Government and the cost-disease — provoking you

Matt Yglesias writes:

Meanwhile, one needs to understand that, somewhat counterintuitively, when you have a very efficient economic sector what happens is that
it tends to go away. Consider agriculture. Our modern-day agricultural
technology is way better than what was available 200 years ago. But
agricultural progress hasn’t meant that everyone goes to work in the
super-charged high-tech agriculture of the future. It’s meant that more
food than ever is grown with fewer person-hours of labor than ever. We
should expect this to continue apace. For all the talk of trade’s
impact on American manufacturing, the bigger issue has been automation
and robots. But either way, even though people will continue to consume
manufactured goods–just as we still eat–manufacturing will be a
less-and-less important part of the economy. Not because manufacturing
“isn’t important” but because it’ll get more efficient. And that’s how
the whole private sector part of the economy will go. Markets, doing
their work, will make those sectors more and more efficient leading
them to shrink as a share of the overall economic pie.
What will be left is big government. Or, rather, bigger and bigger government.

I would make a few points.  First, some progressives wish to argue that government is fairly efficient (low Medicare overhead costs is a common observation here); in those sectors this argument won't apply.  Second, if a given activity could go to either the private or public sector, we might be reluctant to stick it in the less-productivity-enhancing public sector.  Third, many government activities should benefit greatly from private sector technological advancement (electricity, cars, internet, etc.), yet we don't usually observe those sectors shrinking rapidly, as a percentage of gdp, as a consequence.  This should worry us.  Still, there is truth in Matt's basic observation.


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