Economic Nonsense: 10. Government spends more efficiently than private individuals


This is not only untrue; it is laughably untrue.  Sometimes supporters of big government spending claim that government is more efficient because it doesn't need to make profits.  Sometimes they say it doesn't need to spend on advertising.  Sometimes they say it can borrow more cheaply than private businesses because it has taxpayer backing.  The facts show that even with profits, advertising and higher borrowing costs, the private sector is vastly more efficient.  The UK's nationalized industries were ailing giants that gobbled subsidies when they were state-owned.  When they were privatized they became profitable private companies that paid taxes instead of collecting subsidies. Private investors are more careful because it is their own money at risk.  The public sector corresponds to the fourth quarter of Milton Friedman's quadrant:  they spend other people's money on somebody else.  The private sector is competitive; it has to attract funds competitively.  It has to anticipate future demand to avoid investing unproductively.  Private projects seek ways to curb costs, to employ people efficiently, and to keep as close as they can to a timetable.

Public projects are notorious for cost overruns, for over-manning, and for being completed years behind schedule.  Private projects are undertaken in response to market signals; they are subject to commercial pressures.  The aim is to produce items that will meet future demand and generate profits.  Public projects, by contrast, are subject to political pressures.  They are often undertaken with a view to electoral popularity.  The projects chosen, their scope and their location are often undertaken to secure the backing of various interest groups and localities, in the hope that this will translate into electoral support.  None of this makes for efficient spending by governments.