Tuesday, March 21, 2017

There it is again

In a report from NPR this morning, a Trump supporter says, "I think this country really needs to be run more like a business at this point."  Yikes. So what does this mean to run the country more like a business?  This particular Trump supporter is particularly worrying about the growing federal deficit but sees other serious problems.  So let's see if we can take a casual definition of a business and tease out what people might mean by this notion of running government like a business.

Let's define a business as an entity that provides goods and services in return for money or other considerations.  The usual goal of a business is to obtain more money for its good and services - a profit - than it puts out to provide those goods and services.  So the business owner makes a budget, forecasting what it will cost to provision itself and advertise, etc and forecasting what units of service and goods it can reasonably expect to sell/barter, and thus sets a price for the individual goods and services that should return a profit.

Notice the verb "forecasting".  This means the owner guesses.  The forecasts are for a specific length of time and are usually updated periodically, since costs and actual sales rarely meet their forecasts exactly.  A business may "run in the red" (run a deficit)  over a course of a year but the business will fail if it never makes a profit.  So, in a business sense, running a deficit for a long period of time is the road to failure.

Governments are not out to make a profit from the goods and services they provide.  A well-run government breaks even.  Still, a deficit is red flag that there is something wrong and should be addressed.  For the years 2007 up till now, the government purposely ran in the red because if it didn't the people it serves would not have been able to buy from the businesses existing in the US.  The deficit avoided plunging the US into another Great Depression.

The US seems to have climbed out of its steep recession, at least as far as the Fed believes, since it raised rates recently.  So, may be it is time to reduce the deficit.  A business would seek to raise profits in several ways:

  1. Lower costs:
    • Find cheaper sources.
    • Lower quality of what is offered.
    • Lower amount of goods in a unit offered.
    • Cut out unprofitable goods and services.
  2. Increase revenues/make more sales by:
    • Add additional goods and services.
    • Revise goods and services to be more responsive to buyers' needs and wants.
    • Expand geographic range of where business finds buyers.
A business that just lowers costs in order to up its profits will eventually find itself back in the red unless it increases revenues because costs beyond the business's control will go up.  Likewise, a government will find itself back in the red if all it does is lower costs.  A government has only one way to raise revenues - raise the taxes it imposes on its citizens.  The Trump campaign wanted to lower taxes.  So does that Trump supporter want his taxes to do the opposite and go up so the government can reduce its deficit?  Is that what is meant by running the government more like a business?

The real question is how to raise taxes so the raises don't hurt the people the services are meant for.  The American Health Care Act strives to "lower costs" and it cuts taxes yet its effect is to raise costs on the persons it is meant to serve. A bad bargain so don't buy it.  

And, please stop thinking that if the government was run as a business we would be better off.  Some people might but I bet those would be the people who need government services the least.

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