Federal Government Failure

INTRODUCTION

According to public opinion polls, Americans think that the federal government is too large and powerful.[i] Most people do not trust the federal government to handle problems.[ii] Only one-third of people think that the government gives competent service, and, on average, people think that more than half of the tax dollars sent to Washington are wasted.[iii] The public’s “customer satisfaction” with federal services is lower than their satisfaction with virtually all private services.[iv]

When Gallup recently asked Americans what the most important problem facing the nation was, more people identified “government” than any other problem, including the economy, immigration, health care, or terrorism.[v] After his examination of such polling data, Yale University law professor Peter Schuck concluded, “the public views the federal government as a chronically clumsy, ineffectual, bloated giant that cannot be counted upon to do the right thing, much less do it well.”[vi]

Americans’ poor view of the federal government is not surprising given its many high-profile failures. In recent years, major scandals have erupted at the Department of Veterans Affairs, Internal Revenue Service, Secret Service, and other agencies. Federal auditors regularly uncover waste, fraud, and abuse in agencies, and revelations about special-interest giveaways in Congress are commonplace. But failure is about more than just scandals. Rigorous analyses find that many federal programs generate little value and produce harmful side effects.[vii]

Failure is a critical issue because the government controls many aspects of our lives. Federal spending represents more than one-fifth of the nation’s economic output, and federal regulations infiltrate many state, local, and private activities. When the government fails, it can create widespread harm by damaging the economy and reducing our freedom.

The first section of this study discusses views on government failure. People have different beliefs about the proper role of government, and that informs their judgment about its failures. This study takes a broad view of federal failure. The government fails when its operations are ineffective, ridden with fraud, or subject to bloated costs and other inefficiencies. It also fails when it intervenes in activities where it is unlikely to add value and that would be better left to the states or the private sector.

The bulk of the study describes five sources of federal failure. These include (a) reliance on top-down coercion, (b) lack of knowledge, (c) misaligned political incentives, (d) misaligned bureaucratic incentives, and (e) the government’s huge size. The study concludes that the only way to substantially reduce failure is to downsize the federal government.

VIEWS ON GOVERNMENT FAILURE

Scholars have been examining the causes of federal failure for a long time. In a 1919 study, “A Little History of Pork,” Chester Collins Maxey described how “log-rolling” in Congress led to the passage of low-value projects.[viii] Stand-alone votes on local projects often did not pass, he said, so lawmakers began bundling hundreds of them in omnibus bills to pass. With an omnibus, “the good items in such a bill would stand as apologists for the bad,” Maxey said. He argued that many projects in such bills were “pure waste” and a “terrible blight” on the budget.

In 1932 James Beck, who was a member of Congress and had been a U.S. solicitor general, explored wasteful spending in Our Wonderland of Bureaucracy.[ix] He wanted to inform people about the reality of federal programs, rather than the “bedtime stories” told by politicians. The Federal Farm Board, he said, was a “stupendous failure” and an “inexcusable legislative folly,” as it spent $500 million and caused widespread distortions.[x] Subsidies for farmers, shipping companies, sugar companies, and other businesses made no sense, Beck argued. Federal efforts to run businesses during and after World War I were “costly failures” of “extraordinary ineptitude.”[xi] And the Interstate Commerce Commission, which was supposed to improve the rail system, instead “increased the cost of railroad operations” and “paralyzed the initiative” of railroad companies.[xii] The problem with the government, Beck concluded, was that the “remedy may often be worse than the disease.”[xiii]

During the 20th century, many scholars examined why government intervention in the economy often failed. In 1944’s The Road to Serfdom, economist F. A. Hayek argued that government planning could not successfully coordinate an advanced economy. Rather, he said, “it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such co-ordination can be adequately brought about.”[xiv] Hayek described how markets harness dispersed knowledge about individual preferences and local conditions. Government plans cannot access such knowledge, and thus cannot achieve the “differentiation, complexity, and flexibility” of markets.[xv]

In his 1962 book, Capitalism and Freedom, Milton Friedman argued that a key problem was that government policies destroy individual choice. Policies fail because they “seek through government to force people to act against their own immediate interests in order to promote a supposedly general interest.”[xvi] While “the great advantage of the market … is that it permits wide diversity,” he said, “the characteristic feature of action through political channels is that it tends to require or enforce substantial conformity.”[xvii]

In recent decades, economists in the “public choice” tradition have focused on the political and bureaucratic causes of government failure.[xviii] They argue that people in government—like people in markets—generally follow their own self-interest. The problem is that people in government face incentives to undermine the general welfare. Government failures are not caused by unfortunate mistakes, but by structural features of our democracy. Economist James Buchanan, a founder of public choice, called it the study of “politics without romance.”[xix]

Hayek, Friedman, and Buchanan were libertarians. But many scholars with centrist political views have also examined government failure. In a 2006 study, “Government Failure vs. Market Failure,” Clifford Winston of the Brookings Institution examined the performance of federal microeconomic policies. He found that regulations that were supposed to correct market failures have, instead, “cost the U.S. economy hundreds of billions of dollars a year.”[xx] He also found that “public financing and management of transportation infrastructure, public lands, and various services have been extremely inefficient,” while “redistribution policies have often made little progress in achieving their goals while wasting considerable resources in the process.”[xxi]

In a 2014 study, Paul Light of Brookings studied dozens of federal failures, such as the response to Hurricane Katrina in 2005 and the ongoing mismanagement of veterans’ health care. Light found that the number of such failures has increased and “have become so common that they are less of a shock to the public than an expectation.”[xxii] The government has failed at operations, as with the HealthCare.gov launch in 2013, and it has failed at oversight, as with the BP oil spill in the Gulf of Mexico in 2010.  The causes of failure, Light found, have included poorly drafted laws and ever-thickening bureaucracies.

Yale’s Peter Schuck critiqued federal performance in his 2014 book, Why Government Fails So Often.[xxiii] He examined dozens of programs and found widespread failure. Many programs are not delivering promised results, and they have costs that are higher than the benefits. Many programs generate fraud and abuse, and they intrude on activities that the private sector could do better.

Schuck concluded that federal performance has been “dismal,” and that failure is “endemic.”[xxiv] He found that “many, perhaps most, governmental failures are structural. That is, they grow out of a deeply entrenched policy process, a political culture, a perverse official incentive system, individual and collective irrationality, inadequate information, rigidity and inertia, lack of credibility, mismanagement, market dynamics, the inherent limits of law, implementation problems, and a weak bureaucratic system.”[xxv]

Despite all the research, scholars have not nailed down any hard definitions about what constitutes government failure.[xxvi] Partly this is because people disagree about the proper role of government, particularly the federal government. As an example, libertarians argue that Congress fails when it intervenes in areas constitutionally reserved to the states, such as education. But other people have a more expansive view of proper federal powers and would not see federal involvement in education as a failure.

Nonetheless, people with different political views should be able to agree on many sorts of failure. If a federal program is not achieving what policymakers promised, it is a failure.[xxvii] If a program is generating high levels of fraud or corruption, it is a failure. If the costs of a program are clearly higher than the benefits, it is a failure.

Most people would also count as failures policies that provide few benefits but undermine widely shared goals, such as economic prosperity and personal freedom. Milton Friedman was right when he said that in evaluating policies, we should count the cost of “threatening freedom, and give this effect considerable weight.”[xxviii]

This study examines government failure with a wide lens. It considers the five main sources of operational and intervention failure in the federal government.