By Amar Ali, JMI Research Associate & FSU Senior, Economics & International Affairs
An editorial in February’s Florida Trend magazine called for government investment in roads and education. At first glance, the article seems to provide a plausible case for such an investment, since many feel infrastructure is the backbone of the economy.The textbook definition of economics is “the efficient allocation of scarce resources.” Essentially, the more rare and/or in demand an item or service is, the higher its price will be. For example, a BigMac will always tend to be cheaper than a diamond–otherwise I would have more girlfriends than extra pounds.Now what does this have to do with roads and education? Everything. Just as demand and supply dictate the optimum production of everything from BigMacs to diamonds, they can do so with roads and education. In the 19th century, it was the private transcontinental railroads that were built cheaper, faster and most directly to their destinations than those sanctioned by the government—today, subdivision developers construct their internal roads faster and cheaper than cities and counties. Private and virtual schools are also generally more successful in balancing budgets and providing quality education than government schools.Simply, the market is more efficient at allocating goods than the government. The government cannot invest without first taking away, via taxation, and taxation usually has unintended negative consequences. For example, when the government taxes one thing to invest in another, it generally distorts demand and supply and therefore the market.Returning to my previous example: if the government decided to tax BigMacs and “invest” in diamonds, I would lose weight, but do I really need more than one girlfriend? This type of government intervention is what many economists claim to be the root cause of the housing bubble and the unfolding financial meltdown, but that’s a blog post for another day.
2010
