Policy Analysis No. 777

Why the Federal Government Fails

Most Americans think that the federal government is incompetent and wasteful. Their negative view is not surprising given the steady stream of scandals emanating from Washington. Scholarly studies support the idea that many federal activities are misguided and harmful. A recent book on federal performance by Yale University law professor Peter Schuck concluded that failure is “endemic.” What causes all the failures?

First, federal policies rely on top-down planning and coercion. That tends to create winners and losers, which is unlike the mutually beneficial relationships of markets. It also means that federal policies are based on guesswork because there is no price system to guide decision making. A further problem is that failed policies are not weeded out because they are funded by taxes, which are compulsory and not contingent on performance. Second, the government lacks knowledge about our complex society. That ignorance is behind many unintended and harmful side effects of federal policies. While markets gather knowledge from the bottom up and are rooted in individual preferences, the government’s actions destroy knowledge and squelch diversity.

Third, legislators often act counter to the general public interest. They use debt, an opaque tax system, and other techniques to hide the full costs of programs. Furthermore, they use logrolling to pass harmful policies that do not have broad public support.

Fourth, civil servants act within a bureaucratic system that rewards inertia, not the creation of value. Various reforms over the decades have tried to fix the bureaucracy, but the incentives that generate poor performance are deeply entrenched in the executive branch.

Fifth, the federal government has grown enormous in size and scope. Each increment of spending has produced less value but rising taxpayer costs. Failure has increased as legislators have become overloaded by the vast array of programs they have created. Today’s federal budget is 100 times larger than the average state budget, and it is far too large to adequately oversee. Management reforms and changes to budget rules might reduce some types of failure. But the only way to create a major improvement in performance is to cut the overall size of the federal government.

Chris Edwards is editor of DownsizingGovernment.org at the Cato Institute.