Sunday, September 16, 2012

Political Economy 101

In a fleeting moment  of coherence David Brooks wrote about the contrast between the private sector and the public sector in our economy. (The public sector here includes all industries with heavy government involvement that substantially distorts incentives and generates rent-seeking behavior.)

One commenter responded:
In the US, [the public sector] has to purchase from [the private sector]: books, standardized tests, . . . , etc. and in too many cases, there is little or no competition. Consequently, [the private sector] is turning a considerable profit and part of that profit goes into campaign contributions . . .

I spent 25 years in commercial printing before becoming a teacher about 13 years ago - so I've seen both sides of the issue. . . . Meanwhile, I have seem more waste than you can imagine in public schools - all involving products of some large company that maintains a strong presence on K street. 
The conclusion is that we need strong leaders to say no to no-bid contracts and to kick all the textbook publisher and computer manufacturer lobbyists out of D.C., state capitals, and the like.

I think this misses some core lessons from Political Economy 101, big government encourages big rent seeking. If you don't want textbook companies and computer companies convincing schools to piss tons of money away on their products then give the people who make purchases decisions an incentive to make them wisely. Private schools have those incentives in many cases, but public schools often do not. If you don't want tons of Medicaid fraud then get companies incentives not to commit fraud: severe punishments. Big its a fact of life that the government is often bad at putting these incentives in place whereas they often emerge naturally in the marketplace (schools that spend too much go into the red and close shop).

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