Should we run government like a business? While it sounds nice, it may be impossible. The great Austrian economist Ludwig von Mises told us why in his classic 1944 book entitled Bureaucracy. He explained that only through the pricing mechanism of private markets can we direct goods and services to their highest-valued uses.
Mises was the first to show that socialism is doomed to fail because it lacks market prices for the means of production. He also explained why even in our capitalistic society, government bureaucrats have no way of allocating resources rationally, even if they want to. Even with the best of intentions, a bureaucrat can’t separate what is waste from what is productive.
Mises explained that cost-benefit analysis in government is pointless because no one knows the potential alternative uses for the resources. In spite of his time-tested insights, some politicians still think they somehow can make government efficient without benefit of the market price system.
Contracting out and privatizing government functions will help. The more we can do in the private sector, which adheres to market principles, the more efficient our economy will become. But as long as government does so much in our lives, it will do it uneconomically. Neither Barack Obama and John Kitzhaber nor their Republican counterparts can make the federal or state government run like a business. Nobody can.