Just a random thought. In retirement planning, asset allocation is an issue because investments that perform well will, over time, come to represent a greater percentage of their assets than investments that perform poorly. This can throw their portfolio out of whack, so periodic rebalancing becomes necessary. It’s pretty obvious stuff when you think about it, but it’s amazing how many people don’t think about it and end up with a retirement fund full of high-risk growth funds.

The thought that just occurred to me (not that I’m the first to think of it) is that the same principle must apply to the balance between the public and private sectors. Imagine for a moment that there is some ideal balance between the two, and that at some point in time we’re at that point of balance. As I describe in Baumol’s Cost Disease, the private sector is certain to grow faster than the public. Therefore, there will be a natural tendency to drift away from that ideal balance. Therefore again, it is also necessary – just as it is in one’s retirement account – to rebalance periodically, not just doing “more of the same” but proactively shifting resources from the faster-growing private sector to the slower-growing but just as essential public sector.

That’s it. I’m not going any further with that though for now, but it seemed worth sharing.