Sunday, September 27, 2009

Local Control

I read a business book several years ago that studied companies that had been at the top of their industry for a time but had then been overtaken by a much smaller competitor. The study was trying to determine what caused their downfall and how they could be blindsided by a competitor that had far fewer resources. The conclusion from this study is that smaller organizations work more efficiently, they are able to react to changes in the marketplace in a more timely manner, and tend to foster more innovation. The recommendation to companies is that they need to operate as a group of small companies and when they get too big, to spin off certain parts of their company into smaller business units. These small units should act like any other small company by securing their own capital, being responsible for profit and loss, and managing their human resources. The larger company can set certain guidelines for all of these but each smaller business units is responsible for running their business.

That lesson applies to our government as well. Local governments tend to be more efficient, better able to react to changes in the local community, and more creative in developing solutions to problems. When everything is being directed by a large central government that is many layers removed from the individual citizen, we end up with a system that delivers services in a very inefficient manner. We also introduce many levels in which corruption can enter into the system. The federal government can and should set some guidelines to enforce some consistency but they should be careful in adding so much regulation that it inhibits innovation and adds excessive costs from regulatory enforcement. Local governments also are much closer to the individual citizen which helps keep everyone honest.

Our founders realized that a central government was necessary but they also set up a system where the states had significant control over their governance. We need to get back to their original model of a smaller federal government and more control at the state and local levels.

Sunday, September 20, 2009

The Food Chain

When I was in school, I remember learning about the food chain. An animal eats a plant, then a bigger animal eats that animal, a bigger animal eats that animal, and so on. Plants get their energy from the sun so in the end, you can trace all life back to the sun. Even though a coyote eats only meat, you can trace his energy back to the sun by following its food chain.

The government food chain is that all government revenue can be traced back to the individual. Our politicians often play the game of making you think that someone else is going to pay for this program but it can all be traced back to the individual. Let me illustrate with a few examples:

1) "We're going to pay for this by taxing big corporations" - Corporations are in business to make money and to be viable in the marketplace, you need to show profits that are consistent with others in your market. When governments collect revenue from corporations, this eventually gets passed onto the consumer through higher prices which is a tax on the consumer.

2) "We're going to pay for this by taxing the rich" - Rich people don't just put their money under a mattress. They buy things (houses, yachts, cars) and they invest. Both of these activities create jobs which helps the overall economy. When the rich have less money to spend due to taxation, there is less money in the economy for jobs which ends up being a tax on individual workers.

3) "We're going to pay for this through savings in other programs" - Currently, Medicare reimbursement rates are not sufficient to cover the costs of treatment so hospitals and doctors charge more to the non-Medicare patients to make up the difference. If the government chooses to further reduce Medicare reimbursement rates, costs will go up for everyone else and treatment options will go down for the Medicare patients. Both groups of individuals lose in this case and end up paying this tax. True savings that can really reduce costs need to come from efficiency and productivity gains in the system.

Therefore, when you hear some politician tell you that this program won't "cost you a dime", remember that all government revenue can be traced to you eventually. Just as all food chains can be traced back to the sun, all government revenue can be traced back to the individual. Think about that when being sold a new government program - if it were my money, would I spend it on that? In the end, it IS your money so spend it wisely :-)

Sunday, September 13, 2009

The Primrose Path

A primrose path was referred to by Shakespeare and others. It is often meant to denote an attractive path lined with flowers that eventually leads the traveler to an undesireble location.

When I was in college, there was a common thoroughfare from where the students lived to the school buildings. The path passed by a oval filled with grass surrounded by other buildings. There was a worn path across the grassy oval that represented the shortest path from Point A to Point B. The conscientious student would avoid the path so as to try and preserve the grass but the path was used regularly be others to save a few steps. An English professor approached a group of us one day and asked if we would be willing to help her in doing an experiment. She wanted to plant primroses and flowers along the path and put a sign at each end labeling the path as the "Primrose Path". We agreed, so late one night we went out to plant flowers along the path. The next morning, we watched the reaction of people. It appeared that it deterred some from walking along the path, to others it appeared to entice them to walk on the path and to others it seemed to make no difference. Over time, it didn't seem to change behavior much and the flowers eventually died and we pulled them up while the worn dirt path remained.

We are often enticed to take the easy path in life. It is good for a time helping us get to our destination with less work but after awhile, it leads us to places we don't want to be. For the path across the grassy oval, it started fairly innocently by some students who were in a hurry and could save a few steps walking across the grass. As others followed, it eventually became an eyesore. If those who had been first to walk across the oval would have thought about the eventual result of their actions, would they have acted differently?

In our government, we should be wary of taking the easy path. It often looks enticing and politically attractive. Who wouldn't want the promise of "free" this or "free" that? People keep reelecting their representatives because they are good at bringing back "goodies" to their districts. Many of the fiscal problems we are in now are due to the start of well-meaning programs that promised an easy fix to a problem.

We have many issues to resolve in our country. Let's demand that our representatives do the hard work that is required to develop long term solutions. If we keep asking them to "plant flowers" to make the solution attractive now, it will often lead us to an undesirable location. Grass is not as pretty as flowers but a grassy oval is better than one with a dirt path in the middle of it.

Sunday, September 6, 2009

Happy Labor Day

As we celebrate Labor Day, we should celebrate the value of hard work. Our founders did not give us liberty from work but liberty to work in whatever we choose to do. Hard work is good. It builds character, helps develop skills, provides mental and physical exercise, and improves the quality of life for all. The people that settled this country, the immigrants that came here to start a new life, those who fought in wars defending this country, the businesspeople, inventors, and innovators that run businesses, the farmers, laborers, and factory workers all worked hard to give us the life we have now. Labor Day is a day to honor them.

Our government should strive to promote hard work by discouraging laziness and rewarding hard work. Over the last several decades, we have unfortunately moved away from that ideal. We provide way too much to those who choose not to work and punish those that work hard. The intentions are often noble - help out those on hard times but are we really helping them when we provide little incentive for them to get back on their feet and be self-reliant? And by punishing those that do work hard and earn a lot, we take money that would otherwise be used to create jobs and new businesses and use it to fund more government and more laziness. A society that doesn't work will not survive. Now, let's get back to work!