renters) in metropolitan areas more than competitive workers in rural areas: not only are low-income workers in metropolitan areas not granted the offsetting capital gains metropolitan property owners enjoy, but furthermore, larger portions of metropolitan low-income workers' wages are captured by landlords.