Why Government Can’t Run A Business

Explained.

This isn’t really news, of course, but apparently, the lesson has to be relearned over and over.

I heard an interview a couple days ago with the Democrat who’s planning to challenge Chris Dodd in the primary, and he pointed out that he had started and managed several successful businesses, whereas Dodd had done nothing but be a politician his entire life. I wonder what he thinks of the Democrat president and vice president…, neither of whom has run so much as a lemonade stand? Or maybe Obama did when he was a kid, and his communist mother subsidized it?

37 thoughts on “Why Government Can’t Run A Business”

  1. The problem is speaking truth to deaf ears. Which means you have to do more than talk. The people in charge are bullies and we have to face them down. While we may pick our battles, once we do there should be absolutely no compromises. The left has a habit of compromising a win into a loss… every time.

  2. Actually, that’s a typical pattern of bullies. Once in a meeting we’d reached an agreement on something (I forget what) and a bully that happened to be one of my bosses reverted back to his lost position in the few moments it took him to return to his office.

    Another example of deaf ears.

  3. But business people have terrible times in Government.

    Bush : CEO President: Failure.
    Cheney : CEO : Failure

    O’Neill: CEO: Failure
    Snow : CEO : Failure
    Paulsen : CEO: Failure : Failure

    Evans : CEO : Failure

    Chao : CEO : Failure

  4. Jack,

    Did you read the article? It’s not that business people are necessarily more efficient than politicians; it’s that the motivations and incentives are fundamentally different. In fact, the government probably isn’t the right place for a pure businessman, either.

    Incidentally, I’m no fan–at all–of the Bush administration, but I don’t know whether failure is ever the appropriate word for two-termers or their VPs. Bush was a failure in any number of respects (as was his two-termer predecessor), but he was successful in the only measure they care about in DC–he got elected twice. And, in the abstract, I think Cheney already is less of a failure than the idiot non-savant holding that office today, as bad as Cheney was on limited government, etc.

  5. Wow, Jack, that’s really impressive. Bush has been out of office (what?) four months, and you can already pronounce with absolute certainty his entire administration was failure. You are muy inteligente!

    (rolls eyes)

    That said, success at politics requires a different skill set than success at business, just as there’s a different skill set for military success. A capable politician who is equally at home at battle is an odd bird, so I would not be surprised to discover that good business leaders don’t overlap with good politicians, either.

    Despite ken’s obsession with bullies, there are major flaws in the linked article. For example, Gordon claims politicians are short-sighted, yet ignores the fact that 5 years is considered “long term” planning. He also ignores the fact (first pointed out by Adam Smith IIRC) that the first thing two successful capitalists do is try to keep everyone else out of their market.

    There are other bad examples in his article, but for brevity I’ll only mention one he missed: businesses possess a clearly unambiguous signal with respect to the success or failure of policy; profit or loss.

    When a private corporation loses money, the policy is a failure. When a government project loses money, it’s just under-funded.

  6. Smith said that one of government’s few roles in the economy is to protect competition. I think that’s about impossible when government is running or utterly beholden to a few businesses or even an entire industry.

    I thought the article was mostly spot on.

  7. Ken — yep, I worked with a team like that. We’d work hours in meetings on a compromise, and they would turn around and pretend like we’d agreed with them. Quite often they would just send out a mass email on a friday afternoon with their preferred outcome, as if that’s what really happened. I hated that team. I eventually quit and went to work for a competitor.

    The project was a giant waste of money (and my sanity — I was so stressed out!) and ended up being scrapped and started over. Then it started to go all the same way, only faster! (And I quit.)

  8. Any idiot understands that the rate of failure in business leadership must be identically equal to the rate of failure in political leadership because, duh, we’re talking about the very same type of creature in both cases — human beings. Whatever flaws they bring to business they bring to politics, and vice versa.

    However, there are two very important differences between the consequences of failure in business and failure in politics:

    (1) If you screw up as CEO, even as CEO of GM, you bring down only those people who have voluntarily chosen to trust you — your customers, employees, stockholders, lenders.

    On the other hand, if you screw up as El Presidente, you bring down millions of folks who never voted for you, who have never trusted you, who have never voluntarily handed to you the keys to their life.

    (2) Because the association of people with your leadership is purely voluntarily, if you screw up as CEO — or even look like you’re about to — people will flee you in droves, and you will lose what power you have very rapidly, thus minimizing the damage you can do.

    On the other hand, since people are forced to obey the power of a political leader, whether they wish to or not, it is far more difficult to abandon a bad leaders and minimize the damage he can cause.

    To be sure, in a democracy you can decline to re-elect him, and even in a dictatorship there’s the option of violent revolution, but these are a lot harder than selling your stock, quitting your job, or refusing to buy a company’s products. That’s why a failing political leader can do so much more damage than a failing private business leader.

  9. If you screw up as CEO, even as CEO of GM, you bring down only those people who have voluntarily chosen to trust you

    That plainly is not true. I did not choose to trust Lehman Brothers, but its failure cost me (and everyone else) plenty.

  10. I did not choose to trust Lehman Brothers, but its failure cost me (and everyone else) plenty.

    It wouldn’t have affected you much absent the failure of the politicians.

  11. “It wouldn’t have affected you much absent the failure of the politicians”

    That would be Bush, Paulsen and his Fed Chair Bernanke…

  12. What, Jack, no words for the Dems like Barney Frank who went completely librarian-poo a few years back when that loser Bush tried to do something about Sallie Mae/Freddie Mac before everything went south? Nothing to say how several leading Democrats demagogued the issue and prevented any action at all?

    Nothing about how Frank was literally in bed with the guy who was running Freddie Mac into the ground?

    Nothing about how last year Pelosi refused to apply any pressure to reluctant Democrats to vote for the original relief bill, which was eventually defeated? It couldn’t be the temptation to let that bill die, so that she could craft another one which would let her shovel literally hundreds of billions of dollars to the party faithful?

    Look, this isn’t just a Democrat screw-up, nor solely Republican; it’s bipartisan. I’m just sick of people who point fingers at Bush all day while ignoring how Democrats stonewalled any and all attempts to ameliorate the situation before it got out of hand.

  13. We have a body of work from GWB on the bailout madness that now has a finite total. Ol’ Jack can’t seem to turn his attention to the current saga that will make what GWB did look like a lemonade stand.

  14. Ah gotta love “Jack Lee”.

    Look at how he reacts

    Nervermind that the argument here is that government is bad in business because government has differing goals…

    When pushed into a corner he defaults to “BUSH BAD!” So… some political control is bad. Which is the article’s point.

  15. I don’t really see this as a business vs. political leader thing. Looking at this from a project management perspective, most successful business leaders have a fairly focused objective, unless they’re a mega international conglomerate like GE. Politicians on the national level have a totally blown scope taking on whatever pork or special interest that comes over the transom. Rather hard to be successful with such a big government approach. The libertarian however, has a much more narrow focus, and that can lead to successful governance.

  16. That plainly is not true. I did not choose to trust Lehman Brothers, but its failure cost me (and everyone else) plenty.

    I see one flaw in your thinking already. If it were “plainly not true”, then we wouldn’t be having this argument.

  17. Carl,

    You seem to have an exaggerated opinion of just how much freedom people have regarding large enterprises, e.g., GM. Ever hear the term “company town?” Then there is the issue of societal culture. When people worked for small businesses in small towns — even moderately large cities — there was much more competition for talent. When you work in a field where the competition is five badly run businesses who all think that the way to success is making everyone work 80 hours/week, how much freedom do you really have? Ken’s comment about bullies is particularly insightful. That’s a real problem today. It’s also one reason why the Republican brand is so weak. They’ve become identified — fairly or not — with bullies.

  18. Chuck, there you go again with your “corporations own us all merely by their existence” theme.

    Did the CEO of some corporation run over your dog, or what?

  19. “What, Jack, no words for the Dems like Barney Frank who went completely librarian-poo a few years back when that loser Bush tried to do something about Sallie Mae/Freddie Mac before everything went south? Nothing to say how several leading Democrats demagogued the issue and prevented any action at all?”

    The house passed that Bill. Frist didn’t even bring it to a vote in
    the Senate. Blame Frist.

  20. > That would be Bush, Paulsen and his Fed Chair Bernanke

    Yup, with Obama’s support.

    In fact, Obama liked the idea so much that he’s been doing even more of the same.

    Jack Lee thinks that it’s great for Bush to do things that he thinks that it was wrong for Bush to have done.

    The only way that makes sense is that Jack Lee doesn’t actually care about what’s being done, just who is doing it.

  21. Rand writes:

    It [the failure of Lehman Brothers] wouldn’t have affected you much absent the failure of the politicians.

    Please explain why the failure of politicians was responsible for the 500 point Dow drop the day that Lehman announced its failure. That cost me plenty, and it wasn’t because I trusted Lehman — it was because I trusted the American financial system in general.

    Karl Hallowell writes:

    I see one flaw in your thinking already. If it were “plainly not true”, then we wouldn’t be having this argument.

    People here argue about plainly true statements all the time. It is plainly true that Obama inherited most of the 2009 deficit, but Rand posts claiming it isn’t. It is plainly true that most of the growth in the 2009 deficit is not due to the ARRA, but Rand still publishes the falsehood that it is.

  22. Please explain why the failure of politicians was responsible for the 500 point Dow drop the day that Lehman announced its failure.

    Because the market was anticipating the political response to it. It was right.

    It is plainly true that most of the growth in the 2009 deficit is not due to the ARRA

    If it’s not due to Porculus, it is due to everything else he’s been doing since January 21st (including reduced growth due to Porkulus).

  23. Please explain why the failure of politicians was responsible for the 500 point Dow drop the day that Lehman announced its failure.

    Because the market was anticipating the political response to it. It was right.

    So in Rand-world the market drops 500 points not because a major bank with links to every other major bank has failed, but because it anticipates TARP, and the market hates TARP. Then the House blocks TARP, and the market drops another 800 points. Not sure what new Rand-world logic explains that one. Then it becomes clear that the House will pass TARP, and the Dow goes up 200 points.

    Do you really want to argue (like Carl) that business failures only affect the owners, employees, suppliers, and customers of that one business?

  24. Rand:

    If it’s not due to Porculus, it is due to everything else he’s been doing since January 21st (including reduced growth due to Porkulus).

    This is a walkback from what you posted on May 11, 2009:

    Obama didn’t inherit most of this deficit. He created it (or rather, let Pelosi and Reid create it) with the insane porkulus bill, which wasn’t about stimulation at all, but paying off Democrat constituencies.

    As I posted at the time: According to the CBO the spending in the ARRA for fiscal 2009 totals $107B, or 6% of the total deficit. 6% is not “most”.

    You have yet to correct your May 11 post.

  25. Do you really want to argue (like Carl) that business failures only affect the owners, employees, suppliers, and customers of that one business?

    No man is an island. That doesn’t justify even more massive and incompetent failures by government.

  26. No man is an island.

    My point exactly. Corporations, like governments, affect the lives of people whether those people want them to or not.

    There are well and poorly run businesses, and well and poorly run government programs. If the concern is that government programs need to be run better, one option would be to make government service a better-paid, more prestigious career path, in order to attract and retain better personnel.

    Another option is to run the government badly, in order to convince people that government is the source of their problems, and should be downsized. That’s easier to do, but doesn’t prove anything or help anyone.

  27. Do you really want to argue (like Carl) that business failures only affect the owners, employees, suppliers, and customers of that one business?

    Jim, Carl did not argue that limited group. You ignore three very important groups, stock holders, lenders, and counter-parties in derivative securities. Lehman Brothers because of it’s business and reputation had a lot of people trusting it. You may be correct in your claim that you didn’t “trust” Lehman Brothers and that you got “hurt”, but odds are good that you trust someone who put way too much trust in Lehman Brothers.

    You do not understand what is going on. But this has been demonstrated before. Remember this little gem?

    Exploding the deficit does not hurt the economy in the short run. It isn’t crowding out private investment, because private money is cowering in the corner anyway.

    An alternate and more correct interpretation of the above is that private money is “cowering in the corner” precisely because it would be competing with massive public funds in a high risk environment. Remember the US has commited far more than a trillion dollars to various bailouts, lending, and spending over the next few years (TARP, ARRA, and numerous other projects). As I mentioned some time ago in an article I can’t currently find, the amount of credit apparently available (though not borrowed) is over ten trillion dollars. It is a bad time for a private entity to lend money.

    Finally, Jim, I tire of your clueless use of the DOW. Sure when TARP was implemented, there may have been a jump in the DOW due to TARP (200 points is definitely a weak signal for the amounts involved). But how many months do you think it takes the DOW to estimate the cost of government intervention? As I see it, the damage from government bailouts would have been factored in well before the bailouts actually occurred. So the only remaining uncertainty is who gets how much money. Apparently, the companies listed in the DOW had some benefit from the appropriate bailout.

  28. I see one flaw in your thinking already. If it were “plainly not true”, then we wouldn’t be having this argument.

    It amazes me how seemingly intelligent people can look at the same facts and draw opposite conclusions from the same data.

  29. It amazes me how seemingly intelligent people can look at the same facts and draw opposite conclusions from the same data.

    Because they bring to bear a lot of other data not included in what is being viewed by both parties. And they do better or worse, or at least different, analyses of it.

  30. Karl:

    Jim, Carl did not argue that limited group. You ignore three very important groups, stock holders, lenders, and counter-parties in derivative securities. Lehman Brothers because of it’s business and reputation had a lot of people trusting it.

    So it’s okay for me to lose money because I trusted a business that trusted a business that trusted a business that trusted Lehman? How many degrees of separation do there have to be before you conclude that the person at the end of the chain had no more say in the failure than they have in a decision of the federal government?

    Forget Lehman Brothers for a moment. There are 1,255 Superfund sites in the U.S. Thirty percent of the costs are for sites contaminated by companies that have gone bankrupt, so they can not pay for the cleanup. Every American is paying for the failures of those companies, whether we had anything to do with them or not.

    One does not need to “opt-in” to be affected by a business failure. We’re all connected, and we’re all opted in.

  31. To continue, Jim, I see Lehman less as a source of harm and more like the canary in a coal mine. Do you blame the poisonous fumes on the canary since it died first? Of course not. Lehman was simply among the weakest of the breed. Anyway, when Lehman went down, everyone on Cloud Nine for the past few years had a sudden rude awakening.

    And degrees of seperation means vast reduction in any harm that may accrue. Did you suddenly see a bill for $13 billion dollars on your credit card? Did your house or checking account vanish? Somehow I doubt it. Anyway, Bush when he heard about this, did the only thing a man can do. He took $700 billion plus of Other Peoples’ Money and shoved it down a dark hole. Obama has been building on this secure foundation with his own expenditures of OPM.

    Finally, it’s funny that you should mention Superfund sites. They are a gross violation of the US Constitution. Namely, something that was done before the passage of a law effectively outlawing the activity should not become a crime after the fact. Superfund slyly gets around that by making the penalty technically a civil one.

    That has to be one of the most destructively anti-business laws passed since FDR. I consider it a greater mistake for Carter than his bungling of the Iran hostage situation. I like Carter, but this is a good reason in itself for why he should have never been president.

    As I see it, the public suddenly decided that a large number of polluted sites suddenly required a hugely expensive cleanup. A simple solution would be to have the public pay to clean it up. Normally, when someone generates an externality, I believe they should compensate those who experience the cost of the externality.

    But when at some point, someone either acts in a way as to incur an externality from elsewhere (say by chosing to live near an airport) or it’s decided that some past activity generated an externality which wasn’t recognized at the time, then that’s different. I don’t think it’s right to suddenly say “This was a immensely harmful activity (even though just a few years ago, we didn’t think so) and you need to pay a boatload to compensate people for the activity in the past.” The reason is that these businesses had no opportunity to mitigate the harm.

    Another problem is simply that Superfund decides liability and remedial measures in unfair and unrealistic ways. You can be liable because your waste, disposed through another party, ended up in a Superfund site. Or a more common problem is that you didn’t test your property for environmental contamination before you bought it. Suddenly you’re on a Superfund site and liable for the cleanup. The final part of the problem is simply that everything now goes through an expensive courtroom before any money is paid for remedial work. It’s no wonder that most of the businesses involved have gone bankrupt.

    There’s a reason for grandfather clauses. These should have been applied here to Superfund sites. Somehow I’m not surprised that you are in favor of Superfund as well as government takeovers of business today. It’s almost like you aspire to be one of those cardboard villains in an Ayn Rand novel.

  32. Chuck:
    “When you work in a field where the competition is five badly run businesses who all think that the way to success is making everyone work 80 hours/week, how much freedom do you really have? “

    I’ve got the freedom to either choose another line of work, or choose another employer (ie, myself!) and when it comes to my happy pursuit that’s really all the freedom I need at that point. Where do you think every corporation you rail against started from? It’s not like they sprang fully-formed from the head of a malevolent deity after all. They started small, and did things right, made a pile of cash, and ended up as the last man standing (well, one of few in their sector). There’s nothing that says they can’t stumble (the Big Three twenty years ago) or even fall once they think they’ve “made it” – indeed, that is the time for a smaller, smarter, and more-nimble competitor to strike. Talk to Netscape and Yahoo about that sometime, or to GM and Ford, or Pan American and Eastern if you prefer.

  33. Jim:
    “So it’s okay for me to lose money because I trusted a business that trusted a business that trusted a business that trusted Lehman? How many degrees of separation do there have to be before you conclude that the person at the end of the chain had no more say in the failure than they have in a decision of the federal government?

    You didn’t “not trust Lehman,” you outsourced your trust or lack of it to someone who did. You trusted Lehman by proxy and failed to do your own independent research of the matter. Too many people took the market for granted and let themselves get taken for a ride. No effort on the way up means no eject on the way down, that’s just the way it is.

  34. Karl Hallowell:

    The point is that businesses can create externalities such as pollution, legally or illegally, and then fail, leaving the rest of us to either pay to clean them up or live with them. The business’s failure burdens people who had nothing to do with it.

  35. > The business’s failure burdens people who had nothing to do with it.

    The folks hurt by Lehman fall into two categories. Those who dealt with Lehman, however indirectly, with the intention of making a profit, and the folks who now can’t deal with Lehman because it went away.

    The former were willing to take the profit, so they can take the loss. The latter aren’t owed anything. Either their biz is profitable, in which case someone else will do, or it isn’t, in which case they’re SOL regardless of Lehman’s death.

  36. The point is that businesses can create externalities such as pollution, legally or illegally, and then fail, leaving the rest of us to either pay to clean them up or live with them. The business’s failure burdens people who had nothing to do with it.

    I disagree. You are claiming after the fact that the business in question generated the externality. In the case of Superfund, it was decided after the fact that there was an externality and that anyone who had even the remotest connection was liable for the resulting arbitrarily derived cost. In the case of Lehman Brothers, the only claim you have given that they might have generated an externality is a drop in the Dow. My view is that there’s no evidence there that Lehman generated an externality.

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