Low tax, Laissez-Faire, economies > ones with large public sectors

Low tax, Laissez-Faire, economies are better than ones with large public sectors

This is one of the two topics that 2 readers (this one by William) requested me to talk about. The other one, requested by Sis, was already discussed here.

Firstly, I'm pretty sure William was just pulling my leg here and probably wouldn't expect me to really talk about this. Well, I am...in brief hehe :)

Now, my initial thought was that why can't the economy of a country be driven by both "low tax, Laissez-Faire" environment as well as "large public sector"? I don't think they are diametrically opposites.

I supposed that in a Laissez-Faire environment, less regulation is needed and thus less regulators and law enforcers are needed, which in turns mean a smaller public sector. The problem with such environment is the higher potential risk of higher social cost, notably the income gap disparity and crime. So government probably has to compensate by providing security and having some sort of social assistance and any other counter-measures, short of shutting down the Laissez-Faire system.

On the other hand, large public sector tends to have adverse effect on productivity as there's little or absence of competition. Also, be wary of the "rice bowl" mentality that tends of also appear in public sector, which can be crippling in a large public sector.

I prefer the middleground i.e. some of each. Another alternative is to have Laissez-Faire implemented for certain sectors so as to encourage its growth but this needs to be done carefully to avoid regulatory arbitrage between sectors.
3 Responses
  1. Ban Says:

    I'm waiting for Will to actually read this post! Hahaha...


  2. William Says:

    I've read it! And of course I have nothing intelligent to add. LOL. End of the day, what is balance la.