There’s a concept in the world of microeconomics called “Economies of Scale,” and its antithesis, “Diseconomies of Scale.” It works like this: as a company grows, the usefulness and cost efficiency of its labor, materials, technology, etc. improves. For example, a clothing manufacturer’s machinery might cost $10,000. If that machine only makes one piece of clothing a day, even though it’s capable of producing many pieces of clothing per day, then the company is taking a tremendous loss on that machine. If, however, the company grows and starts selling a lot of clothing per day, then that same $10,000 machine is now producing many pieces of clothing; at some point the machine will be offsetting its cost and, eventually, earning an economic profit.
Seems pretty straight forward, doesn’t it? The more you sell, the more cost effective all of your production costs are. When a company is in this period where continued growth equals continually rising cost effectiveness, this is called “economies of scale.” It refers to all of the advantages a company earns as a result of its expansion. Unfortunately for companies (and our country, which I promise you I will eventually address in this diatribe), economies of scale do not continue indefinitely. All good things must come to an end, or in the case of our country, an apocalyptic burning to the ground. An expanding company will eventually reach a point where continued growth is no longer earning any economic benefit (called “economies to scale”). This happens because at some point the company is no longer reaping any additional profit as a result of incurring more production costs. Hiring another worker or buying another clothing manufacturing machine isn’t going to result in sales that outpace their cost, only offset them.
Then, of course, what follows is called “diseconomies of scale.” Companies inexorably reach a point where they have grown so large as to become inefficient and wasteful in excessive costs. If you’ve ever worked for a company in its early years and stayed with the company during a large period of expansion, you’ll have likely noticed this effect. Maybe you were talking with your coworkers around the watercooler and mentioned how it seems like the company has become so “corporate” since you started back in the good ol’ days. You didn’t realize it, but you were talking about the company’s diseconomies of scale. This occurs because the bureaucracy of the company, the red tape, becomes exorbitant Processes become inefficient when they start requiring 8+ different approvals to happen. Employees also become lax. With more employees comes more opportunity for some employees to find ways to be lazy, otherwise known as “shirking of responsibilities.” In order to combat this, companies must pay for the cost of increasing supervision, but the increased supervision results in even more red tape. The additional influx of employees also results in increasingly less knowledgeable employees overall, and those hired to oversee production become more and more detached from the processes they are supposedly overseeing. The management of the company inevitably becomes inept at their own duties, sending responsibility for the day-to-day activities of the company back to the mid and low-level employees, who then abuse their supervisors’ lack of knowledge to shirk their responsibilities once again. It’s a cycle that is sometimes hard for large corporations to break out of, if they ever do. Companies may continue to earn profits of course, but a very large portion of their income is now being wasted at an ever-increasing rate.
I assert that the United States is the largest “company” in the world, and it has entered its own diseconomies of scale, a period which I personally don’t know if we’ll ever be able to break out of. Look at the local, state, and federal governments around you. In California, no less than 10 counties since 2008 have declared bankruptcy. Cities and counties like Stockton, Atwater, and San Bernardino have declared bankruptcy despite earning tens of millions of dollars a year in local revenues in addition to several millions more of state and federal awards. Santa Monica, a city that attracts A-list celebrity and wealth, is in dire economic straights, with over 70% of its revenue lost to city maintenance costs.
How is this possible? The cities and their management have grown so large as to allow for corruption, horrid mismanagement of funds, and willingness to pay for outrageously expensive social programs for the poor to exhaust any revenue they might have. The common thread in all of these local governments is that they spend a very large portion of their revenue on pensions for government workers and services for the poor/indigent! Pensions for police, pensions for firefighters, pensions and wages for the city officials themselves! The amount of money that is absolutely wasted in these cities is abhorrent and out of control. Stockton, for example, paid out incredible amounts in pensions to their police force, so much so that one of their police chiefs — who lasted a whole 8 months — made the news for reaping an annual $204,000 pension from the city for his 8 months of service! Santa Monica, specifically, imposes a tax on its residents in the form of an automatic cost of withdrawal when using the city’s ATMs. This is on top of whatever bank fees the residents are already incurring! Where does this additional revenue go? It’s sent directly to the throngs of homeless individuals who have flocked to the city over the past several decades.
Another city in California, Bell, was the focus of a financial scandal two years ago that has left the city’s finances in ruin. That crisis was brought about by the corrupt embezzlement schemes of just a few city officials because the complexity of their management of the city had grown to such a point that the citizens no longer knew (or evidently cared) what was going on behind the city hall doors. The city’s voters blindly and repeatedly voted for these same scheming officials election after election.
Bell is just a microcosm of the grandiosity of the state-run operations, and those state-run “corporations” are in turn microcosms of the enormity of the United States economical machine. If a couple of city officials of average intelligence in a relatively small city in California are able to get away with such massive waste, just imagine what can be (and IS) wasted at the state and federal level.
The United States has been on this “diseconomies of scale” trend for quite a while, and the reason is because our country has turned from the democracy it was originally intended to be into an ineptocracy. An ineptocracy, as defined by the great site UrbanDictionary.com, is, “A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.”
Santa Monica, are you reading this? Look, I want to save the lives of every poor person on the planet just as much as the next guy, but it’s a pipe dream. We simply cannot do that. It boils down to simple mathematics. There is not enough money on the planet to be able to provide all the food, water, shelter, and medical coverage necessary for every human being on the planet to live comfortably or even decently. It’s a wonderful sentiment to want to lift everyone out of the mercilessness of homelessness, but that sentimentality turns to madness and stupidity when one attempts to actually enforce it on a governmental scale. The failure of Marxism has already proved this in history.
As our country now grows, we are dealing with two swirling tides of destruction: Our country faces potentially perpetual diseconomies of scale, and our government continues to confiscate the wealth of the providers for the sake of those who do nothing but add costs and burdens to the societies around them. Where is the incentive to become a successful and wealthy producer in this country when you are now assured that your earnings will be taken from you and given to the recently released, habitually detained, drug-addicted prison inmate so that he can get a few food stamps?
I’m of course not implying that we should end all social programs in this country, but the amount of money we are now stealing from productive members of society for the benefit of those who produce nothing is growing at an alarming rate. Bell, California will become California, United States, and that in turn will become the story of the United States, Planet Earth. The magnitude, scope, and sheer number of social programs we now have in the United States is staggering, and the amount of corruption and abuse of these systems is equally disturbing. It is a prime example of the costs of diseconomies of scale on full display.
Voters must decide if they want to continue to be led by the Inept, or if they want to return this country to its economic heyday of the 50’s and 60’s. Note, by the way, that the 50’s and 60’s economic production benchmarks existed before the introduction of Lyndon Johnson’s “Great Society” policies. Coincidence? You decide.