Welcome to politically Speaking.

I'm Elizabeth Benyon, chancellor's professor of political science and director of community engagement and the American Democracy Project at Indiana University, South Bend.

Before taking office, President Trump was best known for his career in the business world.

Now, in his second term, he's appointed Elon Musk to lead the Department of Government Efficiency.

But what does efficiency mean when it comes to government operations, and should we measure it the same way we measure success in private business?

Joining us to discuss this topic is Lawrence Marsh, professor emeritus of economics at the University of Notre Dame.

Professor Marsh, thank you so much for joining us.

Well, thank you for the opportunity.

I want to start by asking you about this criticism that we also often hear that government agencies are not as efficient as private business.

Is this criticism fair?

And should government agencies be measured in the same way as private businesses when it comes to efficiency?

Well, government efficiency is really entirely different because it's much broader.

It's not a matter of this small enterprise that's trying to, maximize its profits in a very well defined situation.

For example, in 1865 and some communities in Massachusetts realized that there was spillover effects to education.

And so they took taxpayer dollars and they started, educating young children.

And the young children didn't provide immediate revenues.

They didn't, make for a profit maximizing situation.

But the community realized they were better off when when everyone could read or write and add and subtract.

So it was a tremendous benefit in this spread throughout the United States until the last state to do it was the state of Mississippi in 1918.

So there's all these spillover effects where you enhance, the country in a way that doesn't provide you with media presence.

For example, when President Eisenhower in the 1950s put in the Eisenhower Interstate Highway System, this was a tremendous improvement for the for the efficiency of businesses throughout the United States.

There there was a wonderful situation where, before the highway system, the Interstate highway system was put in, and it was hard for businesses to distribute their products throughout the United States.

But this government and taxes that were used, that very expensive project for a lot of time to do, to put in this interstate highway system, meant that then a producer in South Bend could take products to Chicago, Illinois, or to Cleveland, Ohio.

And so the government was enhancing the efficiency of the free enterprise system.

And so there's many, many situations where the government plays a very important role in establishing and maintaining and enhancing the efficiency of the economy overall.

And so that is is very important.

And there's all sorts of situations where the, there's deviations from efficiency within private enterprises.

For example, there's, negative externalities.

We know that sometimes the company, may include a stream or air pollution.

And so what we have to do in order to get efficiency back in, in the marginal benefits to match the marginal costs within the enterprise.

But when the marginal cost spill out so that other people are carrying the burden of the cost that is not being involved in the calculation to the business, then that's not efficient.

So you've got to, reassign those costs back to the enterprises generating those costs.

And you need to do an efficient grant.

So it's not that you want to eliminate all pollution, but you want to make sure that the business is generating the pollution, is is paying for all that pollution is generating and then takes that into account as part of its cost.

The same thing is true with positive externalities.

If you have some, illness or problem that that is not contagious, then it's up to the individual to vaccinate themselves or take care of in whatever way they want.

Whether they want to vaccinate or unvaccinated is up to them.

And even even if it's a contagious disease, it's still up to them.

But because of the the positive externalities, because you're getting vaccinated benefits not only you, but it also benefits the community so that the disease doesn't spread.

And the government can enhance the efficiency by paying for the vaccination, either in part or in whole, so as to, protect the community as a whole.

Because for the event where you're not managing the marginal benefits in the marginal cost, there are benefits to the community as a whole that are not assigned directly to the individual.

The individual doesn't get those direct benefits, but the community as a whole gets those benefits.

So the idea that you can take government agencies and treat them as if they were small private enterprises that were trying to make a profit is totally misconceived.

Is just completely, different.

Government efficiency is completely different.

We're still about, maximizing the, benefit of everyone in in a broader sense.

So we're doing the efficient allocation of resources, but we're doing it in a much broader sense.

So we hear this word a lot efficiency.

But how would you define that?

Well, I see it as, doing the greatest good for the greatest number.

Then I think in understanding, the greatest group for the greatest number.

It's very important to understand why Homo sapiens were successful.

And 6 or 7 other variations of humans were not successful.

Well, the key to our success was that we have a limited amount of time and energy, good mental energy.

And I can't be everything in forever.

All of my needs.

I can't be an auto repair mechanic.

I can't be a heart surgeon.

I can't be an accountant.

I can't be a lawyer.

I can't be cut my own grass.

I can't do everything all at once.

I have to benefit from the vision of specialization of labor.

So the division and specialization of labor is key to the success of Homo sapiens.

But it took one other ingredient that really made the difference in that was the idea of moral obligation.

So you're in your interior single and your prefrontal cortex.

We have the idea of empathy, the idea of being able to put our feet in other people's shoes, in that empathy is critical to the division and specialization of labor.

And even in getting married, you say, you know, I, for better or for worse, for richer, for poorer, you know you're making a moral commitment.

But when you go to the doctor, the doctor is taking the Hippocratic Oath to do what's in your best interest, even if it doesn't make the most money for the doctors.

And the same is true when you get a financial advisor.

You want the financial advisor to be a fiduciary.

And a fiduciary means that the financial advisor will line up their interests with your interests and make sure they've always acted in the best interest of the of their client.

And so throughout our economy, we have to have this moral obligation.

So when you take your car to the auto repair place, you're trusting the auto repair person to not get carried away and exploiting you and and repairing a whole bunch of stuff that doesn't need to be repaired.

You know, you need to have some sense of moral obligation.

And so as long as we have an adequate degree of moral obligation, we're successful.

So the key is when you go to the store, you get what you want.

But the store owner also gets what they want, your money.

It's a win win situation.

As long as we're playing with win, we win.

But if we try playing, I win.

You lose.

Like is going on in the Middle East, where we're Sunnis versus Shias.

Romanians versus as a region is, Kurds versus, Turks, Syrians, and that's themselves.

And then, of course, the US versus Netanyahu.

So, you know, you just when you play, I win, you lose, you lose.

Everyone loses.

Putin invades the Ukraine.

Russians are being killed along with Ukrainians.

Everyone's losing world War one was a big loss for everyone.

And then they imposed the reparations on Germany.

And their result was World War Two.

But after all the people were killed.

The United States did something very strange.

Instead of reparations in Germany for the millions of people that were murdered and killed and all of that, they brought the Marshall Plan.

They changed the game.

They changed it for why?

When you lose, to win, win.

And so when you go to the store, you get what you want, the store, that's what they want.

And the U.S. said, okay, then the European Union was formed.

And then they created the euro.

So all of a sudden, these countries that were fighting with one another.

Now, unfortunately, they did not include the Russians.

They showed that they incorporated the Russians at that time in the third person.

They knew perhaps we wouldn't have had this problem in the Ukraine.

But the important thing is, is the win win strategy in the sense of moral obligation in order to make the division and separation of labor and specialization of labor work effectively and efficiently.

So we're not just talking about what the most cost efficient way to maximize profit, but there's a much larger sense of the greatest good for the greatest number.

And seeking out win win solutions when it comes to government efficiency.

Right now, of course, many Americans and people around the world are hearing about Elon Musk and the Department of Government Efficiency.

Could restructuring or eliminating particular agencies make the government more efficient in an immediate way, have an effect on spending and overall efficiency in this framework that you've described?

Well, actually, Barack Obama, was concerned with this problem.

He understood that the regulations can improve efficiency.

But they can also undermine efficiency.

You know, we've created patent laws in order to enable private enterprises to invest, time and money over a period of time, and then they have enough time to recoup their investments before the competition pours in and takes away the, the, the advantage, of being able to recover their costs.

So the government steps in, to improve efficiency in, in many different ways.

But Barack Obama, President Barack Obama, I got, Cass Sunstein, who's a lawyer, a law professor from University of Chicago and set up this, regulatory agency where they would analyze the different regulations throughout the government and study them over.

And then, now, now, Cass Sunstein, I believe, is a, law professor at Harvard.

But the thing was, is that, Daniel Kahneman, a psychologist, wrote a book called Thinking Fast and Slow, and Daniel Kahneman got the Nobel Prize in economics.

Well, the thing is that animals like a tiger has to think fast when they're being attacked.

Should they fight back or should they run?

But the thing that makes humans successful is thinking slowly and careful planning and thinking about all the implications of what they're doing.

So, Cass Sunstein was analyzing each situation carefully and recommending adjustments and, you know, some people may say, well, I was too slow, but yeah, when I see a teenager wearing a t shirt that says, just do it, I think, oh, no, this is not a good strategy.

There's need to think about what you're doing.

Plan ahead.

And that's going to make for real efficiency as opposed to shooting from the hip.

And that's creates a disaster.

So I say that you need to go slowly and thoughtfully when you're trying to improve government efficiency so that you understand fully what you're doing and not actually make things worse.

So when you talk about making things worse or creating a disaster, can you give an example of what you mean?

How would it be, costly to rush to judgment?

Well, I mean, just the most recent things are with Social Security.

They had this whole thing about eliminating the phone bank.

And so older people that were not quite sure how to use all the internet things, could no longer call in to find out how to properly apply for their Social Security or, you know, it created, difficulties that that reduced the efficiency, at least for the older people.

And so there's all sorts of situations where, they, they've undermined the efficiency by not fully taking into consideration all of the different aspects of what's going on.

So, whether it be in Social Security or being health area where they, they don't understand that when they, pay the national science Foundation and the National Institute of Health, So that is much more important to understand that, that you can't just rush in and start throwing things around and eliminating people and firing people in the nuclear, case where they, they started getting rid of people that were key in keeping us safe.

Our nuclear, situation safe.

And so they weren't being careful.

And that can be disastrous.

And since they don't really understand the nature of government and government efficiency, it to start with, because they have this very narrow view and thinking of it in terms of a private enterprise.

They're, they're off to the wrong start to begin with.

And then to do it in a rush makes it even worse.

So it sounds like focusing on immediate cost savings, although sometimes those are a more theoretical then, actual, but focusing just on that bottom line then.

Mrs.. People actually getting those services efficiently, which means you have to deal with all of those people and their questions, and somebody has to deal with the problems that might have been created as well as in the case with nuclear weapons and figuring out how to hire people back, which is taking time that could have been spent on security.

It sounds like, you're saying as you think about the short term time saving, but long term, it will actually cost more time and cause more disruption.

Yes.

And it's so important to recognize the spillover effects of how much you benefit by there being someone that knows auto repair, how much you benefit by there being someone that that knows how to do heart surgery.

And as the baby boomers retire, they're going to appreciate the investments that we've made in getting doctors and nurses.

Now, in Germany, they go beyond just, paying for the education of children in Germany, where the vast majority of the universities are tuition free.

So there.

So instead of buying up the durables and debt, as we have in the United States, we we are able to get the in Germany, they're able to get there are people off to a good start in their careers without being in a huge debt, a huge amount of debt.

And that leads to really a fundamental problem in, economy, which is that under our maximization of shareholder value, maximizing profits in the stock market and all that, we have diverted so much money from the hardworking and creative people on Main Street to Wall Street that there's not enough money on Main Street for people to buy back the value of the goods and services they're producing.

So they go up to the rivals in debt.

But even that's not enough.

To keep our economy out of recession.

And so the federal government engages in federal deficit spending.

And whether it be the Republicans, whether they're unpaid for tax cuts that are supposed to pay for themselves but never do, or whether it be the Democrats where they're unpaid except for expenditures, they realize that if they didn't engage in this, they would have a high level of unemployment, and then they would lose votes at election time.

So ultimately, both sides do the deficit spending, even though they can never say it's terrible.

It is because of our distorted Moneyball that we have have the efficient, the overall efficiency of of our economy as a whole has been undermined in.

This becomes evident when you see that the gross domestic product is only growing at around 3%, actually less than 3% a year.

Whereas in the stock market it's been growing at an average of over 10%.

As a matter of fact, in 2023, the S&P 500 grew over 20%, and in 2024, the S&P 500 also grew over 20%.

And so you have a situation where non-financial firms say, wait a minute, investing in my own business, I only make 2 or 3% return.

I'm coming up with new products and improving productivity.

But investing in the stock market, I make it 10% return on average with lots of ups and downs.

Well, why should I waste my money?

And then in so the financial markets were created to to try to make the economy more efficient by providing money for firms to invest in new products and services through to empower their creative entrepreneurs and their hard work employees.

But instead that there's been this reverse money flow, where now when you start going out of the real economy and going flowing back into the financial economy, then part of it is stock buybacks.

Before 1982, the Securities and Exchange Commission considered stock share buybacks to be illegal and considered it insider trading.

They declared it to be illegal, but the politicians were influenced by the wealthy people to to get the SEC to drop that rule.

So we have had like trillions of dollars of stock share buybacks.

And for CEOs and CFO, those who have stock options, then this money driving up the stock price is seen as great.

But the thing is, where the economy is really successful is when you have somebody like Steve Jobs who just was really excited about creating new products and yeah, he had to earn some money.

He had to get some money, and have profits to some degree.

But his real enthusiasm was creating new products.

It was exciting.

And all this new, new technology and then this, John Sculley came along and John Kelly said, you know, Steve, you really need to get your profit margins up there.

You know, Steve, you really need to get your share price up.

So the Apple board decided to set Steve Jobs aside and put in John Sculley and John Sculley.

Well, he wasn't all that interested in new products.

He was interested in cutting costs.

He wanted to get those profits up.

Well, that went on for a while until Microsoft and other technology companies started moving ahead.

And then finally, the board realized that they were losing out in the competition because they weren't focused on creating and rewarding creative entrepreneurs.

And and rewarding the hard work employees.

So, eventually they kicked John Scully out and brought Steve Jobs back.

And unfortunately, Steve Jobs passed away later.

But, at least they learned the lesson that the idea is that to maximize profits in the short run, not to have share buybacks, but the idea is to have a longer term view and have a broader view.

In the 1950s and 1960s, when they came out of World War Two, people had they had been, they were all in this together.

And we thought we made commitments to one another.

And there were lots of people marriage.

We got married with lots of babies.

And then when you took a job, you would you would take that job for 30 or 40 years.

And they were committed to you and you were committed to the job.

Now, sometimes there would be disputes, labor strikes, and then word would settle in and get back to work working together.

But, you know, I mean, I, I started teaching at Notre Dame in 1975.

And to me, this was a long term commitment that this wasn't something I was just through in first two years.

Then we seem to have lost that sense of commitment.

And so the efficiency that comes with recognize the agency of your employees, that they can contribute tremendously to the productivity.

I remember in Kansas City, there was a company called Burns and McDonald.

An engineering company was started out as a small construction company.

And, and they expanded to an engineer to, to be, a worldwide engineering company.

Well, what it was is when you're the person, you give the stock, the burdens of it all is owned by the employees.

And when you leave for retirement, you have to turn in your stack because only the employees are able to own the stack.

And so it's, it's it's like being on a sports team.

It's like, you know, we made a name, you know, football here.

You're on the team together.

And it's not just a matter of you doing your job efficiently, but you know, you're the guy next to you.

Hey, man, get your act together.

We got to win.

We got to win.

So you need to have that team spirit to have economic efficiency.

And you need to recognize the agency of your employees.

They're not just inputs like plastic and glass.

They have agency and they can result in the success and the failure, the efficiency of your operation.

And unfortunately, we've lost sight of that, and we've gotten too much focus on making short term profits and Wall Street and not enough in recognizing the, great creative capabilities and hard work employees on on Main Street.

Now, is there anything that government can do now to inspire innovation and to encourage companies to embrace the type of team spirit and product development that you just outlined?

Yes, actually.

And Germany has figured it out.

You know, they require a certain proportion of corporate boards to be elected directly by rank and file employees.

Now, the problem has been, and there's a great book by Steven Clifford called the CEO Pay Machine.

And Stephen Cook was and he was a CEO himself, and he was on quite a number of these boards.

And in retirement he was on even more boards.

And he learned that the system was not operating efficiently, that they were over rewarding CEOs not based on their productivity or the efficiency of their operations, but they're based on imitating what other CEOs were getting in.

And they they kept giving them more stock options.

And so then they would drive up the share price and waste money was was shared by banks.

That money could have been going into improving the operations of the company, improving the efficiency, creating new products.

And so we're we're been suppressing and productivity and economic growth in the United States because of this reverse money flow, where money that should be flowing out into these companies to create new products and improve productivity has been flowing backwards into the financial markets.

And this has been actually encouraged, since the quantitative easing, since after the the 2007 2008 recession, the Federal Reserve is pumped tremendous amounts of money.

And what has happened is, that this has, has driven up these share prices, but it has caused the reverse money flow in to suppress productivity and economic growth.

There's too much money, has flowed into the stock markets and the 93% of the stock market now is owned by the 10% wealthiest people.

So this is created a more enormous concentration of wealth.

And in fact, and people don't realize that a $1 billion is $1,000 million to Elon Musk, a few million dollars is chump change.

Well, unfortunately, that's all the time we have for this week.

So politically speaking, these are big issues, big questions.

And we will stay tuned to see what happens with our economy and what decisions the fed and, Doge make here in these next few weeks and months and years.

Thanks to our guest, Professor Lawrence Marsh, for sharing his insights and perspectives on government efficiency and its implications for all of us.

I'm Elizabeth Benyon reminding you that it takes all of us to make democracy work.

We'll see you next time.

This Wnit, local production has been made possible in part by viewers like you.

Thank you.