Tag Archives: Business

The Unstarvable Beast: The Need for more Effective Government Spending

Revealing article by Harvard’s Kenneth Rogoff linked above…

Key Takeaways: 

  • The government operates in the service industry, which generally exhibits slow productivity growth.
  • While productivity growth is slow, the industry is still forced to pay higher wages for relatively the same output because it competes for workers in the same labor market as other, high-productivity industries like finance and telecommunications. This translates into ever-increasing costs.
  • This cost issue plagues the service industry. Costs are so high that the industry now accounts for more than 70% of spending.
  • While this “cost disease” permeates the industry as a whole, the government suffers more than most players because (a) it’s expected to provide a wide array of services, making it impossible to specialize and reduce costs and (b) government often provides services in areas where there is little competition, making it difficult to lower costs since there is little incentive to innovate.

The Unstarvable Beast: The Need for more Effective Government Spending

The Welfare Cliff(s)…

After viewing the entirety of “Welfare’s Failure and Solution” (linked below) I found the graph below to be the most informative…and frightening.

image

The x-axis lists raw, unadjusted income and the y-axis lists income after taxes/entitlements. Ignoring the entitlements, we see that even though we have a progressive tax system, there is still incentive to climb the income ladder (each blue bar is higher than the blue bar before it). If we consider the entitlements, we see that several “cliffs” form on the chart (I count 4). These cliffs represent a disincentive to move up in unadjusted income.

http://www.scribd.com/doc/114628958/welfare-failure