February 9, 2012 columns

Why Should We Be Skeptical About Government?

Powell discusses the three key reasons legislation is often ineffective at its stated goal.

In my last post I clarified what I think is a rather straight forward argument. Put very simply, it goes like this:

  1. The ways that SOPA was a bad piece of legislation— it would’ve been ineffective at its stated goal, it would’ve been costly and harmful, and whatever benefits it created would’ve flowed almost exclusively to a small interest group— weren’t unique to SOPA. In fact, they’re more the rule than the exception when it comes to lawmaking in Washington.
  2. Given this, it’s prudent to be generally skeptical about future claims by lawmakers that their new pieces of legislation will do what they say, how they say, and at little or no cost.
  3. The result of that skepticism will be less support (by some degree, perhaps by a rather large degree) for new laws and regulations.
  4. Less support means fewer new laws and regulations, which means a government smaller and less meddlesome than it might otherwise have been.
  5. A smaller, less meddlesome government is a more libertarian government, so those who embrace this skepticism are moving in a libertarian direction.

Basically, if we have good reasons to think government generally does a bad job at certain kinds of things, then we’re less likely to want government to do more of those things in the future.

But do we have good reasons? Further, do we have good reasons to think that non-government solutions will work better? Because what we don’t want to do is get caught comparing “real” government (i.e., government how it really works) to “ideal” markets (i.e., markets how they work in the perfectly structured environment of abstract theory). We need to make sure, instead, that we’re comparing real to real.

I believe the answer to both questions is yes. I could, of course, begin listing all sorts of other bad laws. But I don’t really have to. Anyone sufficiently interested can open the paper and see article after article about laws “bad” in precisely the way I claimed SOPA was. Just this week the cover story of the Washington Post was about lawmakers using their legislative power to funnel taxpayer dollars to local projects that will improve the land value of property those lawmakers own. Again, SOPA is how things happen in Washington.

Here are three reasons why.

1) The Knowledge Problem. In his 1945 essay “The Use of Knowledge in Society,” F. A. Hayek wrote that,

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.

Massive legislation designed to create certain end states in the marketplace (no piracy, health insurance for everyone, no more recessions) assumes that a small group of people (lawmakers plus the bureaucrats tasked with carrying out their commands) know enough about the details of social and economic interactions, both now and as they change in the future, to be able to effectively guide them.

Hayek argues this simply isn’t possible. Too much of the crucial knowledge for such schemes to work (current and future uses for emerging technologies, the needs and wants of citizens when it comes to their health, the complex desires and actions of actors throughout the economy) is spread across the whole of society in a way impossible to aggregate. Because of this, regulators, especially when regulating on a very large scale, will suffer from too much ignorance to do their jobs well.

2) Public Choice. Public choice economics applies the insights of traditional economics to the actions of government agents. It also provides strong reasons for thinking that the very size and scope of our institutions may make it impossible for them to function in any way close to the full-throated public spiritedness we’d need for many regulatory schemes to actually work.

My colleague John Samples has begun a series of blog posts introducing public choice, so instead of getting into it here, I’ll point you to the first in his ongoing series.

3) The Role of Incentives. Government programs, once created, almost never go away—and, in fact, they often continue to grow, even after the purposes for their existence have disappeared. Programs created to accomplish X are rarely evaluated years later to see if they’re actually accomplishing X. And those few times they are evaluated, the evaluations are almost never acted upon.

This is in part because once a government program begins, it establishes its own constituency, from the workers it employs to the people who benefit from it. And that constituency has a strong incentive to see the program continue and grow. A much stronger incentive than the general public has in shutting down any given wasteful and inefficient agency or regulatory scheme. This is the problem of “concentrated benefits and diffuse costs” and it plagues our government at every level. Furthermore, for most Americans, once a law has been enacted and so they have the sense that the government has “done something,” there just isn’t much of a drive to go back later to see how it’s working. New problems have come along demanding new laws, so that’s where our attention ends up.

These three go a long way toward explaining why laws like SOPA, the recent health care changes, or even things like Medicare, can’t work as well as their proponents claim, won’t work as well as their proponents claim, and will, over time, become more expensive and less effective. These three reasons alone give us cause for skepticism about much of what gets proposed in Washington.

Markets, while not perfect, fare better. Hayek shows how prices in a free economy act to aggregate the knowledge central planners can’t. And, while market actors may have incentives to behave badly, the market also has mechanisms for punishing them if they do. Companies that make bad products or anger their customers tend to go out of business. That is, unless they get government to prop them up through subsidies, protectionism, special privileges, and bailouts.

We all have good reasons to be skeptical of much of what government wants to do. And that skepticism, even if it doesn’t lead us to outright libertarianism, at least ought to make us a little less willing to hand over more of our liberty and money to politicians and bureaucrats.