The markets rallied Monday on news that global leaders favor additional stimulus. The hope is that additional spending will induce growth and put the world back on track.
Don't hold your breath.
Big government robs the economy of wealth, strips it of initiative and further undermines our recovery.
So why, then, do our leaders continue to throw good money after bad?
Try this on for size.
In 1958, a man named Cyril Northcote Parkinson published a series of essays in book form called Parkinson's Law: The Pursuit of Progress. In it, he postulated a mathematical equation that describes how bureaucracies expand over time and why.
I don't know if he had a wicked sense of humor or a dramatic flair for irony but the equation at the core of his argument relied on something he termed the "coefficient of inefficiency."
The coefficient of inefficiency says the size of a committee or government decision-making body is determined by the point at which it becomes completely inefficient or irrelevant. Or both - hence the name.
Parkinson determined that the minimal effective size for a decision-making body is about five people, and the optimal size is somewhere between three and 20.
Last time I checked, we had 548 people inside the beltway - 535 voting members of Congress, nine Supreme Court justices, one president, one vice president, one treasurer and one Fed chairman - who are responsible for making decisions on behalf of 330 million citizens.
Combine that with nearly 2.8 million total Federal employees (excluding our military) and we're waaaaay beyond anything even remotely resembling workable decision making.
Now here's the thing. Parkinson also observed that bureaucracies grew by about 5%-7% a year, "irrespective of any variation in the amount of work (if any) to be done."
In other words, the larger bureaucracies become, the more ineffective they get even if additional people are hired to do work that doesn't exist.
And to think, all this time I thought our government ran on the Peter Principle!
Parkinson attributed this to two things:
- "work expands so as to fill the time allotted for its completion." In other words, if you leave everything to the last minute, it will only take a minute to get done. Perhaps this is why my youngest son never picks up his room until mom's coming upstairs to take a look or why the budget ceiling isn't ever negotiated except under deadline.
- Government agencies (and their staffers) want to multiply subordinates--not rivals. This is because many government employees associate their own individual importance to the number of subordinates.
So actually doing anything that's productive...like...oh...I don't know...fixing the deficit, reducing spending, definitively regulating Wall Street, and helping people who truly need help becomes an exercise in futility.
Now here's where this gets really interesting, at least to me.
The Problem with Bureaucracy
Despite what our leaders and those who want to be elected as our leaders constantly talk about--multipliers, stimulus, economic incentives etc. -- our government can never be run efficiently.
By its very design, it's not intended to.
In his 1944 work, Bureaucracy, Ludwig von Mises, the famed Austrian free market economist, theorized this is because government leaders insulate themselves.
He observed that the champions of socialism "call themselves progressives but recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement."
I suspect if he were writing today, he'd use the term liberals, but that's a topic for another time.
Not that any of this is surprising, but Mises also noted that bureaucracies are socially self-interested and completely irrational when it comes to economics that could actually improve the public's welfare.
So what are we to do?
I actually think the answer is pretty simple - we change the system.
Look, I am not trying to be trite, but think about it.
If we buy off on the inefficiency postulated by Parkinson and the reasons for isolation proposed by Mises, political parties don't really matter much -- if at all.
What actually matters is the motivation driving the people who serve the rest of us.
Fix that and by implication we fix a whole host of other problems.
Make Them Live Like the Rest of Us
Let's see who in Washington really wants to serve our country if they get the same benefits our soldiers get, an idea floated to me during a recent flight by my friend Andrea Barry, Managing Partner of Eleventh Hour and herself a retired career military officer.
Require them to fill out their own insurance applications and tax forms like the rest of us.
Neutralize their ability to personally benefit from decisions they make on behalf of the rest of us. If they violate the rules, immediately haul their sorry butts into court after subjecting them to the politician's equivalent of courts martial. Implement jail time.
Then, we'll see who really wants to "serve."
If you think I'm being too harsh, let me offer you a personal challenge.
Try voting for something YOU believe in instead of something you stand against this fall or toeing the "party line."
Perhaps then we'll get some hardworking, ethical, and properly focused leaders who do their jobs...and go home.
And you know what?
I bet we would see an entirely new generation of actual leaders who are truly worthy of carrying that title and who still want to serve despite the hardships involved.
We don't need more bailouts...we need a shakeout.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.