May/June 2014

Why Government Fails So Often

From the doctor’s office to the workplace, the federal government is taking on ever more responsibility for managing our lives. At the same time, Americans have never been more disaffected with Washington, seeing it as an intrusive, incompetent, wasteful giant. At a Cato Book Forum for Why Government Fails So Often — and How It Can Do Better, author Peter Schuck, the Simeon E. Baldwin Professor Emeritus at Yale Law School, examined an enormous body of evidence to explain why so many domestic policies go awry. But can the state get better results by pursuing more thoughtfully conceived policies designed to compensate for its structural flaws? Schuck believes that it can. Arnold Kling, an adjunct scholar at the Cato Institute, offered his comments on why Schuck’s confidence is misplaced — and why government ineffectiveness is likely to continue.

PETER SCHUCK: I’m delighted to be here to present a book that I fear may seem from its title like I’m bringing coals to Newcastle. This is after all the Cato Institute, so I think this message will be affirming to you. If I have a contribution to make to the scholarship here, it will be to enrich the evidence behind those conclusions for which you probably need no more fortification. Every book, of course, is trying to sell the idea that there’s a crisis, and mine is no different. I have a lot of data on the decline in public confidence in the federal government. In 2013, 41 percent of Democrats had favorable views of the federal government in 2013.

That’s down 10 percent in one year. According to the Brookings Institution, 56 percent of Democrats believe that the federal government is mostly or completely broken — and this was before Obamacare launched. What’s the biggest threat to America’s future? According to the public, 64 percent says it’s big government, while only 26 percent says it’s big business. Keep in mind that this is only a few years after the Great Recession began in 2009. In fact, in 2011, 79 percent of those polled were frustrated or angry with the federal government. Before the recession, in 2007, 74 percent said the same thing. What are the reasons for this decline in public confidence? I propose several explanations, but the one I’m going to concentrate on is the one that constitutes the bulk of my analysis. And it’s very straightforward: the federal government performs very, very poorly.

There are a variety of theories out there as to why the government performs so poorly. One of the most common is partisan bickering that leads to congressional paralysis. The Democrats blame the Republicans — and vice versa — for any failures either side is prepared to concede. I emphatically disagree with this theory. If you examine our history of political discourse, it has been tendentious, uncivil, and furiously partisan from the very beginning. Some of the greatest achievements, including the intercontinental railroad, the Hoover Dam, and the interstate highway system, were accomplished only fitfully and after a protracted disagreement by policymakers. Polarization, I argue, is not the cause of our problems. It’s the consequence.

What is clear is that the federal and state governments have grown steadily. The former is now more than five times as large as it was in 1960, in real terms, and the latter’s growth during this period is even greater. Per capita spending in the United States is now greater than in France, Germany, and the United Kingdom. That growth occurs in both good times and bad.

And it doesn’t depend on whether Republicans or Democrats are in control. At this stage, our debt-to-GDP ratio exceeds not only that of most European democracies, but also the average for Latin America. Furthermore, there’s a remarkable correlation that I think confirms the general disaffection with government. These policy ambitions, as measured by the growth in federal expenditures, have almost perfectly paralleled the growth of public contempt for government.

This growth is also obscured somewhat because it has largely taken the form of private contractors, nonprofit grant recipients, and state and local government implementers rather than federal employees per se. This fact probably explains why so many people, including many who should know better, still believe the antiquated notion that the United States has a relatively small public sector.

One way of understanding what’s happened is summarized by political scientists John DiIulio and the late James Q. Wilson:

The Old System had a small agenda… . When someone proposed adding a new issue to the public agenda, a major debate often arose over whether it was legitimate for the federal government to take action at all in the matter… .For the government to take bold action under this system, the nation usually had to be facing a crisis… .The New System is characterized by a large policy agenda, the end of the debate over the legitimacy of government action (except in the area of First Amendment freedoms), the diffusion and decentralization of power in Congress, and the multiplication of interest groups. Under the Old System, the checks and balances made it difficult for the government to start a new program, and so the government remained relatively small. Under the New System, these checks and balances make it hard to change what the government is already doing, and so the government remains large.

The core idea in my book, then, is that federal domestic policy failures are caused by deep, recurrent, and endemic structural conditions. It doesn’t matter which party is in power. It doesn’t matter what the state of the economy is. And we all have an enormous stake in understanding the reasons why. So what are the structural reasons for failure? Before I go through the six main ones, I should note that the main index of a program’s performance should not be its durability or its enthusiastic defenders, but instead its cost-effectiveness. This is the indicator I use throughout my analysis.

To begin with, the most fundamental characteristics that shape the substance of public policy include the incentives that both policymakers and private actors face. I note that officials have powerful incentives to provide voters and interest groups with short-term benefits, while hiding the longterm costs of paying for them. In short, government officials design policy to advance their own self-interests, while ordinary citizens have little incentive to participate actively in political activity.

Second, our policy system also suffers from information deficiencies, inflexibility, a credibility problem, and mismanagement. Much government failure reflects the fact that information is costly to gather, assess, deploy, and keep up-to-date. Government is therefore especially ill equipped to adapt its goals and instruments to changing technological, economic, and political conditions.

Many programs can succeed only if the federal government can assure others that the rules of the game are not going to cha — nge. However, federal mismanagement — including fraud, waste, and abuse — is a chronic problem at the very time when the ambition of national policies has swelled.

Third, markets themselves also affect policy performance. The powerful incentives, logic, hydraulics, and political influences of markets are difficult to control and tend to undermine the effectiveness of many public policies, including those explicitly designed to correct market failures.

Fourth, I analyze the problem of implementation — the obstacles that invariably litter the path between policy designs and outcomes. These obstacles are important; they are not readily dispensed with and they are not easily circumvented. The real world consists of complex social, political, fiscal, market, and legal conditions that even the most seasoned policymakers in Washington cannot fully anticipate. Worse, even if policymakers could foresee them, they would have relatively little control over them.

Fifth, there are certain inherent limits in using law as an instrument of public policy. These limits include its ubiquity, the inescapable tradeoffs between simplicity and complexity, its linguistic ambiguity, the discretion necessary for it to function, its costly procedural apparatus, and its inertia. Precisely because of law’s powerful allure, policymakers must attend care — fully to its constraints.

Sixth, every public policy is run through a bureaucracy. In the United States, the federal bureaucracy is not merely problematic. It is distinctively so. Despite generations of blue-ribbon commissions calling for fundamental reform of our civil service, it is increasingly a backwater. The consequences of this progressively demoralized, poorly equipped, marginalized, publicly scorned, and undisciplined workforce for government performance are deeply dismaying. These employees are, after all, the shock troops, the implementers, the ultimate instruments of our public policies. If they are not up to the job, then neither is our government.

All Americans have a strong stake in understanding why government’s failures are so endemic, and what might be done to improve matters. If we do not do so — and soon — our great experiment in self-government may itself come to be seen as a failure. In an era of fiscal cliffs, pallid enforcement, special-interest pandering, and growing public disgust with politicians, this warning is not hyperbole. Reform is both essential and within our reach.

ARNOLD KLING: Peter Schuck describes himself as a militant moderate, a phrase that involves both alliteration and oxymoron. I might describe myself as a low-key libertarian, which includes alliteration as well and is, many would argue, also an oxymoron. But neither of us would have necessarily always described ourselves this way. With that in mind, the word that kept coming to me as I read this book was “transitional.” This book could be profitably read, I think, by anyone who is in the process of reevaluating their views. If we split 40 random, ordinary, liberal college students into two groups — giving half of them a copy of this book and the other half a placebo — I suspect that in a few years the treatment group would have more libertarians in it.

I believe, in other words, that Schuck’s work could be an effective gateway drug. If you think of this book as a roadmap and you’re looking to climb the mountain of enlightenment that eventually leads to the state of higher consciousness that we call libertarianism, Why Government Fails So Often will help you take some important steps along that journey. I’d like to take a moment to discuss the steps that it does take, and perhaps a few more that it could take in order to reach the summit.

Schuck’s first step along the path is that he confronts the phenomenon of government failure in an extremely forthright manner. He doesn’t mince words or sugarcoat that message, nor does he say that public ineffectiveness is the exception rather than the rule. In fact, he makes it absolutely clear that these failures “are not just random, occasional, or partisan; they are large, recurrent, and systemic.”

The next step is that he quite clearly rejects what some of us call the intention heuristic for evaluating government programs. This is the notion that policies can be judged by their intentions rather than their outcomes. Shuck is forceful in his convictions that government programs need to be assessed in terms of their costeffectiveness.

Now let me turn to some further steps that might be taken. First, I believe that Schuck’s criteria for what passes as government success need to be tightened up. He writes, for instance, that Social Security “has been both popular and effective since its inception in 1935… Indeed, it is the single most popular federal program.” Yet the system is not on a financially sound basis. I think you need to be careful about calling it a success just because people are receiving checks when the program itself is fundamentally insecure. By this standard, we would have said, for many years, that Bernie Madoff was a success.

There are several additional successes that Schuck describes, which to me look more like officials backing away from a policy that was ill conceived to begin with. One example is the Immigration Act of 1965. The reform essentially repealed racially and ethnically biased national-origins quotas, which allowed discrimination in granting permanent admission to the United States to begin with. It was a positive development, but I’m not sure it’s accurate to describe that as a government success. The same is true of the Airline Deregulation Act of 1978, which abolished the system whereby government fixed airline prices and restricted market entry. Calling this a successful public intervention is misleading, when in fact the achievement was backing away from a policy that was short-sighted to begin with.

Second, Schuck has an impressive grasp of neoclassical economics, but I think he gives it too much weight. Neoclassical economics is obsessed with the concept of equilibrium, and in turn it pays little attention to innovation. I believe that one of the biggest lessons of economics is the value of trial-and-error learning through entrepreneurial activity.

Incidentally, that is one of the important ideas that is, for all practical purposes, outside mainstream economics. The process of innovation has three steps: introducing experiments, learning from experiments, and evolving as a result of those experiments. The government is particularly inferior to the market when it comes to both experimentation and evolution. The government does not have the ability — or the will — to attempt as many experiments as private actors do. In the marketplace, when one organization won’t explore alternatives, another one often will.

Furthermore, the market has the discipline of profit-and-loss, whereas the government relies simply on self-evaluation. But no organization will be able to self-evaluate with the rigor of the profit-and-loss system. The discipline that comes from it is absolutely essential to innovating and evolving.

The third step that will take us further up the mountain has to do with what I refer to as “HETE,” which stands for Highly Educated Technocratic Elite. My sense of this book is that Schuck would like to turn up the HETE — that is, he would like to give the highly educated technocratic elite more autonomy, more authority, and more running room to pursue their notion of what constitutes good policy. I, on the other hand, would like to turn down the HETE.

Now, I have nothing against people with impressive education credentials. But consider an analogy: the vast majority of teenage drivers have the self-restraint not go barhopping and then pile in their car to get back home. But because a small minority are reckless, you need both social norms and legal restraints to discourage that behavior. The same goes for the HETE. Most highly educated people have the self-restraint not to dictate expansive policy schemes that outstrip anyone’s knowledge of our complex social system.

But a small minority cannot contain themselves, and many of them end up in academia, the media, and high government positions. The key is to have even more cultural norms and restraints to curb their behavior. In his discussion, Schuck touched on certain impediments to government that included things like decentralization, checks and balances, and the country’s cultural distrust of technical expertise. Unlike him, I would like to reinforce each of those phenomena.

In conclusion, this book really delves into government failure and properly rejects the intention heuristic in favor of cost-effectiveness evaluations. But it could benefit by being more rigorous in its definition of success, by emphasizing innovation economics over neoclassical economics, and by reconsidering the position of the technocratic elite. I believe that if I had Schuck’s confidence in the HETE, I too would be a militant moderate. On the other hand, if he adopted my sober assessment of the HETE’s deficiencies, he too would be a low-key libertarian.