Government’s Underappreciated Indispensability

Particularly when it comes to spending, there's nothing like a natural disaster to demonstrate the interdependence of the public and private sectors.
October 4, 2017
People waited for hours in lines that stretched around a building to receive free school uniforms and other necessities in the aftermath of Hurricane Harvey. (AP/Matt Rourke)
By Richard Clay Wilson Jr.  |  Contributor
Retired city manager of Santa Cruz, Calif.

It is axiomatic in American life that we consider private-sector spending an economic positive and public-sector spending an economic negative. The best case for government is that it is a necessary negative. In accordance with this outlook, there are many who believe that the best way to become a more prosperous country is to cut taxes and government so as to grow the private sector and shrink the public sector. In this view, we don't need to worry too much about the particulars; it will suffice to obtain more of one and less of the other.

Unfortunately, economies (and human affairs) are not that simple. Consider the impacts of Harvey, Irma and Maria, the hurricanes that so rudely intruded into the economic well-being of Texas, Florida and Puerto Rico in August and September. Well before those storms hit land, devastating lives and property, they demonstrated the indispensability of the wide range of goods and services we obtain from federal, state and local government. The absence of those services, even for very short periods, brings the larger economy to a standstill.

Hardly anyone doubts that billions of dollars in public-sector spending will be as essential as private-sector investment and spending to the reconstitution of Texas', Florida's and Puerto Rico's storm-ravaged economies. This accounts for the fact of broad acceptance across the political spectrum of the proposition that neither the public sector nor the private sector can rebuild or recover by itself. The two are inextricably bound together.

Moreover, natural disasters demonstrate, again and again, how wrong it is to believe that the economic contributions of the private sector are inherently superior to those of the public sector. It's an appealing view, to be sure, and its advocates are in no doubt about it, but it is clearly wrong. The indispensability of government-produced goods and services has been demonstrated too many times to be doubted.

We would be well advised to consider the contributions that private- and public-sector activities make to our economic well-being one at a time. This is the only possible way to actually gain understanding of the larger economy, each piece of which is dependent on myriad other pieces. Broad generalizations about the private and public sectors are of no use.

Thinking about economic activities this way helps bring the big picture into clearer focus. The indispensability of services of many types is manifest in the first few minutes of every natural disaster: services provided directly by government, such as police, fire, emergency medical response, water and transportation infrastructure; those provided by government-established monopolies, such as electricity, natural gas and telephone; nonprofit services such as those provided by the Red Cross and others; and private-sector services and goods such as hospitals, clinics, medicines, groceries and gasoline. The list of essentials grows longer -- much, much longer -- as the days go by.

The degree to which each economic activity is essential is independent of whether it resides in the public, private or nonprofit sector. Each sector has essential activities. Each sector also has desirable but not necessarily essential activities, and each sector has activities the desirability of which is questionable.

If we want to build a more prosperous future, we will not succeed simply by shrinking the public sector and expanding the private one. Instead we will need to expand the valuable and productive activities of both sectors and shrink the least valuable and negative activities of both.

An honest look at the essential ingredients of our country's economic success includes thousands of goods and services produced by federal, state and local government in addition to the myriad contributions of the private sector. An honest look at economic negatives that impede future prosperity includes not just inefficacious government but also wealth- and health-destroying private-sector activities, such as the tobacco and coal industries.

In short, if we want to prosper in the future, we will need to build a better public sector and also a better private sector. Both sectors will need to be more storm-resistant, among other things. Both sectors will need to add to our collective health and education as well as our collective wealth. If there is a fundamental economic truth, it is that neither sector can or will advance unless the other does too.

As a hit song from 1961 put it, "You don't know what you've got, until you lose it." Post-disaster reality shows how true this is. If we want to build a better economic future, we should avail ourselves of the lessons being taught by the catastrophic storms of 2017. That is to say, we must fundamentally revise our thinking about the activities, goods and services upon which our present and future well-being utterly depend.