Tuesday, October 4, 2011

SuperFreakonomics makes an unsupported claim

I finished reading SuperFreakonomics which repeatedly claimed that government solutions are more complex than necessary, with no evidence to support the assertion, so I sent them this e-mail.  I'm not holding my breath waiting for a response.

I have read your books with great interest.  Freakonomics and SuperFreakonomics were in many ways about not accepting the conventional wisdom (drug dealers don't all get rich) and about not allowing your political views to shape your perceptions of how the world works (abortion decreases criminality).  You prefer to make claims based on evidence.

Unfortunately, in SuperFreakonomics, you twice repeated an assertion that I believe is rooted in politics and is entirely unsupported by the data.  Conservatives hold that government is less efficient than the private sector and that its solutions to problems are more complex than necessary.

It is unarguable that all complex human endeavors involve a large amount of waste.  Government is full of bureaucrats engaged in empire building who would spend money more carefully if it were their own money that was being spent. However, I have spent time in private industry, which I can assure you is full of executives engaged in empire building who would spend money more carefully if it were their own money that was being spent.

As far as I can tell, there is no evidence that private industry is more efficient than government.  Anecdotaly, we see a huge  rate of small business failures (http://www.springerlink.com/content/u5218354gk84k205/). Large businesses also cause huge losses to our society, witness AIG, Enron, WorlCom, and Lehman. Management receives outsized compensation, even when performing so badly that corporate boards fire them (http://www.nytimes.com/2011/10/01/business/lets-stop-rewarding-failed-ceos-common-sense.html?_r=1&ref=business)

Private industry often provides complex solutions (like CDOs) to simple problems like home ownership. Executives  laugh all the way to the bank (think Angelo Mozilo) while sticking shareholders and society with the downsides.

In fact, there are many problems for which government provides solutions that are less complex and more cost effective than the private sector (think of health care, education, parks, and highways).  Many have argued, I believe correctly, that the U.S. system of delivering health care produces inferior results at greater cost than government run health care in other countries. Even if we only consider the U.S. we see Medicare and the VA providing more cost effective health care than private insurance companies. Medical billing is a private industry solution that is more complex than anything a government could dream up.

Countries without strong government programs such as Pakistan, Zimbabwe, and Somalia do not see complex problems solved effectively.  In the history of the world no country has made its average citizen rich relative to the citizens of other countries without a strong government - so the complex problem that government solves best is how do we make our society grow rich. Perhaps you should stop doing our society the dis-service of claiming that governmental solutions are overly complex unless there is evidence to back that claim.

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