It’s Not the Inputs

by Dave Schuler on February 11, 2013

As I’ve written before, there are several different reasons to write a post. Posting a hip-shot reaction. Exploring a subject in some depth. Just having a place for handy links is another. This post was written for yet another reason: sometimes there are points of such general applicability it’s nice to be able to return to a specific post for the point.

Here’s the point of this point. Inputs don’t really matter. It’s the outputs that count. When you’re driving between Chicago and Cleveland, how much the car cost or how much gas you used is really just not that important. What’s important is whether you got to Cleveland.

It’s not important how smart the diplomats were or what schools they attended or how hard they worked at negotiating. What’s important is whether they arrived at a worthwhile agreement, whether they accomplished the objective.

It’s not important how smart your economic advisors were or what schools they attended or how wonderful the economic models they used were. What’s important is whether more people got jobs, more wealth was created, more companies were formed and prospered.

Similarly, production costs are only tangentially related to prices. If people won’t buy what you’re selling, it really doesn’t matter how much it cost you to produce it. You either cut your prices or you don’t sell.

When I say that we need to reduce healthcare spending, don’t tell me how much med school costs. That’s only relevant to whether the people who attended med school bet right.

This is the point that underpins what I’ve been saying here about healthcare, about education, about defense, about infrastructure spending, about any number of other subjects.

It’s not the inputs but the outputs. Don’t think that when you add layers of bureaucracy it inherently adds to the value. It’s not the production cost but what people are willing to pay.

{ 4 comments… read them below or add one }

jan February 11, 2013 at 9:56 am

“Similarly, production costs are only tangentially related to prices. If people won’t buy what you’re selling, it really doesn’t matter how much it cost you to produce it. You either cut your prices or you don’t sell.”

It brings to mind some of the tax-payer financed green ‘investments’ that went belly up — lots of money went into these project. But, mismanagement of money, lack of insight as to competition etc. led to failure.

Drew February 11, 2013 at 11:42 am

The reason, IMHO, this essay is brilliant is that it puts in stark relief the difference between the public and private sector. Outputs from the public sector pall in comparison, its no contest.

I’ve lost track of the actual stats, but at one time the US government was the second or third largest economic entity in the world, on par with the GDP of Japan or Germany. You get the point. Anyone wnat to make the case that we get the same utility of the GDP of Japan or Germany or private US out of US government.

Its ludicrous. Yet when we fail to “eliminate poverty” “fix the infrastructure and so on………..the solution?? More inputs of course.

Government and the taxpayers are just hamsters on a wheel.

steve February 11, 2013 at 3:10 pm

” It’s not the production cost but what people are willing to pay.”

At least as far as health care goes, people have not shown much inclination to pay less. Health insurance companies just pass on costs, and people keep paying. Given what a large issue it is for our government, look at how little time we spend on it. Medicare always polls as one of our most popular programs. I think you could make the case that people like the output, and dont care enough about the input.

“. Outputs from the public sector pall in comparison, its no contest.”

Absent govt, you have zero property rights. Economic output drops precipitously. The problem is ROI.

Steve

Drew February 11, 2013 at 3:59 pm

“Absent govt, you have zero property rights. Economic output drops precipitously. The problem is ROI.”

Let’s take this in two parts.

“Absent govt, you have zero property rights.”

Nice straw man, steve. Zero government vs limited government. Please stop being silly.

“Economic output drops precipitously. The problem is ROI.”

This is hysterical commentary. Any sudden shock would drop output precipitously. That’s no argument for more government. Yes, ROI is the issue. That’s an argument to slowly wean ourselves off of 50-60 years of bad policy with an ever more present government. How has the massive government intervention worked out the past few years, not to mention the last 50?

Don’t bother answering. Not well. Government pensions? Broke. Government health care? Broke. Infrastructure? Crumbling. War on Poverty? Stalemate.

ROI government < ROI private.

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