Wednesday, July 23, 2014

Joe Biden on rebuilding America

Here is a video just released by the White House of VP Joe Biden trying to convince Americans that it is necessary to rebuild our crumbling infrastructure. But as I pointed out in an earlier post the Obama administration is not interested in maximizing the taxpayer's investment, so why should we trust the government with our money?


5 comments:

  1. The idea of minimum wage in federal contracts is almost entirely a moot point...almost no one working in construction makes minimum wage as it currently exists.

    On another note, you seem to imply the government shouldn't be involved in road and bridge construction anyway. Not sure what system would be better, since it is a natural monopoly, there's no reason to think a private firm would be more efficient. In fact, many attempts to privatize certain expanses of road across the country have failed in recent years.

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    1. My point is that it is not clear what the government's objective function is; do they want to create jobs or maximize the net benefit to the taxpayer?

      I would trust the government more with infrastructure investment if they acted as if they cared about net benefit. But the message I get from them is that they care about creating jobs first, net benefit second. When a private firm builds a new headquarters they pick a quality/size, etc. and then minimize the costs to get what they desire. I am not sure what the government does. They seem to want to play both sides; maximize net benefit but also maximize the jobs created i.e. costs. But you can't do both.

      The federal government tries to satisfy too many interests and thus we get a message of "we need better infrastructure and will over pay to get it". I do not like investing in any product, not matter how good that product may be, if I think the manager of the investment is imprudent. And in this case the government appears to be just that.

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  2. As far as public infrastructure projects go, typically what happens is each individual state's DOT sends out a call for bids to all interested contractors per project, and nine times out of ten the lowest bidder is awarded the job, so much effort is made to keep costs to a minimum.

    As far as your interest in finding out how governments behave and what they maximize, you could always check out the public choice literature, which is almost entirely dedicated to that kind of thing.

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    1. I understand the public choice literature which is why I am skeptical of the government being prudent builders of anything.

      For example, Ohio has minority hiring laws meaning that some portion of each job must be carried out by an MBE or EDGE business. Here is a link explaining the groups.
      http://das.ohio.gov/Divisions/EqualOpportunity/MBEEDGECertification.aspx

      State departments do accept bids, but the bids are driven up by the state's own policies regarding who can do the job. There is an effort to keep costs to a minimum but that effort is subject to the constraint that the appropriate special interest groups are hired; just as public choice theory would predict. More resources than necessary are used because equity becomes part of the objective function rather than just efficiency in the sense of maximizing net benefit. Bidding does not remove these costs.

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    2. I agree that MBE/EDGE laws are well-intended laws that create waste, and there are many inefficiencies with government contracts. But they are few and far between, as most states don't have specific laws for MBE's that apply to state contracts, and most highway projects are done at the state level. Maybe Ohio does, but most don't. MBEs typically apply to federal level contracts. The average infrastructure project doesn't have many of the issues you are discussing.

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