Economics

Government Failure Is Baked In

Welcome to a world of bird flu, corrupt contractors, and glitchy websites.

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On July 14, The New York Times reported that scientists at the Center for Disease Control and Prevention (CDC) had mishandled dangerous strains of anthrax and bird flu, failed to follow correct safety procedures after employees were exposed, and neglected to notify the appropriate supervisors for about one month.

This is not the first time we've heard about lax oversight and dangerous disregard at the CDC. In 2006, for instance, the agency "accidentally sent live anthrax to two other labs, and also shipped out live botulism bacteria."

Inadvertent biological warfare sounds bad enough, but the CDC's errors are really just an amuse-bouche in the banquet of government failures. In the past year alone, we've seen the amazingly botched rollout of Obamacare's website exchange, the Department of Veterans Affairs' inept handling of health care for former members of the armed forces, and the Internal Revenue Service politicizing right-wing groups' applications for nonprofit status. All of which took place against the background hum of death and disaster in Iraq and Afghanistan.

While the nation's attention tends to be narrowly focused on the day-to-day problems related to each of these disasters, they comprise only the most recent and visible signs of the fundamental flaws that plague government intervention.

In July, Brookings Institution scholar Paul Light published a report on this topic, called "A Cascade of Failures: Why Government Fails, and How to Stop It." The study identifies 41 major federal screw-ups that took place between 2001 and 2014, examines the official government reports written in the wake of each, and classifies them by leading cause-insufficient funds, bad policy design, or extreme difficulty.

Such an exercise requires a variety of judgment calls, and sometimes Light misclassifies the problems behind the failures. For instance, he blames the financial crisis on lax oversight rather than government policies such as the Federal Reserve's low interest rates; housing policies that encouraged larger, riskier mortgage loans; risk-based capital rules for banks that incentivized them to hold certain types of assets (including mortgage-backed securities); and the existence of credit insurance. Still, the paper is useful and packed full of information, including the conclusion that the most common factor among failed federal policies is poor design.

The underlying issue has long been observed by economists: Government means bad incentives and insufficient knowledge, regardless of the administration in charge.

The academic work of public choice economists, such as Nobel laureates James Buchanan, George Stigler, and Vernon Smith, helps us understand these government failures. These economists have shown that even a government with nearly unlimited resources and the best of intentions will enact "solutions" that are not only unlikely to solve most of our problems but often destined to make the situation worse.

Elected officials and bureaucrats, whether pure of heart or rotten to the core, are not rewarded when they maximize taxpayer value. Nor are they punished when they take unnecessary risks or fail to minimize costs.

Quite simply, bureaucrats are rewarded for being good bureaucrats. As Ludwig von Mises notes in Bureaucracy (1945): "The bureaucrat is not free to aim at improvement. He is bound to obey rules and regulations established by a superior body. He has no right to embark upon innovations if his superiors do not approve of them. His duty and his virtue is to be obedient."

Government officials are rarely fired, even when their bloopers are catastrophic. Who got a pink slip after the disastrous Obamacare exchange rollout? Not Health and Human Services Secretary Kathleen Sebelius. She was carried out of office on a raft of praise and parties. The CDC supervisor who wound up dousing his employees with bird flu was shown the door, but it's unlikely that the blame truly rested with a single individual. It wasn't until at least 40 veterans died while waiting to be seen by health care providers at the Department of Veterans Affairs (V.A.) that Congress could muster the will to pass a reform bill finally enabling the agency's secretary to fire incompetent managers. We can only hope that future secretaries will be competent enough to adequately prune their pencil-pushing ranks.

The government is a famously poor steward of taxpayer dollars, especially in its dealings with con- tractors. How else to explain that a discredited company, CGI, won a massive $678 million contract for building the glitchy Obamacare website even though the firm was already infamous for its terrible job on Canada's diabetes registry?

One key problem is that elected officials, voters, and bureaucrats all operate with limited knowledge. Private sector actors are far more likely to use the information embedded in prices to guide their decisions. When the price of a good or service goes up, businessmen with an eye on the bottom line look for a cheaper substitute. Government decision makers have no comparable mechanism. They seek goods and services that correctly fill the specs provided to them by their superiors, and they have very little reason to worry about how much those things cost. What's more, they cannot account for the costs that their decisions create for others.

The twin problems of poor incentives and limited knowledge create a recipe for persistent failure. Interest groups exploit this environment to further their own goals, often at the expense of the public welfare. The U.S. Farm Bill, for example, is rubber-stamped by Congress each time it comes for a vote despite vocal opposition from economists of all ideological stripes. This menu of insurance subsidies and price supports to farms artificially raises your grocery prices while boosting profits for big agribusinesses. Corporate beneficiaries have the money and influence to successfully shepherd each bill through Congress; average Americans simply don't have the time or power to fight back. Cronies relish concentrated benefits, taxpayers and consumers suffer diffused costs, and politicians get to enjoy support from both groups.

There are subtler forms of cronyism, too. Occupational licensing, for instance, is sold to the public as common-sense regulation to promote safety and quality. In reality, the practice artificially raises the wages of incumbent hairdressers and taxi drivers at the expense of low-income Americans who seek gainful employment in those industries. Interestingly, economists have suggested that politicians reward interest groups more when they do so under the guise of working for the public good.

This helps explain why the health care law was designed to expand health insurance coverage rather than to improve health outcomes. That difference benefited the insurance industry without necessarily producing better and more affordable health care supply. It also helps explains why the benefits of Obamacare, like the benefits of Medicare and Medicare Part D, accrue mostly to older (voting) Americans at the expense of young and healthy citizens who are less likely to vote.

One response to government failure is to argue that the problems could have been avoided with more money or better leadership. This sounds good in theory, but is very unlikely to be true in practice. Government institutions are inherently unable to perform complex tasks, no matter how smart, compassionate, or well-funded their bureaucrats may be.

Not only do many government programs fail to fix the problems they were concocted to solve, but their solutions become failures in their own right. Consider the war on drugs. This barbaric policy has not merely failed to curb drug consumption and trafficking; it has destroyed hundreds of thousands of families, increased the corruption in law enforcement, spurred a profitable black market ruled by murderous cartels, and cost taxpayers billions of dollars.

As the state grows and undertakes bigger projects, the trend of failure will continue or even accelerate. The best single way to limit government failure is to shrink the scope and scale of government intervention. Unless that happens, expect a huge tax bill-if not a vial of anthrax-to show up soon in a mailbox near you.

NEXT: NBC News Highlights Low Pay Offered by Some St. Louis-Area Police Departments

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  1. …”How else to explain that a discredited company, CGI, won a massive $678 million contract for building the glitchy Obamacare website even though the firm was already infamous for its terrible job on Canada’s diabetes registry?”…

    Guanzi! Why did you bother asking?

  2. what is that photo supposed to tell us?

    “The Obamas show their secretary, “This is the Inbox, and This is the Outbox, and This is the ‘Throw Someone Under a Bus’ Box…

  3. my co-worker’s step-mother makes $86 hourly on the computer . She has been without work for nine months but last month her income was $17093 just working on the computer for a few hours. go to website …..

    ?????? http://www.cashbuzz40.com

  4. The best single way to limit government failure is to shrink the scope and scale of government intervention.

    Now take this principle to it’s logical conclusion and you’ll see that even the nightwatchman state has an unfailing ability to grow like a tumor on the back of it’s host society.

    1. “The best single way to limit government failure is to shrink the scope and scale of government intervention.”

      We’re from the government and we’re here to help!

      They never complete the statement.

      We’re from the government and we’re here to help….you part with your money.

  5. I’m pretty sure the failures of government are vastly, vastly worse than even WE think. That if we could actually see past all the obfuscation and smokescreens the government puts between us and holding it to account, we would be stunned beyond belief at how much waste, corruption, fraud, failure, incompetence, you name it, are going on. Much like the size of the universe, I don’t think we’re quite capable of truly grasping it.

    1. having seen the clusterfuck that is contract procurement is. your probably right x 1000000000

      1. I was on a contract with the NYC DOT once. The incompetence and waste was mind-boggling. I couldn’t even believe it. And this was for simple shit. It must be so, so much worse for the more important and more money-heavy sections of the government.

        1. If you have the contacts and are sitting on a ton of cash, you can literally make millions of dollars in R&D for the department of defense without producing any actual products.

        2. The crazy thing is, I have friends that are waaay inside the belly of the beast. They see the waste, fraud, and abuse first-hand every day. And they all still believe government is the answer. The cognitive dissonance is boggling. Or, they’re so invested in the system that they want to preserve it at all costs (this mainly comes from my friends who work on the Hill). One friend has worked for an entrenched Dem Senator for years, and was upset that I was gleeful over Eric Cantor’s primary-ing.

          1. @KK it’s not all cognitive dissonance I’ve met plenty of people that are quite open with the fact that they vote Dem strictly because of job security. At least they are honest, and who can really blame them it’s not like there are any other better reasons to vote for the two sides of the same coin.

            1. Yep – as I said it’s either cognitive dissonance or desire to hold on for dear life.

          2. Statists consider the waste and fraud of government to be negligible, but promote government solutions because they avoid the “waste” of profit. But I’ll bet that nearly 100% of the time, the amounts of waste and fraud are actually far greater than any profits that would have been made.

            1. “But I’ll bet that nearly 100% of the time, the amounts of waste and fraud are actually far greater than any profits that would have been made.”

              Profit represents, in most cases, 7 pennies on every dollar of turn-over.
              In return, the ones who hope to gain but that amount, watch the proceedings very carefully to make sure they get it.
              No one has that incentive to watch government waste.

            2. Hilarious, that profit would be considered a “waste,” when the hiring/firing practices of government are far more wasteful.

              You bring your concerns to a government agency, you get to deal with all of the Americans who weren’t competent enough to join the private sector. You get to try getting people to solve your problem who were picked for their DIVERSITY, not their efficiency, experience, or competence. You get to deal with the sector of your countrymen who never have to fear being fired. These are people who cannot self-start if you demanded at gunpoint that they do so: they’re the people who refuse to start work in a new release of desktop software until they’ve been “fully trained.”

              Also, the “waste” of pension funding far outstrips the “waste” of profit.

    2. Much like the size of the universe, I don’t think we’re quite capable of truly grasping it.

      You may be entirely right. However the carnage unleashed on humanity that would not be possible without statism, is enough for me conclude that there exists unfathomable amount injustice flowing from statist institutions and mindsets.

    3. I don’t think I would be stunned at all. The problem is, that a very large percentage of the voting public would look at it and say, oh well, I get my foodstamps and EBT and subsidized everything, and then look the other way and pretend like it doesn’t exist. Then you have the idiots that would realize how fucked up it is but just accept that it’s the price we have to pay to bring about the total progressive state. The latter are the ones who consider themselves to be the intellectual elites in society.

      1. “Then you have the idiots that would realize how fucked up it is but just accept that it’s the price we have to pay to bring about the total progressive state. The latter are the ones who consider themselves to be the intellectual elites in society.”

        I had an exchange with someone like that a couple of days ago. It ended with him accusing me of being unpatriotic for calling taxes confiscation of wealth and refusing to talk to someone who frames it that way.

  6. The problem is to create a system where there is an incentive to reduce the size of the State. You could, for example, set up a mechanism whereby anyone who could demonstrate that his own job was a waste would be retired at that level of salary for life, while his position was terminated. At some point you start saving money simply by not having to replace equipment. Also, make sure he doesn’t get raises. He’s got free money for life; if her wants more he can get a job. If he wants a LOT more, he can get a series of government jobs and prove them redundant. If he ends up drawing a seven figure stay-at-home-salary, so what?

    1. That just provides an incentive to create an unnecessary job and then turn yourself in for it to be terminated.

  7. But the government can be trusted to winnow out any possible contagious disease carriers.

    1. But the government can be trusted to winnow out any tell us the truth and protect us from possible contagious disease carriers.

  8. I’m pretty sure the failures of government are vastly, vastly worse than even WE think.

    I get the willies just thinking about mundane carelessness and casual waste in a system of such a colossal scale.

  9. I put a large amount of blame on unions and civil service rules. There is no incentive to perform well, in fact, it is not uncommon for good performance to be rewarded with punishment, and there is no deterrent for bad performance.

    Failure is guaranteed.

    1. I put a large amount of blame on unions and civil service rules. There is no incentive to perform well, in fact, it is not uncommon for good performance to be rewarded with punishment, and there is no deterrent for bad performance.

      The entire government is financed by extortion. Not a winning recipe to create incentives that result in moral outcomes or satisfied consumers.

    2. I put a large amount of blame on unions and civil service rules. There is no incentive to perform well, in fact, it is not uncommon for good performance to be rewarded with punishment, and there is no deterrent for bad performance.

      Failure is guaranteed.

      Combine that with a large percentage of the public being on the government dole and having completely lost any incentive to be at all productive, only the incentive to take more from those who do produce.

      It’s a recipe for disaster and we are heading right toward it at warp speed.

    3. Not to mention bad performance being rewarded with promotions.

  10. I really like what the CDC has done on obesity and bike helmets though.

    1. I hear that they’re making great progress on molesting dogs and 6 year olds as well.

      1. Heard about that, really covering themselves with glory.

        1. Fake scandal!

          /Shreek

  11. Still, the paper is useful and packed full of information, including the conclusion that the most common factor among failed federal policies is poor design.

    Gah! These policies are always going to be “designed poorly”. Because reality doesn’t stop at the policy. People didn’t act in accord with the policy’s goals in the first place because doing so didn’t make sense for them. Imposing a policy isn’t going to make the goals in question automatically make sense. People are going find some way to comply with the policy while minimizing the burden the policy was intended to impose in the first place.

  12. This is truly the era of government failure — failure so catastrophic, so complete, and so comprehensive, that its supporters have to go back to some halycon era in the 30s or the 50s to animate their supporters (much less try to convince anyone else). Seriously, the collapse is everywhere — in the military, welfare agencies, government science, disease control — everywhere!

    Conveniently, there is still plenty of social bullshit and SJW cant to distract morons from this.

    1. Government is like a big old trough of slop with a horde of bloated hogs with their snouts buried in it and oinking for more, more, more, more… That’s the vision I get when I think of our government. It’s just a free for all of what they can grab as fast as they can grab it before it runs out, our country, people, rule of law, and civilization be damned. And half the country cheering on the hogs.

    2. This is truly the era of government failure — failure so catastrophic, so complete, and so comprehensive, that its supporters have to go back to some halycon era in the 30s or the 50s

      Well the early 20th century might have been worse or maybe better, depending on whether you’d consider hundred of millions of dead to be a success or failure of government policy.

      I tend to think of it as a success since those murder machines known as governments were working working exceptionally well at their diabolical function.

      1. That wasn’t governments, it was the white tea baggers that killed millions! We need to fix history!

      2. Well the early 20th century might have been worse or maybe better, depending on whether you’d consider hundred of millions of dead to be a success or failure of government policy.

        In Communist countries you’re of course correct, and the New Deal and similar in Europe were horribly run. But unless you’re an Amity Shlaes fan or otherwise interested in revisionist New Deal histories (or mainstream economics), you’re not going to dispute the mythology. In many ways, this is the government Americans deserve, good and hard without any of the slick tricks or varnish it had in the past to obscure this.

  13. Yeah but look at the colossal failures of the free market! BP oil spill! Bendgate! Katrina caused by AGW! Uhhh…help me out american socialist.
    /Tony

  14. the most common factor among failed federal policies is poor design.

    No shit. Absent some sort of effective feedback mechanism (profit/loss, cost/benefit) and meaningful incentives, there will never be an efficient government program.

  15. Absent some sort of effective feedback mechanism (profit/loss, cost/benefit) and meaningful incentives, there will never be an efficient government program.

    FIFY

  16. This is all in the category of “the seen and the unseen.” Statists see a government program to do something good (feed the poor, heal the sick, whatever) as good in and of itself. If it doesn’t work, it just needs more money and power. They do not see the costs, direct or indirect. They certainly don’t see the compound effects of the costs: how much higher would the GDP be if we hadn’t had the burden of generations of wasteful government programs and excessive regulations?

  17. Government failure: You’re soaking in it!

  18. In this article, the von Mises quote gets closest to the underlying issue with government programs:

    “The bureaucrat is not free to aim at improvement. He is bound to obey rules and regulations established by a superior body. He has no right to embark upon innovations if his superiors do not approve of them. His duty and his virtue is to be obedient.”

    Also, this quote from Geo Washington: “Government is not reason; it is not eloquent; it is force.”

    Government is force, and force is the opposite of reason. Where force is used against individuals, their ability to use their mind is taken away. Government programs, therefore, not only do not allow innovation, they do not allow thinking by those implementing and maintaining the programs. Man survives and flourishes by using his mind. Everything of value is produced by man’s mind. This is the underlying fallacy of government involvement in anything other than using force in retaliation against those who initiate it.

    Our first President understood this. Likely so did the second and third Presidents. None of the recent Presidents or few of their followers do now.

  19. No matter how careful one is mistakes build up in any system. The bigger the system, the bigger the collapse when mistakes overwhelm it. There are no bigger systems than government. Decentralize, and the mistakes become smaller and less catastrophic.

  20. “they comprise only the most recent and visible signs”

    Constitute!
    (This misuse of “comprise” is a regular occurrence on Reason’s site and magazine. The whole comprises the parts. The parts constitute the whole. The flag comprises the colors red, white, and blue. The colors red, white, and blue constitute (make up or compose) the flag.)

  21. My buddy’s sister-in-law makes $83 /hour on the computer . She has been without work for 8 months but last month her pay was $17994 just working on the computer for a few hours.
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  22. Word of the Day

    Quarantine: A quarantine is used to separate and restrict the movement of persons; it is a ‘state of enforced isolation’. This is often used in connection to disease and illness, such as those who may possibly have been exposed to a communicable disease; a strict isolation imposed to prevent the spread of disease.

    Headline, October 27, 2014

    CDC Rejects Mandatory Ebola Quarantines
    Federal Officials Push for Voluntary Isolation of Those at High Risk

    Bonus Word of the Day

    Liberalism: A mental illness rooted in the delusion that someone else will take care of you.

  23. ” The best single way to limit government failure is to shrink the scope and
    scale of government intervention.” The author does not propose a meaningful
    way to do this. We have a very good example of how difficult this is in
    sequestration (and how sequestration got there to begin with.) ANY
    reduction in any sector of any government will trigger a response by those
    who benefit from the programs threatened.

    The key is to limit the resources that are available to governments at all
    levels… without this, nothing will change. We first need an educational
    campaign that explains that if you do not support a limited government, then
    you support an unlimited government, and that’s a bad thing. Then we need a
    balanced budget amendment. Then we need a separate enforcement division
    that is directed against public sector fraud, waste, and abuse; public
    sector employees should be held to a higher standard of conduct than plain
    old citizens. (In a world full of principled people we would not need
    this.) We also need to designate some companies and institutions as public
    sector, if they are interdependent with government, and hold them to similar
    standards of fiscal responsibility and conduct.

    So has anybody explored how we could actually do any of these things? Anybody???

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