Production beyond capacity

A Failure of Capitalism (V)--Doing Too Much at Once

The Daily Dish

A recent and very pertinent literature in economics--"organization economics"--emphasizes the costs of hierarchical management in slowing and distorting the flow of information up the chain of command and the flow of orders down it. The problem is compounded when as in the federal government the top layers are political appointees who may have little experience with the operation of the agency they find themselves managing.

Obama is extremely able and self-confident and has appointed on the whole very able people to his staff and to the departments; some of them are brilliant. But the capacity of brilliant people, appointed to high positions in the federal government from outside, to screw up is legendary. The danger is amplified when the government tries to do too much. The economist Frank Knight used to quip that although production beyond capacity is a contradiction in terms, it is observed every day in academia--to which we can add, in the U.S. government as well. There is danger that the government is trying to do too much and that the economic consequences will be negative and serious.

Much of this analysis can be applied to the UK experience. Well worth a read.