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Brooks Wilson's Economics Blog: The Government, Computes and Reverse Causality

Friday, January 15, 2010

The Government, Computes and Reverse Causality

Peter Orszag, Director of the Office of Management and Budget, has committed the error of reverse causality arguing that the government is inefficient and ineffective because it has a technology gap with the private sector.  The gap exists because government is inefficient and ineffective relative to the private sector.  Ian Swanson writes in the Hill's technology blog, Hillicon Valley ("White House budget director blames old computers for ineffective government") that Peter Orszag believes that a technology gap is responsible for ineffective and inefficient government.
The public is getting a bad return on its tax dollars because government workers are operating with outdated technologies, Orszag said in a statement that kicked off a summit between Obama and dozens of corporate CEOs.

“Twenty years ago, people who came to work in the federal government had better technology at work than at home,” said Orszag, director of the Office of Management and Budget. “Now that’s no longer the case.

“The American people deserve better service from their government, and better return for their tax dollars.”

The White House release that included Orszag’s comments said one “specific source” of ineffective and inefficient government is the huge technology gap between the public and private sectors that results in billions of dollars in waste, slow and inadequate customer service and a lack of transparency about how dollars are spent.
For those old enough to remember interacting with the government twenty years ago, were they more efficient and ineffective relative to the private sector? 
The private sector has been and remains more efficient than the government because it generally has superior incentives, most importantly profits.  If a business believes that a new technology will increase profits, they employ it or risk adaptation by a competitor that will cannibalize their profits and market share.  The government has no such incentive.  They may know that a new technology will improve efficiency but there is no profit motive to encourage adaptation.  They may or may not make the investment.  If they don't make it we get the same service.

Orszag wants to improve government, a laudable goal.  A first step is to recognize government's shortcomings and limit its scope to areas in which the private sector has poor incentives relative to the public sector.  The government should provide national defense, a judicial system to protect people and property, city roads, and perhaps a few other services.  Policy makers can improve the effectiveness and efficiency of the government by turning over functions to the private sector.

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