Why cutting government is dangerous

Lots of people seem to think that A) government is very inefficient, and that therefore B) we can make society more efficient by cutting the size of government. But actually, (B) doesn't follow from (A). And in fact, the very thing that makes government inefficient in the first place might make cutting it a bad idea!

Why is government inefficient? Because of incentives. Companies generally make hiring and investment decisions based on a marginal cost/marginal benefit calculation (though corporate institutions can of course get in the way of that, and if there are externalities then it's not efficient, etc. etc.). But government makes its decisions based on some other kind of cost-benefit calculation entirely. Sadly, we don't have a good understanding of government decision-making, and this is an area that could use a LOT more research attention than it is getting.

Anyway, because government doesn't make decisions on a monetary cost/benefit margin, it tends to be inefficient. But because of that, if you take a hacksaw to government, starving it of funds, or demanding that it fire workers and close divisions, these firing and closing decisions will not be made on a cost/benefit margin. If you force a corporation to downsize, it will usually lay off the least productive workers first. But if you force a government to downsize, it very well might lay off the most productive workers while retaining the least productive ones!

The very thing that makes government inefficient can make cutting government inefficient!

More here.

Specifically, the government entities that tend to survive a purge are most likely to be entrenched interests, and those are often entities that serve a narrow but politically motivated minority.

As in other fields, the inability to measure productivity accurately across different units of government means great inefficiency in funding allocation. So many problems can be reduced to inaccurate measurement.