Imagine you are in your house when suddenly you hear an intruder. Fearing for the safety of your family, you rush over to your closet and start loading your Tommy gun. As you are preparing your weapon, you have a random thought: “This Tommy gun is pretty effective for self-defense, but I think I might just use my trusty frying pan instead. Sure I’ll have to get closer to the intruder and put my life at considerable risk, but I just like my frying pan a whole lot.” Throwing your Tommy gun aside, you pick up your frying pan and go to defend your house.
Last week I made the point that created items generally work best when put to use according to their intended design. Additionally, this opening illustration highlights another key point about roles: when you utilize something beyond its intended role, you often usurp the designed function of something else.
In terms of the role of government, this is an important concept to understand. When weighing benefits and costs, we must realize that as the role of government expands, the roles of other societal forces shrink. Just as the frying pan rendered the Tommy gun useless when its role expanded unnecessarily, so government enlargement can hinder the effective and intended functions of other societal institutions. This can be seen in two specific areas: social welfare and economic regulation. (I will merely touch on these issues as an illustration of the above point. A fuller discussion of either topic will have to be put off until a later date.)
Most people would likely agree that it is important to help the poor and the less fortunate. And through welfare, the federal government is very involved in attempting to achieve this goal. However, as government gets involved in these poverty-reduction endeavors, it pushes out other more appropriate institutions, such as the church. Tony Evan notes, “The primary job of caring for those in need was never intended to be a function of government. Can you imagine Paul going to Caesar and asking for a federal grant to fix the problems of poverty within the church in Jerusalem?” (“Turn Neither to the Right Nor to the Left” page 241).
The Bible calls believers to look out for the interests of others (Phil. 2:4, 1 Cor. 10:24), and to materially give to those in need (Rom. 12:13, James 2:15-16). Thus, through the church, we have an institution that is designed for dealing with poverty. Government welfare, on the other hand, is patently inefficient and unable to make noticeable improvements in terms of poverty reduction, because government was not designed to eliminate or alleviate poverty. Marvin Olasky describes our current welfare system as “the ultimate bureaucracy –an anonymous public supporting anonymous machinery supporting anonymous clients” (“Turn Neither to the Right Nor to the Left” page 208). As follows, the government suffers from a lack of knowledge about individuals and a (potential) lack of motivation to actually help the poor improve their productivity and get off of welfare.*
In summary, the government was never designed to financially provide for the poor. And by acting outside of its role, it inhibits the normal functioning of other effective private institutions, such as the church.
(There’s much more that could be said about the relative efficiencies of private versus public charity, improving private poverty relief, and the morality of government income redistribution. These topics are beyond the scope of this post, but if you’re interested in learning more, I would recommend two books: “Poor Policy: How Government Harms the Poor” by D. Eric Schansberg and “The Tragedy of American Compassion” by Marvin Olasky.)
While government economic interference is a very broad topic, the main point that I want to highlight is that government interference in the economy via interventions, such as price controls, usurps the effective and intended function of the price system.
What is the price system, you ask? Economist Robert Murphy explains the role of prices, “A market price is the balance between how eager you are to buy something and how reluctant the producer is to sell it. If something has a high price tag, it’s because it is scarce; if it has a low price tag, it’s because ‘they’re a dime a dozen.’ In short, market prices are not arbitrary” (“The Politically Incorrect Guide to Capitalism” page 9). Among other purposes, the price system has at least two important and related functions in the market: signaling and coordinating.
Prices act as signals to market participants, demonstrating the value that market participants place on the goods in question. Additionally, prices enable individuals to calculate profit and loss, which direct the actions of entrepreneurs. Economist Gene Callahan describes the market process as, “the ceaseless striving of entrepreneurs to locate price discrepancies and profit from them, thus adjusting production to the wishes of consumers” (“Economics For Real People” page 159). Thus, the price system signals to entrepreneurs areas of unsatisfied consumer wants and to intervene to provide the requested good or service. Without a price system, entrepreneurs would be unable to determine which new enterprises might be viable and profitable.
Prices also function to ration goods and services. Rather than allocating goods to consumers based on preference, nepotism, or some other form of discrimination, the price system allocates goods based on the consumer’s willingness to pay. Callahan again states, “the market guides scarce resources toward their most important uses through the voluntary rationing of the price system,” as “the new, higher price of the good motivates people to use less of it” (“Economics For Real People” page 199).
In summary, the price system is fluid and able to react to changes in supply and demand. Economist F.A. Hayek noted, “Fundamentally, in a system in which knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people” (“Economics For Real People” page 163). Prices serve to alleviate the problem of insufficient knowledge of market factors and to coordinate supply and demand.
Central planning supplants the role of the price system, but cannot allocate goods nearly as efficiently. After all, no individual or group of individuals could possibly track the changing preferences of millions of consumers and producers like the price system can. Furthermore, interferences like price controls distort the signaling function of the price system, disallowing consumers from “voting” for certain goods through their spending practices. Murphy again notes, “When the government interferes with prices, it cripples the ability of free people to make intelligent economic decisions, just as surely as if politicians interfered with phone lines, e-mail, or other means of communication” (“The Politically Incorrect Guide to Capitalism” page 10). This behavior by the government has the negative effect of causing unnatural shortages and surpluses.
These shortages in particular lead to a rationing problem. If the government sets an artificially low price, the quantity demanded will increase, but the quantity supplied will decrease, leading to a shortage. In a free market setting the price would rise, rationing the good in question based on consumers’ willingness to pay. However, the price control disallows the price from rising, which forces the government to ration the good in question based upon some other criteria besides willingness to pay.
In conclusion, the government was never designed to direct the intricate adjustments of the market. And when it acts outside of its role, it inhibits the normal functioning of an effective societal force: the price system.
My intent was to briefly touch on two areas of public policy as a means of showing some of the unintended consequences of expanding the function of government. I didn’t want to go into considerable depth in terms of discussing the role of government, nor did I want to write extensively on these policy issues. Those will have to be topics for another day. However, hopefully this helped you think through the intended function of government and some of the unintended consequences of government expansion.
If you have thoughts about how government expansion can detrimentally affect other societal institutions, feel free to leave a comment or send me an email. Additionally, if you want to specifically discuss the role of government or either of these policy issues, you’re welcome to leave a comment. Again, thank you so much for reading this blog!
*(You might ask why government and the church can’t work together to deal with the issue of poverty? Does government involvement in welfare necessarily supplant the role of the church? That’s a good question and I’ll try to touch on it briefly. I would say that government’s attempt to alleviate poverty through the welfare system not only have negligible positive effects, but often actually have considerable negative effects. Examples of these effects would be: incentivizing recipients to stay on welfare (a culture of dependency), incentivizing recipients to not establish marriages, and coercively taking money from individuals to fund the welfare system. Hypothetically, if the government were able to alter this system entirely, it might be able to work with the church. But the bureaucratic, budget-maximizing nature of the government makes it difficult for me to envision an efficient government-operated welfare system. Further, the question of roles becomes important (as I’ve tried to stress throughout these posts). Is it within government’s intended function to deal with poverty?)