For all you fans of reducing government out there, maybe you should reconsider. This NYTimes article gives a good illustration of situations when small government doesn’t make sense. For years the government has allowed private companies to provide student loans at virtually no risk to the companies as the government insures the loans and provides the funding. The companies just make money off that arrangement. When the government makes the loans directly (even if it uses a private company to manage the loans), it saves billions. In short, sub-contracting out to private companies services that government can provide directly only increases the cost. It doesn’t decrease the cost, and here’s why: You introduce profit into the equation.
Do the math. When the government runs the program, it looks like this:
cost of program = cost to provide the services
When government subcontracts programs, it looks like this:
cost of program = cost to provide the services + profit for corporation
In what situation can “profit for corporation” lead to lower costs of programs? (It certainly hasn’t in healthcare; one of the primary reasons healthcare costs in the US keep going up is because insurance companies keep increasing their profits. Take them out of the equation and healthcare costs will go down, not up.)
When I read that article this morning I remembered thinking about my father’s military experience. When he was in the military soldiers did the cooking and cleaning. That was part of being a soldier. Today, all of that is subcontracted out at ridiculous rates. Soldiers don’t cook the food. Why? Can they not cook? Of course they can. The reason they don’t is because defense contractors see that as one more way to take money from taxpayers. How could it possibly be less expensive to have soldiers cook their own food?
Don’t get me wrong; this isn’t a rant against soldiers having more leisure time. It’s a rant about wasteful spending. I’d love to pay less in taxes, just like everyone else. But that means cutting out these ridiculous subcontractor scenarios where they simply add “profit for corporations” to the equation and then claim that it is cheaper for the American taxpayer because it “reduces government.” That, of course, is crap! It may mean bigger government to get rid of the subcontractors, but, ironically, bigger government sometimes means lower taxes.