Public Sector Economics

Special interests, rent-seekers and public employee unions

GEORGE NOGA
NOV 12, 2023

My blog frequently refers to public sector economics and it is time for a full post on that topic. There is a branch of economics dedicated to the public sector and Nobel Prizes have been won for pithy analysis of public choice economies.

Many people, particularly the young and progressives, have an infatuation with government. They view elected officials as benevolent, dispassionate actors seeking the best possible social outcomes. In contrast, they view private sector actors as self-interested and greedy. They are half right: private sector decision makers do indeed pursue self interest; however, public sector workers just as shamelessly pursue self interest even when that means throwing the public under the bus.

white concrete building under cloudy sky during daytime

Public sector economics at work

The goal of politicians, to the exclusion of all else, is winning the next election. They focus single-mindedly on that goal – no other objective comes close.
Their focus is very short term, i.e. the next election. They make disastrous decisions knowing full well they harm the public in the long run. That explains deficits in 57 of the last 62 years. They enact immediate unfunded pensions and other benefits while pushing off the costs as far into the future as possible.
Special interest groups, rent-seekers and unions seek to extract value from government without giving value in return. Unionized public sector workers get 25% more than their private sector peers for comparable work. In exchange, unions donate money, campaign workers and votes and the process repeats.
Politicians understand they can significantly benefit special interests even when clearly contrary to the public because the benefits are huge in relation to the costs when spread over 330 million taxpayers. For example, sugar subsidies, to a very small number of growers, cost taxpayers $4 billion per year, but that is only $50 per American family – not enough for them to strenuously object.
Central planning leads to bad decisions. It ignores real world preferences of real people, creates perverse incentives and results in unintended consequences.
The private sector is quick to recognize and to cut losses; for the public sector the incentive is to deny anything is wrong and continue to throw money at it.
The incentives and disincentives in government are horribly misaligned such that they reward behavior that is not in the public interest.
Politicians get feedback only infrequently during election years. Even then, that feedback is bundled with numerous other issues making it difficult to isolate issues individually. Moreover, in many jurisdictions elections are decided based on identity politics and voting blocks with the issues being an afterthought.
Politicians always choose borrowing over raising taxes and go to extreme lengths to make taxes as opaque as possible. In the words of one solon, the goal is to get the most feathers off the goose with the least amount of hissing.
In recent years, with interest rates near zero, politicians borrowed short-term instead of locking in historically low long-term rates. They committed this malpractice purely for political reasons so deficits would appear less. Both political parties were culpable as public sector economics applies universally.

Why government fails

Public sector economics demonstrates why government failure is systemic, structural, deeply rooted and incapable of reform. Waste, fraud, abuse and corruption are ingrained and rampant. Government is not based on markets; it is top-down, highly coercive, ignores consumer preferences and artificially creates winners and losers.

Government cannot be fixed and it is futile to try because basic human nature, which is highly responsive to risks, rewards and incentives, is unchanging. Business succeeds, where government fails, precisely because it properly aligns personal rewards and incentives with the goals of the business. Hence, the value proposition offered by the public sector does not attract talented hard working people.

How to reduce public sector pathologies

There is one way – and only one way – to reduce the pathologies inherent in the public sector – they cannot be eliminated – only reduced. The answer is to drastically shrink the size and scope of government. Even then, the public sector will fail, but it will be less of a failure; absolutely nothing else will work.

Americans do not need more government, better government, wiser government or even more frugal government. America needs less government!

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

Public sector unions violate Article IV of the US Constitution
GEORGE NOGA – MAY 28, 2023

Public employee unions are one of the greatest, if not the greatest, dangers to our American democracy. This post provides a roadmap for abolishing them. First, some background. Not that long ago public unions did not exist and there was universal agreement they had no place in government. None other than FDR said:

“Government employees should realize that the process of collective bargaining cannot be transplanted into the public service. It has insurmountable limitations when applied to public employees. The very nature and purpose of government make it impossible.”

Even the union movement agreed collective bargaining had no place in government. Labor leaders viewed unions as a vehicle for workers to get a larger share of the profits they helped create. However, public employees do not generate profits. The AFL-CIO stated government workers have no rights except to petition Congress.

The dam broke in 1959 when Wisconsin allowed collective bargaining. Since then, public sector unions have metastasized and have taken effective control over governments and are unaccountable to voters; this is their Achilles heel.

The Constitution guarantees a “Republican form of government”

Article IV, Section 4 states: “The United States shall guarantee to every state in the union a Republican form of government.” There is a compelling argument that public sector unions violate this guarantee. The drafters of the Constitution did not define “Republican”. There has been jurisprudence on this point (defining Republican) over the years, including in the Federalist Papers. I have read all the relevant case law and there is no concise definition put forth by the courts directly on point. Based on my reading of the Federalist Papers and the relevant jurisprudence, I believe there is consensus that a Republican form of government is one in which:

The power of government resides in the people – directly or indirectly
The people elect representatives and give them power to serve their interests
Representatives represent everyone, i.e. provide for the common welfare
No control or special treatment is to be given to a favored class

Public unions subvert a Republican form of government

Public sector unions violate each and every one of the above characteristics of a Republican form of government. In many cities and states (primarily deep blue ones) unions exercise effective power over elections, schools, criminal justice and any other issues unions deem vital. During Covid, teachers’ unions shut down schools for years at the behest of unions and in direct opposition to the wishes of citizens. Their control of elections is particularly nefarious. They spend vast amounts of money and manpower to alter elections. Moreover, their funds are derived via one-sided collective bargaining with the same officials they put in office.

Elected officials are beholden to public sector unions and place unions’ interests ahead of those of the people they are elected to serve. They are not providing for the common welfare and unions are a favored class. Public unions’ political activity raises prima facie constitutional issues. Elected officials occupy a position of public trust and have a fiduciary duty to serve the public; this duty is in direct conflict with public sector unions. In many places, the machinery of American democracy is firmly in the clutches of powerful public sector unions. The iron-fisted grip of public unions is impervious to the electoral process and must be fixed by the courts.

It’s time for a constitutional challenge

It’s long past time to break the unholy and corrupt grip of public unions over our democracy. To be sure, it won’t be a slam dunk; but the roadmap presented in this post shows one way it can be done. Readers may judge for themselves the strength of a constitutional challenge as presented herein. What other choice do we have?

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

Tag: Public employee unions