Sometimes Less Really is More and How Government is Like Physics

If this crisis makes you think about anything it should make you think about the role of government and where it helps and where it hurts. One interesting aspect of our union is we have 50 little experiments in size and scope of government running around that we can learn from.

There is a special I believe this week on one of the morning shows (Good Morning America or the ilk I saw a promo for) that talks about how Texas has weathered this depresslet much better than the rest of the country. I have lived in several states –New York City, D.C., Virginia, Maryland, Texas and California and I have gotten a pretty good sense for the quality of infrastructure and services relative to the tax burden on businesses, assets and income.

Texas far and away is the most efficient and productive government from an end user experience I have encountered. The infrastructure is extremely efficient and the services are very much focused on providing necessary services and safety nets in the most productive manner possible. It is one of the largest states yet is has zero income tax and a minimalist regulatory environment across the state.

The Texas legislature meets once every two years as opposed to our Congress that seems to meet every time a bank goes under to try and “fix it”. Most state legislatures meet all the time and Texas is a relative outlier in terms of sparse governance. There are some things government just can’t fix and in fact one could argue that the largest bubbles in our countries history in telecommunications and financial services occurred RIGHT AFTER CONGRESS “FIXED” them.

In San Francisco for example there are programs that reserve the amount of every new housing development for low income residents. There is an equal and opposite reaction however in that middle income residents find it a lot more difficult to find affordable housing.

I am not an ideologue, if anything I am only an extremist in my moderation. I believe in what has worked before and doing things simply and cleanly. Texas has no income tax and relies solely on consumption and real estate taxes to fund state revenues. Property taxes are higher than in other states but real estate prices are also a lot lower. This means their legislature has very little to tinker with or modify when it wants to fund special interest programs. California in contrast has seen its state budget by 40% in just 4 years and now has absolutely no idea how to cut it back down. It’s far easier to grown spending out of control that it is to reign it in. Further, this tinkering and modification that Congress does to fix the tax code and regulate industry every few years seems to perpetually create capital dislocations and bubbles.

One of my all time favorite quotes is “Things should be as simple as possible, but no simpler”. This applies to particle physics and the application of good government as well. Every action creates and equal and opposite reaction somewhere else and I can’t help thinking the special interest groups and lobbyists that helped to create financial “reform” and before that in telecommunications partnered with Congress to create some of the huge tsunami like ripples we feel now.

Sometimes less government really is more.