Econoblog Marginal Revolution asks the interesting question on what are the most harmful government programs. Their thoughts:

At the top I will put our aggregate of health care policies, including Medicare, but without pretending that removing any one of them would solve the major problems. Many smaller decisions, taken together, have painted us into a box where the incentives are for cost-escalation and burden-shifting at the same time.

It is hard for me to see social security as such a huge villain. I’m not going to push Ricardian neutrality, but a lot of it is just dollars slushing back and forth. It would be better as a welfare program but as is I just don’t see how it has wrecked us.

Farm subsidies are terrible but quantitatively they don’t amount to much in the broader scheme of things. Therefore my second pick is the aggregate burden of many small regulations. As with health care, we have no single identifiable villain. Again many small policies, taken together, make entrepreneurship less dynamic and lower long-run economic growth. “Small steps toward a much worse world,” as they say.

My third pick is the public quasi-monopoly on education.

My list is below (and note that it turned out to be rather hard to pick just three). I could easily have included immigration, tax, energy and others on the list but I tried to stay focused on ‘programs’ and not ‘policies’ which I believe was the question that Marginal Revolution was answering):

1. The consequences of the federal government overly insuring risks that are better handled by the market or perhaps local municipalities. Take your pick from S&L bailouts, natural disasters guarantees on pensions, bailing out the airlines, etc. Looking at natural disasters, just ask yourself why people build homes in areas where the risks do not warrant such building. Why do they rebuild in areas that are likely to be destroyed again? (Note that this point is highly related to Marginal Revolutions #2 point and which I originally had on my top 3, which is all of the regulations that stifle competition.) Why is it so hard for insurance companies to compete in California and what is the impact of that? The impact is of course a distorted marketplace, one with higher premiums, lower coverage, and more houses built in areas known for wildfires and landslides. (Why don’t I have more choice when it comes to purchasing TV services? NoFanofCableCos feel free to answer that one but we would appreciate it if you wouldn’t start your comment of with “Boy you guys are sure stupid.”)

2. Farm subsidies. While Marginal Revolution may be correct that it might not have an effect on the broader scheme of things in the U.S., it is a de facto barriers to trade and has an enormous impact on Africa’s ability to compete in world food markets (and I’m at a loss to think of another industry that Africa has a chance to participate in a meaningful way).

3. Tax system. For my answer I’m going to lift directly from a comment by “eddie” in the Marginal Revolution post whose answer was more comprehensive than my original wording:

“…the method of collecting taxes. For discussion of the harms done by the current tax system see the Fair Tax proposal, but the short list includes: progressive taxation distorts incentives, complex tax codes distort incentives and create immense compliance costs, complex tax codes create opportunities for special interest lobbying, and corporate taxes hide the size of the tax burden on the economy from the voter. Most harmful, though: taxes on income rather than consumption discourage savings, investment, capital formation, and economic growth.”

Honorable mentions: a) Marginal Revolution’s “the aggregate burden of many small regulations.” I’m sure the more I think about this one the more it deserves to be in the top 3. b) Health care programs (with the exception of HSA’s which I believe are a rare step in the right direction), c) Lack of tort reform (okay not a program but a problem nonetheless), and d) government monopoly on education.

I invite my co-writers in this blog, SAO and Chad, to add their lists and everyone else to put theirs in the comments.

Update: Chad’s list is here.

tags: taxes Economics farm support health care

This entry was posted on Thursday, April 27th, 2006 at 10:17 am by Insider and is filed under I knew I'd use my Econ major, Your Tax Dollars In Action. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.