This is a major problem of economies with large government sectors. Since there is no real market for the services they deliver they are valued at explicit cost. They ignore implicit costs such as the excess burden of tax collections to finance them among others. In addition, they ignore the possibility that the public values the services at less than cost. This doesn't happen in private markets. Did the public value GM and Ford's products at cost in the last few years? No, since the firms lost money. Does the public value government provided health care at cost? We don't know, since there is no real market for Medicare and Medicaid.

• posted by Mike Bond
• November 26, 2007 @ 11:55 pm
• Permalink

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