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The role of government

Postal services often monopolized by state. Cellphone is private. Healthcare is often state provided. Gyms are private. States usually grant retirement benefits. Banking is private. We rarely ask why.

I'd like to challenge these views, and ask everyone to argue. Argue why the free market can not provide a service, or argue why the government can do it better. Or perhaps do you think the government does something it should not or does not have to. Make your case.

Possible subtopics:

Should the state provide to all for free? Is the curriculum overregulated? Can the government force children into state schools? How free education would look like?

Is compulsory participation good or bad? What is the desired level of coverage? What is the real cost of healthcare? Who have to pay it? Consequences of private healthcare?

Who takes care of the handicapped, the veteran, the widow, the aged? How much to save for retirement and when? Who decides?

Legal system.
Are our lives overregulated? Should the state punish victimless crime? Who judges the judges?

Environmental issues.
Carbon tax? Oil spill: regulation failure or market failure? Coltan from a warzone: how did that happen?

In the related talks, I tried to focus on personal achievment vs central planning. The list is far from complete. Please add more if you have.


Closing Statement from Krisztián Pintér

this debate is ongoing, though largely unnoticed by the masses, for at least two centuries. now i have the opportunity to write a closing statement on it. obviously, it would not make much sense.

instead i would urge anyone not to rehearse the creed, but really, deeply think about the question: can we do it differently? our concerns and fears are real? our logic is correct? our information is reliable?

you can't lose. even if you come to an uncomfortable conclusion, in the worst case, you keep your it to yourself. but better to hide than to not have.

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    Mar 3 2011: The government should do everything it can to promote the public welfare ...

    ... but no more.

    We need to analyze it's ability to do so and restrain it when it exceeds that ability.
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      Mar 3 2011: make your case. pick an area when the government can provide the best service that people need.
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        Mar 3 2011: The crux of my argument is not that the government is necessarily better than the free market at doing anything. Just that it may be.

        So rather than taking a dogmatic approach of "we need less government" or "we need more government" I think we need to have a pragmatic viewpoint and ask the question - is it best that the government be involved in this issue or not? There's going to be a lot of fuzzy issues where it's hard to decide for sure, but the pros and cons need to be weighed.

        For example, the system of social security. Before the existence of social security the highest level of poverty was among the elderly. That has been greatly reduced. The efficiency of social security in terms of money taken in to money spent is phenomenal. Private insurance companies have many times the overhead. So one could argue that government involvement makes sense in this case.
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          Mar 4 2011: majority of the retirement benefit systems work in way that your benefit is proportional to your previous salary. people could simply save money for themselves, and the result would be just as good.

          comparing the life of old people today vs 100 years ago is unfair, as the gdp per capita is like 7x higher. how do we know that state guaranteed retirement benefits caused it, and not economic development?

          much more problematic are special benefits, like widows or disabled. these are indeed those fuzzy things that need careful analysis, and probably can not be treated as a single issue, there are many sub-cases.
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        Apr 27 2011: The issue of social security is probably, to me, the most clear area where we benefit from government involvement (perhaps next to education - but let's start a separate thread on that one).

        Private industry has repeatedly illustrated it's capacity to steal people's retirement investments. Governments have been quite successful at implementing systems of old-age pensions. And if you examine the overhead, it is extremely low. Money taken in minus money given as benefits is minuscule. Never that low with private insurance companies.
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          Apr 27 2011: where is the retirement money of US citizens? what does "unfunded liabilities" mean? the retirement benefit system is broke in the US, and it is broke in hungary too. probably it is broke in most parts of the world.

          however, if retirement is self-funded, it is nothing else than savings. and it is not that easy to steal savings, especially if it is backed up by a (private!) insurance.
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        Apr 27 2011: The current cash flow issues are primarily due to demographics (baby booms) and will be resolved. It's been calculated that in the US if payments are reduced to 80% the cash flow problem is fixed. And that's a worst case scenario. It's still good to know that there is a government guaranteed income.

        When private retirement plans are instituted, the money is usually invested in the stock market. How reliable is that? The markets are constantly manipulated and the small investors lose.
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          Apr 28 2011: it won't change the fact that it is broke.

          but if we go theoretical: there are two methods of retirement benefit. one is taxation-based. current worker pays, current retired receives. the other is the account based. everyone saves money during work years, and uses this sum later. the former might need the state to organize it, i don't know. but this method is very sensitive to changes in demographics and other factors. the latter is very well provided by the free market. think about it. what can the government do in order to preserve the value of your savings? nothing really. the state faces the same problem as for example any private brokerage would. there is no such thing as safe place for money. whatever you put your savings in, it can lose value.

          in fact, the government does not even try to handle my money safely. 40% of my retirement money is in hungarian government bonds. why? because it is enforced by the law, 40% is the minimum. why is that? it is so safe, after it's continuously falling rating at moody's? no. but the government wants loans badly. i don't want government bonds. i want stocks.

          not the private companies, but our own governments rip us off.
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        Apr 28 2011: Yes, I agree, account based systems are the most prone to abuse. If we want to assure that everyone has retirement income a taxation based approach is the most reliable. And in reality that is how most work, despite how they are advertised.

        Look, in the end, current consumption must depend on current production. Fancy book-keeping is not going to change that fact.

        My belief is that a government run, taxation-based system is the most effective means of assuring that retired people have income. Perhaps we'll learn something from the Chilean experiment, but that will take time to fully analyze.

        Just wanted to make one more point on this topic. Often an assumption is made on personal investment account approaches which is misleading. Generally people analyze investment returns (say taking long term averages of the Dow or something like that), and assume that those rates will be paid to investors if everyone is using that for their retirement savings. That is probably wrong for two reasons. First the average new investor won't achieve the same returns as the more experienced investors who are currently in the market (and will probably devour newcomers) and second, a drastic increase in investment capital will inevitably result in a decline in returns.
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          Apr 28 2011: this is a very good point, i often overlook that. saving for ourselves or distributing present income has more in common than it seems. since we can accumulate not "real" wealth, but only claims. so at a given point in time, the retired persons take these accumulated claims on the market, and actually get some of the goods/resources produced. a certain ratio of all goods go to the retired. in that regard, taxation or saving seems to be equivalent.

          however, it is even more equivalent than you think. because you say taxation based system is more stable. however, it is not, as it is stable as of now. you, who pay the tax, must trust the system 40 years ahead. just like you have to trust the stock market if you save for yourself. the government is very light headed when it comes to promises. but look what happens in greece, in portugal, in gb, in the us, and probably i could go on for long. are we sure that these governments are more promising than, say, the asian stock market? i'm not so sure.

          p.s.: i think the return issue is not an issue. we don't exactly need great returns. keeping the value is OK.
        • Apr 28 2011: Tim: Surely one of the problems of government-run retirement plans is that they don't actually take the money and invest it, but rather rely on tomorrow's workers to generate enough cash to support today's workers when they become tomorrow's retirees. Only a small portion of the premiums paid for Canada Pension Plan are actually invested -- interestingly, mostly in real estate and the stock market. I don't know the US numbers, but here in Canada the system was developed at a time when there were 8 workers for every retiree. Today there are 3. In a decade there will be two. How sustainable will the system be then?

          The people who do have good retirement packages are civil servants (indexed pension at about 60% of the average of their three best years), most unionized workers, and some large-company workers. With civil servants (including police and miltary) now representing (I believe) about 25% of the workforce, the same issue will apply, as their system is also unfunded. If inflation grows to anywhere near what it theoretically should given the recent spate of "quantitaive easing", we could have a time bomb on our hands.
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        Apr 28 2011: One more point on this topic.

        Despite my reputation around here as a bleeding heart liberal, I actually do have a great deal of respect for entrepreneurship and appreciate it's benefits to society.

        But often the greatest entrepreneurs see drastic swings in their fortunes. And if a major downswing occurs when they are nearing retirement, they can be hit hard. Having a government assured income in old age can be a great benefit. Not only is the individual protected, but, in addition, society benefits since more people would be prone to take the risks inherent in starting a business if they have a safety net.
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          Apr 28 2011: these risks are easy to overcome with portfolios and hedging. you don't even have to do it for yourself, there are brokerages.

          there is no such thing as "government assured". it is actually "government promised". promising is easy.
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        Apr 29 2011: Revett: The demographic issue is one that needs to be addressed no matter what. As I mentioned before, what gets consumed has to get produced. If there are only two workers per retiree, then those two workers must produce enough surplus to support that retiree. And considering the level of automation which has occurred over the last 50 years, there is no reason why that is not possible.

        Western societies have shown themselves capable of assuring a living wage to retired people. There is no reason why that can not continue.

        Again, account based vs tax based systems have inherent problems. Better to just address the current cash flow (i.e. production flow) problems and create a workable system.

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