Why Government Fails

0:00:07.3 Aaron Ross Powell: This is Free Thoughts. I’m Aaron Powell.

0:00:08.0 Trevor Burrus: And I’m Trevor Burrus.

0:00:11.0 Aaron Ross Powell: Our guest today is Chris Edwards, he’s the Director of Tax Policy Studies at the Cato Institute and editor of Downsizing Government dot Org. Welcome back to the show, Chris.

0:00:18.6 Chris Edwards: Hey, thanks for having me, guys.

0:00:20.2 Aaron Ross Powell: President Biden seems to have a lot of very big plans. Can you give us a sense of just how big these are?

0:00:32.0 Chris Edwards: Yeah, over the pandemic, over the last year, the Federal Government’s passed about $3 trillion of relief spending, an absolutely enormous amount of money. Even if President Biden doesn’t pass his latest $2 trillion plans, federal spending this year is gonna be around 6.8 trillion and tax revenues are only gonna be around 3.4 trillion, so just this year, we’ll be pushing another $3 trillion of borrowing and cost off the future generations. It’s extraordinary what’s going on in Washington, and it really isn’t gonna… It’s not gonna end well.

0:01:07.2 Trevor Burrus: That’s sort of what we were talking about today, not exactly these programs per se, which are sort of all of your expected big government programs that many people on the left have been pushing and maybe a few more, but kind of the lessons of how the government fails in general, and it is kind of interesting where… I’m sure to you, Chris, it seems like that these people never studied past programs and why past programs have fail, ’cause they just think that this time we can get this thing to work and do all this. So just as an outset is this bigger than a New Deal programs or other things that have failed in the past is something that we should be aware of and then we can get to exactly how they fail?

0:01:52.7 Chris Edwards: Yeah, I think the central failing with all these programs Biden is proposing, and some of them that Republicans support, so a new social programs like for paid leave or new infrastructure programs that Republicans support is the pushing aside of federalism. That if a new paid leave program makes sense, well then, state governments can and will do it, and indeed eight states already have paid leave programs. And you can debate the merits of those, but if a state wants to do that, they can do that.

0:02:24.1 Chris Edwards: State governments can raise their own money any time to expand the highway system, and many raise their own gas taxes frequently, so the first question that reporters never seem to ask the federal politicians is why does the Federal Government need to do this? What, is there some failure at the state legislative level that is there some reason they can’t do it? And this goes to the basic problem of at the state level and local level, on policymakers, they can balance the costs and benefits of programs much better. They generally must balance their budgets. If they wanna build a new highway or have a new paid leave program, they gotta raise the taxes to do it, so they gotta convince enough voters who support the tax hikes for the new program. At the Federal Government level, Federal Government runs massive deficits, and you have the severe logrolling problem that people routinely vote for programs that do not have true majority support in the nation. And so all these bad programs get passed in Washington, and so the solution is federalism, that we need to let state-​level policymakers balance the costs and benefits.

0:03:33.5 Aaron Ross Powell: And we’ve had large federal programs for a long time, but has there been an increase or a change in thinking about the balance between doing things at the federal level and at the state level, as we’ve seen an increase in the nationalization of politics? It seems like it talks about a shrinking of state and local media coverage in favor of coverage of federal level things that that’s the politics, federal level politics are what people pay attention to. And I’m wondering if that’s created a perception, a changing perception of the country as the country is this one big thing governed by the Federal Government; therefore, the Federal Government should do stuff versus it’s a collection of states.

0:04:16.3 Chris Edwards: That’s right. If you go back a century, most government in America was at the state and local level, and the Federal Government was very small. That changed during the 20th century. I think there’s two main reasons for it, one is once we had an income tax in place and that income tax became progressive, in other words, hitting higher earners more, the political left favored pushing up spending to the federal level. If you fund the program like paid leave at the state level, the taxation for it will be roughly proportional. If you push it to the federal level, you can raise most of the money from higher earners. So that was… The left has liked centralization and they constantly push for it.

0:04:58.4 Chris Edwards: The other thing that’s happened is lobby groups. You go back to the First Federal Highway Program passed a century ago in 1916, if you look at the history of that, you see that Henry Ford had his automobile, there became a demand for better roads in the country, these state Automobile Associations started forming and initially they started lobbying their state legislatures for better roads. Then they realized, “Hey, we can go to Washington and lobby a single legislature to get this money for roads that we want.” And then the other lobby groups started figuring this out. Educational lobby groups realized, “Hey, if we go to Washington, we just have to lobby one legislature to get additional spending rather than going around to the 50 state capitals.” So there’s a lot more efficiency in lobbying at the federal level.

0:05:47.6 Trevor Burrus: It’s interesting ’cause we get into some of these failures. One of my big pet peeves in policy debates is comparing America to say Denmark on a question of say healthcare, or really anything, where it says, “Well, if Denmark can do it, if they could have a centrally planned single-​parent healthcare, or any other say Scandinavian country, then why can’t America do it?”

0:06:11.7 Trevor Burrus: And it seems that one thing that they’re just missing is there are fundamentally different rules for governing 330 million people versus say, I don’t know, 20 million in Denmark, it’s just a guess. This is not like an incremental difference, it’s a categorical difference, and that doesn’t even bring in the federal system of America. There’s just never really thought about how when you compare America to any European country, it doesn’t make sense on a scale size. It would be more comparable to the entire EU, and look how ungovernable that is, if you tried to put something in place. But no one ever seems to bring this up, that we are… We were split up into units for a reason.

0:06:50.0 Chris Edwards: Yeah, government fails for basic structural reasons that we all know about. The government uses coercion and it replaces voluntary exchanges in the marketplace that are mutually beneficial. Government programs use top-​down one-​size-​fits-​all solutions. So governments, all governments have these sorts of failures. But you’re right that because the Federal Government is so massive, it creates special and additional failures. The Federal Government, for example, has 2,300 different subsidy and benefit programs. The federal budget is 100 times bigger than the average state government budget in United States. 100 times larger. So that means that legislators are supposed to oversee all these programs to make sure they work. They’re supposed to weed out the ones that don’t work and cancel them. They never do. They don’t have time. As we all know federal members of Congress who spend most of their time raising money and giving speeches. They don’t have time to weed out the programs that don’t work. So at the state and local level, there’s much more pressure on policy makers to make sure programs work, because they have to raise the taxes to fund them, and there are fewer programs, they can keep a closer eye on them. The Federal Government has just descended into this kind of circus where there’s really very little oversight of programs.

0:08:13.1 Aaron Ross Powell: Before we get to the sources of government failure, I wanna clarify what we mean by that term, because one way to think of it is the government has a certain aim and institutes a program in order to achieve that aim, and then it fails because it doesn’t achieve that aim or it achieves it poorly, or it achieves it in a much more expensive way than it otherwise could or so on. The other way we could think about failure is, the government has a certain purpose, the things that it’s doing violate that purpose, and therefore, it’s failing in its obligations, its goals. And those are two different ways to think about it. And it sounds like, in the conversation so far, you are using it, potentially, in both ways.

0:09:02.1 Chris Edwards: Right. So my 2015 Cato study called Why The Federal Government Fails, I had to confront that issue. And I say in that study that, indeed, whether you’re liberal, conservative, libertarian, you have different conceptions of government failure. I divide government failure sort of how you expressed it there, two ways. One is operational failures. These are things we’re all familiar with. Red tape costs, bureaucratic failures, fraud corruption, politics. Those are operational failures. But then a second category is intervention failures, where the Federal Government comes in and takes over functions that ought to be in the private sector or handled at the state and local government level. These are failures, because if the Federal Government, say, takes over paid leave for the country, they’re gonna do it less efficiently than if you left it at the state, local or private level. So it’s a failure of intervention. Federal policy makers shouldn’t have got involved.

0:10:06.1 Chris Edwards: And from a libertarian perspective, one of the big failures of Washington is that they impose all these policies on Americans that undermine our freedom, our personal freedom and prosperity. So while policy makers might have all kinds of economic arguments for programs, they intervene in certain ways, and damage our freedom, which is… It’s hard to measure. That’s a failure. Our federal governments shouldn’t be doing that. We have constitutional rights that they should be protecting. But often, in their efforts to please the public in the short term, they take all these policy actions that damage our freedom, and that’s a big problem too.

0:10:49.8 Trevor Burrus: So you’ve created a kind of taxonomy of government failure and how… You see specific reasons why government fails. And we can get into even why that might be worse at the federal level than the state level, something we’ve already mentioned. But I think we can kind of go into this and just look at one of your first reasons, which is top level coercion, which kind of describes what government does to some extent. So is that… How is that a source of failure for the government?

0:11:17.1 Chris Edwards: Well, markets and free society is composed of voluntary exchanges, which are mutually beneficial. You go to the grocery store, you buy groceries, you benefit the… The grocery store benefits. How do we know that? Well, because you did the transaction voluntarily. Government doesn’t work like that. It uses top-​down coercion. It forces people… Forces taxes out of people, forces regulations on people. So that means it destroys information when it takes action, and it has to use guesswork. So how do wine and beer producers know whether to produce more wine or beer? Well, they can look at market signals and prices and demands. But how does the government decide whether it should spend more money on, say, fighter jets or food stamps? It has no metrics, it has no… There’s no market signals to tell it what it should produce. It’s all guesswork.

0:12:09.4 Chris Edwards: So that’s one of the basic problems with coercion and government action. Another basic problem is that coercive action creates winners and losers. In the market place, generally, transactions are mutually beneficial. They’re win-​win. Governments don’t work like that. They create winners and losers. They create a new subsidy program. They have to forcibly extract taxes from people to use to spend on other people. When they impose regulations, they create winners and losers. So there’s these basic problems with government action that you can’t really get around, and it’s why we should leave most activities in society in the private marketplace.

0:12:51.1 Aaron Ross Powell: But it seems like someone who is calling for more intervention would say all of that is true, that the government does distort prices, it does change the distribution of goods, it does allow some companies to thrive, while others are driven out of business or harmed, but that that’s exactly the point. That’s not a problem, that’s what we’re trying to do, because we, the people pushing for policy or the policy makers, have looked at what the market has done in given areas without… On its own, and decided it’s… The distributions aren’t good, or it’s not producing enough of what people need, or it’s charging more than a lot of people can afford for certain things, or people are stuck in jobs that they think are particularly bad, but don’t feel like they have a choice. And so we’re gonna go in and yes, we’re gonna use coercion, and yes, we’re going to distort prices, and yes, we’re gonna pick winners and losers. And maybe there are some problems, it’s not gonna be perfect, but it’s… It’s gonna be a corrective, at least to the problems we identified in the way the market had been doing things.

0:14:03.2 Chris Edwards: So there’s a bunch of problems with what you just said, I am playing the devil’s advocate there. So one is that politicians are always overoptimistic in how they can redesign society, like Adam Smith saying that leaders think they can move pieces on a chessboard around efficiently. The truth is that when government acts, it destroys a lot of knowledge that’s in the marketplace, and as I said, what it does is it’s just… It’s wild guesswork. There’s no built-​in feedback mechanism for government programs. Like you said, policy makers may think they’re doing something properly, and they put programs in places, but there’s really no feedback to determine whether the program is working properly or is efficient. Politicians… We can get into this, have all these biases, they’re biased to short-​term… Creating short-​term benefits, and pushing out the cost to the future. There are all kinds of unintended consequences of government actions. Let’s say they impose an ethanol program on the country, but that raises the prices of corn and food products, that harms lower income citizens. So there’s all these side effects that they don’t take into account.

0:15:19.6 Chris Edwards: You think about the private sector, private businesses and individuals that use trial and error. Entrepreneurs experiment, they try new products, they get feedback, they can make adjustments. Governments don’t do that. They have sort of grand central visions, they impose them, and then they never really go back to double-​check that it really works. They’ve got no real way of measuring whether programs work. So… I would just ask policymakers to be just a hell of a lot more humble about what they think is sort of their optimal design of society.

0:15:55.8 Trevor Burrus: There’s gotta be some way to at least measure whether a program works, and I’m thinking there’s two things, two types of things that I’m thinking of here that have these characteristics. So one would be a program, a physically built thing, so I was thinking of light rail. All the light rail throughout the cities that were built, there’s one in Denver, it was built when I lived there, it happened all over the country. And they said, “This is using coercion, yes. We’re doing this to eliminate pollution and congestion.” And so we can measure if something like a light rail works by saying, “Okay, we’ve eliminated this much pollution and this much congestion.” Or if it’s a program like Medicare, we can say, “Well, we can figure out how many life years have been saved through Medicare spending.” So there’s some way that, even though you’re doing coercion, you can figure out whether or not it’s working, it seems to me.

0:16:49.6 Chris Edwards: So this raises the issue of cost-​benefit analysis. Well, economists have this thing called cost-​benefit analysis. You can take any program or regulation and try to do a sophisticated calculation of whether the benefits to society outweigh the cost or not. And indeed, we do this for most federal regulations. As you know, Trevor is an expert on regulation. The legislative branch has forced most of the executive branch to do cost-​benefit analysis on regulation. But interestingly, those 2300 federal spending programs that I mentioned, that Congress imposes on us, it does not do cost-​benefit analysis of its programs. So for example, does the food stamp program create more benefits than cost? Well, we have no idea, because we’ve never done a cost-​benefit analysis of it, and there’s no requirement to do that. The Congressional Budget Office doesn’t do it. I think one step forward would be to require a cost-​benefit analysis for federal spending programs.

0:17:49.2 Chris Edwards: So that’s one thing, and then the other thing, of course, let’s get back to federalism. No one knows exactly the benefits of all these federal programs, especially the social welfare programs. Who better to balance the cost and benefits than state and local politicians who are closer to the citizens that benefit from the programs, and are closer to the taxpayers that pay for them. One of the problems with the Federal Government is, all these programs get enacted that have very low value and are not in the broad public interest. Why? Because of logrolling, which is a fundamental structural problem in the federal legislature that results in many low-​value programs being enacted. So to get back to your light rail, Trevor, the problem here is… The main problem is that the Federal Government has subsidized state governments and city governments to put in place these light rail systems. There’s about 40 cities now that have put in light rail; that’s just in the last few decades. I bet most of those would not have put light rail systems in, because bus systems are cheaper and more flexible, if it wasn’t for federal subsidies showering down on them.

0:19:05.0 Aaron Ross Powell: You mentioned logrolling. Can you tell us what that is and how it works in practice?

0:19:10.1 Chris Edwards: So logrolling is just horse trading in Congress, it’s… So logrolling works this way. Let’s say you’ve got… In the House of Representatives, you’ve got 10 congressmen over here. They’ve got an idea for a really dumb low-​value program that’s bad for the nation, but benefits their states. They’re frustrated ’cause they can’t get anyone else to support it. Then on the other side… And of the other part of the House of Representatives, you got another 10 congressmen with a different program that also only benefits their states, it’s bad for the country. What’s the political solution here? The political solution is these two groups get together, and they get together with other groups who have narrow-​benefit programs, they get narrow majorities and pass these programs into law. So most Americans probably have this conception of democracy as… Serious policy-​makers get together, and they pass programs that are in the broad general interest and that have broad support, but that is not how Congress works; that is not how most federal programs get enacted. As the Federal Government has become bigger and bigger and bigger, logrolling has become much more powerful and much more dominant. These massive omnibus bills, like farm bills, are passed with literally hundreds of different subsidy programs in them, none of which would pass if they had the… If they had stand-​alone votes in Congress. So many programs get enacted that don’t have true majority support.

0:20:40.8 Trevor Burrus: It seems to me that if you put all that together, you get just a huge amount of the government, it’d be hard to measure, that literally would not have been passed by a majority vote, which is kind of shocking if you think about it.

0:20:54.5 Chris Edwards: So the interesting thing about logrolling, so that is a word that comes out of the 19th century. I go, in my Cato study, Why The Federal Government Fails, into some of the 19th century history. As early as the 1820s, the Federal Government created the Army Corp of Engineers to be the, of course, the engineering resource for the US Military, but then pretty soon, members of Congress realized they could get this expert group of engineers to build infrastructure in their districts. So Congress started passing bills dumping in dozens of projects for their districts to be paid for by the Army Corp of Engineers, rather than their own state legislature. And people started noticing very early on that a lot of wasteful projects seemed to get jammed into these bills very early on. Another example is post offices. The Federal Government from the beginning, of course, has had the power to spend on post offices. And at first, each individual post office was voted on separately in stand-​alone votes, but then they started bundling dozens and dozens of them together toward the end of the 19th century, and people began noticing that a lot of these post offices were not needed and wasteful. So this problem has only got worse as the Federal Government’s got bigger. Congress doesn’t have time, literally, to pass all these programs separately. It bundles into… Them into massive omnibuses. And so that’s why we get much more waste today, because of these omnibus builds.

0:22:26.2 Aaron Ross Powell: I just have to ask about post offices. Why are they such a thing when it comes to Congress… In these various towns, they can’t employ that many people. What is it about post offices that gives… That makes them so front and center in so many of these legislative logrolling?

0:22:46.8 Chris Edwards: It’s a good question. I’ve argued for a long time, I’ve written to Cato that the US postal system ought to be privatized, as it has been privatized in a number of other countries. There’s about… The post office itself estimates that there’s about 30,000 locations across the country that only get two or three customers a day, literally. The post office itself wants to close these locations and has for many years, but it is prevented, because by doing so, because individual members of Congress will fight to the death for the post office locations in their district. Where I live in Arlington, Virginia, there’s two US post office locations within half a mile of each other. It’s completely… It’s completely stupid. It makes no sense at all, and one of them ought to be closed. Any business would close one of these locations. But of course, this is a general problem in… With the Federal Government. The Federal Government tries to run businesses, where they… Where it doles the benefits broadly to every member of Congress, rather than making sort of rational business decisions.

0:23:52.3 Trevor Burrus: Another reason that you cite for government failure is lack of knowledge. And you write that, “The Federal Government lacks knowledge about our complex society,” but the people in the Federal Government are members of that complex society, and the Federal Government is pretty big, so it seems like they have some knowledge of our society, or at least to be able to do some things.

0:24:15.6 Chris Edwards: Not really. Let’s go back to something I said earlier, that the problem with the way government acts is, it uses coercion, which destroys the creation of information. Markets generate information. When people trade and make mutual… Mutually beneficial choices and decisions, they generate information on prices, entrepreneurs can experiment with new products and find out whether they work or not, there’s feedback, as we talked about, there’s trial and error. Government has none of that information. So experts can sit in Washington, and even if they’re well-​meaning and they’re smart people, they just… They don’t have access to the information when the government acts, because it destroyed information. The postal system, for example, the post office has a monopoly on letter mail. So we don’t know how efficiently mail can be delivered in the nation, because we have a legal national monopoly on it. So by contrast, in the private sector, entrepreneurs competing against each other generate information about how much things really cost and how efficient we can get in certain activities.

0:25:27.2 Trevor Burrus: An example that I always cite for that is state-​run liquor stores or states that have state-​run liquor stores, provided liquor stores like Virginia versus states like Colorado that have private liquor stores. And as you might expect, in Virginia, when the government supplies something like that, they either always over-​supply it, like the post office, or under-​supply it, ’cause there are 10 liquor stores in Northern Virginia, but in Colorado, basically every strip mall can sustain a liquor store. But the interesting question is, how many liquor stores should there be, and how anyone in the government could answer that question? I think that’s basically what you’re getting at it.

0:26:04.5 Chris Edwards: Yeah. And basic… Government tends to use one-​size-​fits-​all solutions. Markets and free society tend to enjoy massive diversity. And coercion destroys that diversity. Who knows what the next big technology in Silicon Valley is gonna be? We’ve got hundreds and hundreds of entrepreneurs and businesses trying to discover it, getting feedback from customers, we don’t know. But then here comes in President Biden. He’s got… Wants to spend hundreds of billions of dollars on certain technologies like electric vehicles, for example. Well, how do they know electric vehicles are the best way to go? Maybe hydrogen cars will be the real future of American transportation? But he’s gonna be spending hundreds of billions dollars on electric vehicles, which is gonna preclude markets from moving towards possibly more efficient solutions. Or we subsidize wind and solar power. They seem like maybe a good idea, but maybe use solar power is much better than wind. But we don’t know because the government massively subsidizes both of them. So we’re not letting markets generate information about which activities are actually worthwhile.

0:27:13.5 Aaron Ross Powell: On the liquor store thing though, it seems like you could have these big government programs while having mechanisms for not over or under-​supplying. And maybe this question was answered by our postal service conversation, but if Virginia… Virginia runs its Virginia ABC stores which are the only place to buy liquor and they’re state-​run. But if there are a ton of them and they’re not selling very much such that they’re not earning a profit, why can’t the state of Virginia just say, just like any other business, because there are chains of stores all over the place, and those chains can shut down underperforming branches, why can’t the government say, “It turns out we don’t actually need this many ABC stores within this radius, we’re gonna close three of them”?

0:28:01.7 Chris Edwards: Well, for one thing, we don’t… If the government has monopoly on something, we don’t know what the true costs are. We don’t know what sort of efficiency we could be ringing out of the system. So the Virginia alcohol stores might be earning a profit, but the cost might be vastly inflated and they only earn a profit because they have a monopoly and they’re selling a product that’s in high demand. So, we don’t know. The entrepreneurs could come in and sell liquor for half the cost. They could use their employees more efficiently, they could have more efficient management, but we don’t really know that when the government operates these stores.

0:28:38.6 Trevor Burrus: What about the incentives of politicians? ‘Cause you’ve… You split up into two different incentives, and you mentioned a little bit, there’s bureaucratic incentives and there’s political incentives. Now that’s a feedback mechanism, that’s what you’re supposed to do. You’re supposed to go and vote out your person who you don’t like and you don’t like what they’re doing. So that would seem to at least somewhat correlate with what people want, to some extent, that they don’t like this thing, so they vote them out and so the politicians would then react by giving people more what they want. Is that a silly possibility or is not that how it works?

0:29:16.0 Chris Edwards: I’ll give you two problems with it Trevor. One is what I mentioned about logrolling. Yes, members of Congress, we might assume vote for the interest of their district. But from the broad general interest of the American public, many… They… Many things they vote for are failures for the country overall. They will always support funding the fighter jet that is built in their district, but that doesn’t mean the new fighter jet is actually good, that the nation really needs that new fighter jet. A second issue is this, economists use this wonky phrase called fiscal illusion, how members of Congress are great at playing hide the cost. The benefits, they advertise, they talk about, they give speeches about the benefits. The great lovely benefits of these programs, but they try to hide the costs. So they hide the costs in many ways. They borrow money and use debt, so the costs are pushed to the future. A lot of taxes are raised from businesses. Well, that hides the costs from voters. They use complexity and the tax quotes so the people don’t really know how much they’re paying for the Federal Government. When politicians don’t wanna raise taxes or debt and they wanna force the private sector to do something, they use regulations. Regulations imposed on businesses to provide certain benefits to employees.

0:30:36.2 Chris Edwards: The employees don’t know that there’s a heavy cost here to these benefits they’re getting from their business because it’s hidden. The government has found a hidden way to impose these costs. And then there’s when the government has big projects, these big projects like highways and light rail systems, they almost always go way over budget. The Federal Government uses salami tactics, as it’s called. So the Pentagon will say, “Oh, our new fighter jet, the program is only gonna cost $10 billion”, and then they start building them, and then down the road, it turns out that the fighter jets actually costs $20 or $30 billion. This is a deliberate strategy. The Pentagon and other agencies with big projects use it. They claim that the costs are low, but later on, like slices of salami, they let… They admit more and more that these projects have higher and higher costs. So the point I’m getting at is, politicians have all kinds of strategies they use to hide costs of projects from voters, and they tout the benefits.

0:31:43.6 Aaron Ross Powell: That though describes lots of businesses too. Like every business would love to be able to sell me a cheap product at a high price and profit greatly, and competition is one way that we prevent that from happening, and there isn’t really… There’s competition at a global level, but not in the same way that there is in markets. But the other way is, if I wanna know if a restaurant is good or I wanna know if a hotel is gonna be as clean as they say, I pull up a review site, and if I see a lot of bad reviews, I don’t buy it. And those exist to solve this asymmetric information problem that you’ve just articulated, which is that a lot of the information needed to judge isn’t easily accessible, but review sites aggregate it and seem to work pretty well. Why don’t we just have that? Yes, the average voter can’t parse congressional budget office stuff, but, we at the Cato Institute do that all the time. Why isn’t that a solution?

0:32:48.5 Chris Edwards: Well, it is part of the solution. The government has expert agencies like the Government Accountability Office that does examine and analyze programs for failures and the like, and produces hundreds of reports every year. Most members of Congress ignore them. The general… They’re too wonky for the general public to really read them. So there’s a general ignorance problem with citizens and the Federal Government especially. It’s far away in Washington, as I said, it runs thousands of programs. Most members of Congress don’t know how much of these programs work, they present only the bright, sunny side of programs to the citizens. So there’s just… It is…

0:33:32.9 Chris Edwards: In the private sector, as you touched on, Aaron, an entrepreneur can see that the companies in an industry are doing a crappy job, and he or she can think, “Hey, I can do that better,” and then will jump in and try to do it… Do it better. You don’t have that in government, because especially… Government not only has legal monopolies, but once the government gets involved in something, it’s very difficult for private… Private companies to compete. A good example here is airports. All airports in the United States are owned by governments, all 400 or so major airports. And there’s actually no law that says that private companies can’t set up airports and operate them. But they’re at a huge competitive disadvantage, because the government airports are subsidized. And so government has legal monopolies on some things, but then many other things it does, it crowds out entrepreneurs from getting involved and showing us whether someone can do the activity better.

0:34:30.9 Trevor Burrus: We talked about political incentives, but another sort of, I think under… Well, under-​theorized, or at least under-​appreciated aspect of the implementation of any given program is the bureaucratic incentives. So we have… Bureaucrats are not elected, maybe. They have civil servant laws and stuff to protect them. But I know a lot of… I live in Washington, DC area. I know a lot of people who are bureaucrats in the broadest sense of the word. They all seem to want to be doing their job well and they take it very seriously. So maybe those… And I know in England, they’re really big on their civil servants, and they have very big civil servant protection laws, and they rely upon civil servants and their expertise to even check the political incentives. So maybe the bureaucrats are the answer here.

0:35:21.6 Chris Edwards: So the way I see the Federal Government failures, there’s two groups that sort of fail. There’s the politicians fail to enact things that are in the broad public interest for some of the reasons we discussed, and then the massive bureaucracy. There’s about two million federal civilian bureaucrats. Many of them are well-​meaning, very smart people. I know many of them as well. My ex-​wife worked for the government for a while. These people will often work very hard and are very diligent. But there are basic structural problems with the way the Federal Government works that make it… That make the government agencies work a lot worse than businesses.

0:35:57.3 Chris Edwards: One is, sort of we touched on, there’s no profit in a law system for the government. Agencies don’t know whether their programs make sense or not, or are adding net value to society. Generally, businesses in competitive markets, if they’re earning profits, they are adding net value to society. Government agencies don’t know that. Businesses that aren’t doing a good job lose money and eventually go bankrupt and out of business. Government agencies, there’s no similar mechanism where poorly performing agencies go out of business. There’s the monopoly problem we touched on. There’s no pay for performance in the Federal Government. Federal Government workers sort of rise up the salary scale not based on how well they perform, but based on longevity. There’s very little firing of core employees in the Federal Government. In fact, there’s… We have good data on this. Federal Government workers are only fired at one sixth of the rate that workers in the private sector are. It’s very difficult to get bad… To get rid of bad federal workers.

0:36:56.5 Chris Edwards: And there’s a whole bunch of other problems. There’s massive red tape in the Federal Government. There’s massively excess layering of bureaucracy in the Federal Government that is unneeded. Businesses are much leaner. And the last one that gets a lot of attention often, the two parties accuse each other of this problem, there’s about 3,000 federal appoint… Federal presidential appointees that sit at the top across all hundreds of federal agencies. They have short-​term political motives that are different than the long-​term, perhaps more sensible ideas that the career people have. This creates a lot of problems. The political appointees wanna get in there, they wanna make a quick hit, they don’t really care about the long-​term problems of agencies. They just wanna do some quick hit things that are gonna look good on the resume, then they’ll get out after a year or two. So this whole issue of political appointees is a real problem with the way the Federal Government operates as well.

0:37:57.0 Aaron Ross Powell: Can you talk a bit more about the way that budgets for agencies and programs work? Because my understanding is that the way that they get set and then adjusted based on actual spending over the year essentially disincentivizes looking for efficiencies. It disincentivizes programs to look for ways to cut their own costs. Is that true?

0:38:19.7 Chris Edwards: Sure. There’s been efforts for many, many years, most recently, starting with President Clinton and his… He had a big project to try to find greater efficiencies in government. And you can make marginal improvements in how federal agencies work. And federal agencies do generally create performance evaluations of their operations every year, and you can actually Google these things. You can Google name of an agency like, I don’t know, Federal Aviation Administration, and look for their performance report. And agencies are required to report all these metrics. But yeah, at the end of the day, their funding comes from taxes. Their funding is determined by political pressures. Agencies all lobby the President’s Office of Management and Budget to give them a bump up in their budget every year. Powerful members of Congress who sit… Who are chairmen of committees have favorite agencies, and they try to bump up the budget. So there’s a lot of sort of window dressing, I guess you could say, in terms of trying to make agency performance better. But at the end of the day, there’s these basic structural problems that I mentioned. Failed programs last forever, and there’s no really strong political incentives to get rid of them.

0:39:42.7 Aaron Ross Powell: I guess the specific thing that I was thinking about is, I have heard, and so tell me if this is the case, that, let’s say I have my agency, and our budget is a million dollars a year. That if by the end of the year, I’ve only spent 800,000, that I have an incentive to find a way to spend the other 200,000 or risk basically having my budget reduced the next year.

0:40:08.8 Chris Edwards: Right, so that’s absolutely right, Aaron. And in fact, this is a widely discussed phenomenon, you can actually see it in the data. We have monthly spending data from the Federal Government, and you can see toward the end of the fiscal year, September 30, each year, agencies will have discretionary budgets so they haven’t spent all the money, they try to get it out the door at the last minute on grant programs, on buying equipment or whatever it is they can do, that absolutely, you see that… You see that happening.

0:40:37.4 Trevor Burrus: This kind of goes back to my previous question about other countries, but let’s say, Denmark, European countries, and a lot of my European friends, they say, one problem with America is that you have a uniquely bad government, people are not as down on the government in places like Denmark or Scandinavia, because the government works pretty well, and we talked about the size and scope issue, but the kind of characteristics that you list, the lack of knowledge, the coercion, political incentives, bureaucratic incentives, those are all present in the government of Norway. So assuming government of Norway is better in many of these things like why can they make it work and we have such a crappy, crappy time of it here?

0:41:30.7 Chris Edwards: So I’m not an expert on cross-​country government comparisons, and I don’t actually know the basic, the answer to your question. I’m skeptical that governments in other countries work any better or much better than American government. I do think as we discuss it, there is a particular problem with the Federal Government in United States. I think because of the decentralized power within Washington, the fact that no one is responsible for deficits, for example, that you get worse behavior, you have the house, you have a senate, and you have the executive branch, they all blame failures on each other when Hurricane Katrina happened. They all… The branches, pointed fingers of blame at each other, the states blame the feds, the feds blamed the states. You see with other crises like the water crisis in Flint, there are so many different layers of government in America that they all point fingers of blame on each other, I do think that…

0:42:32.8 Chris Edwards: So I grew up in Canada which has a British Parliamentary System. The Prime Minister is essentially a short-​term dictator in Canada, if he is the majority in parliament. There’s good and bad there. The good is that everyone knows who is responsible for decisions in Canada for federal programs. It is him. It is the Prime Minister. If you have a big deficit or debt, everyone knows who is responsible. In United States, the Democrats blamed the Republicans for the deficits because of the tax cuts. Republicans blame the Democrats for their extra spending, and so I think this lack of responsibility is a real problem, and yet one more reason to move power out of Washington back to the state level.

0:43:20.3 Aaron Ross Powell: That might answer my next question, which was, it seems like a lot of these inefficiencies we’ve talked about would also apply to other organizations, we have… There are corporations in the United States that have bigger stock market caps than the GDP of whole countries and are enormous with huge numbers of employees and levels of bureaucracy and all that. Do we see these same kinds of problems, are these problems unique to government or with the arguments that you’re making now also say probably, we’re probably going to get more failure in an extraordinarily large corporation than we would in a small corporation.

0:44:01.5 Chris Edwards: Yes, big corporations have bureaucracy problems too, of course, I worked in some of them. And you folks may have too. They have big bureaucracy problems; however, they are less so than the Federal Government. And to give you one example, so the Federal Government has massive amounts of red tape or bureaucratic rules on everything, someone can’t send emails without layers of rules surrounding it. Why is that? It’s because in the private sector, it is easy for headquarters to make sure that their regional divisions are doing good, they’re doing a good job. Are they earning profits? That is a basic metric that private businesses can use, and individuals on the ground and most businesses know that their job is to minimize cost and to maximize revenues to serve their customers well. And private businesses, employees know kind of intuitively what the overall job and mission is.

0:45:00.3 Chris Edwards: In the Federal Government, there is no profit-​maximizing, customers are kind of a murky idea when you come to Federal Government activities. So there has to be more red tape or rules imposed on employees, so that agencies kinda get the employees to work and do what’s supposed to be done. And there’s also this, there are… We have some detailed data on layering and American corporations have become a lot leaner with fewer layers of management over the last few decades just because of intense global competition, and there is good data on this. In the Federal Government, there’s a Brookings scholar called Paul Light, who has documented the additional layer in the Federal Government over recent decades. This is true from the Pentagon to domestic agencies. There are just far and far more layers of bureaucrats in Washington now with fancy names like deputy assistant under secretary of this and that and the other thing, so the Federal Government’s got very top heavy in an inefficient way.

0:46:05.6 Trevor Burrus: So this all sounds fairly bleak in a way where we have a massive government that much of which would not pass a popular vote to logrolling with inefficient programs with no oversight, with political incentives, bad bureaucracy, huge scope, and it just keeps getting bigger. So one thing to talk about is federalism is one thing we should be pushing, but we have these programs, is there anything we can do to the Federal Government, ’cause we tried to put in cost benefit analysis with [0:46:40.1] ____. I mean is there something we can do to try and fix any of this, or should we just be throwing up our hands and saying, “Well, it’s not fixable.”

0:46:49.5 Chris Edwards: Yeah, one of the basic problems here is that you would think so… So one party is clearly today for a much bigger domestic spending at Washington, it’s the Democrats, and Republicans are really all over the map. And I think one of the problems is there’s never really enough people in one of the parties, and say today, the Republican party who really believe in limited government. And I think part of the basic problem is the self-​selection problem of the type of people who want to run for Congress and get elected to the federal legislature, they’re do-​gooders, they want… They have all this Federal Government power, and it sort of seems to them that, hey, we ought to use this federal power to do good for society, they’re mistaken. I believe in the Federal Government, most of its do not do good, but that’s what they believe.

0:47:32.7 Chris Edwards: So there is this huge self-​selection problem, there’s been… We need structural reforms. Cato Institute scholars have proposed many of these structural reforms over the year. Term limits for members of congress, so it does seem that initially some reform-​minded people get elected to congress, but after a period of years and having their office being flooded by special interest lobbyists year after years, they start buying the line that all these spending programs are good for the nation, and then there’s various ideas to impose… To pass a balanced budget amendment to the constitution or some sort of spending limits so that at least we can force the politicians to make the cost benefit trade-​off we talked about earlier. So I’m in favor of structural reforms. We haven’t been very successful in recent decades in passing any.

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0:48:39.3 Aaron Ross Powell: Thank you for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcast or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at www​.lib​er​tar​i​an​ism​.org.