Balancing the State Budget

I had friends around for dinner yesterday and enjoyed a lively discussion on politics and economics (but I repeat myself). The subject turned to the (lack of) state-government funding for essential services such as Police Ambulance and Fire brigade. My friend (who has connections with one of the major parties) pointed out that, for a number of years now, funding for all government departments have been subject to an "efficiency premium". This is a ploite way of saying that their budgets are being reduced by 3% every year. My concern is that these essential services are already cut to the bone and that any further cuts would result in a catastrophic failure that would cost lives. This begs the question "when will the efficiency premium stop?" It can't 3% all the way to zero!

This triggered discussion around how the state government might adequately fund essential services without having to raise taxes or borrow and run up a deficit. I thought that it might be possible to cut some non-essential services but it turns out there aren't many servces that can be considered non-essential these days.  Mulling over this with a glass of Scotch after dinner, I began to wonder what else besides essential services the government spends our money on. It happens that I'm researching an investment opportunity at the moment and it turns out there are a lot of subsidies I can apply for.

Who the Hell gets subsidies?
"Name a business that doesn't." quipped my friend.

W.T.F.?! Why do businesses need subsidies? Why should any business be subsidised, especially by taxpayers? Shouldn't businesses succeed (or fail) on their own merits? Isn't that how the Market is supposed to work? 

Apparently not!

Politicians believe they know better than anyone, how business should be run and can't stop themselves from meddling in affairs they have no knowledge of or projects they have on "skin" in. What if the government decides to introduce regulation into the industry? I've yet to meet a (business) regulation that costs nothing to comply with. Businesses always pass these costs on to the consumer. But what if the cost of compliance can't be added to the price the consumer pays, because it pushes the price of the product or service, above what the market can afford?

My friend explained that businesses faced with costs they can't pass on to consumers, will lobby the government for subsidies, using the excuse that if they're forced to close they'll blame the loss of jobs on the cost of compliance (and the politicians who enacted the regulations) - always a sensitive issue to politicians, who's perennial (only) interest is in getting and staying elected. Now, at this point, you'd think the smart thing to do would be to repeal the regulation. After all, that's the 'root-cause' of the problem. Treat the disease and the symptoms will go away automatically and all that. But, as politics is (now) more about pushing ideological agendas than sound economic management, (and when was the last time you heard a politician admit they were wrong?) the prefered option is to treat the symptom by subsidising the affected business or industry. After all, it's not their money they're shovelling down the proverbial rat-hole.

You can probably guess I'm against subsidies. Regulation and Subsidies damage the economy in two ways: First, the additional costs of regulation (always) get pushed onto the customer, via higher prices. Consumers then have less money to spend on any other goods and services, so ALL businesses lose, including the subsidised business. As the price of their product or service rises, the business loses its most marginal customers and the profits they generate. Second, the more subsidies the government issues, the higher taxes need to be, to cover the cost. This means that all consumers have less money to spend, reducing demand for all products and services, further eroding the profit margins of all businesses. Reduced profits from businesses results in less tax collected which further reduces the funds available for essential services. The government can, of course, borrow to cover the shortfall, but this then diverts even more funds into the 'black-hole' of interest repayments, further diverting scarce money away from essential services.

But why would governments want to regulate business and the economy? On past performance, governments have demonstrated they couldn't manage a root in a brothel, with a fist full of fifties, (or a rubber duck, in a bathtub) so it's he height of arrogance that any politician thinks they could manage a business or industry better than the people who own and run it. I think the reason they do, is that politicians (of all stripes) are more concerned with pushing their ideological agendas than actually managing the things they're paid to run - like the Police, Ambulance Service and Fire Brigade. The free market is all about finding solutions to problems. Solutions that can supply what people demand and make a profit for the entrepeneur who does the supplying. "Find a need. Fill a need!" - Bigweld, from the film "Robots". (Check it out, it's a fun movie.)

So, the way to balance the state budget (and adequately fund all the essential services we taxpayers expect) is obvious: Stop all subsidies and repeal all the regulations that drive up the cost of doing business. The message to all governments is clear: Governments! You're the biggest impediment to economic recovery. Get out of the fucking way and stop meddling in shit you know nothing about! Leave the Market alone, to work the way it's supposed to.

I won't hold my breath, waiting for this to happen. Too many politicians' pet ideologies (and the projects they spawn - like "renewable" electricity) aren't even remotely commercially viable and would fail without massive subsidies.