Underfunded or Mismanaged? Rethinking Public Services

Whenever public services prove to be inferior or counterproductive, their advocates always advance the same argument: “public services are underfunded!” This comes as no surprise to those acquainted with the logic of state action. When the signals of profit and loss cease to function, public agencies inevitably seek to expand their budget.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

There have been two very serious train accidents in Spain in the past few days with a significant loss of life. I do not wish to discuss these specific events at this time as it is a time of mourning. The aim of this article instead is to discuss, from an Austrian economic perspective, the argument that is being presented within the context of these accidents. Underfunding is the constant complaint of public services.

The first question is, what is funding? Basically, funding consists of the resources that need to be in place for production to happen. This would include money, land, capital goods, and labor. It would also include capital as a lot of resources need to be paid for before production is finished and revenue is obtained. The obvious example is labor, as entrepreneurs will need to pay labor “as they go,” normally either weekly or monthly, well in advance of any production being finished and revenue obtained in a typical company.