Why Government Fails.

November 14, 2014

Last week's missive detailed the reasoning behind the Democrat's midterm cataclysm (Lessons from the Landslide). We concluded that the GOP landslide was more indicative of the nation's DNA, than its enthusiasm for Republicans:

"The nation must be governed. But it will not be governed from the left.

Voters did not turn away from Democrats last week because of an inordinate amount of faith in the GOP. Republican ineptitude has been writ large this last decade. And the electorate's exhaustion extends to both sides of the aisle.

No, last week was more about the nation's DNA than its ideological preferences.

Americans can live with the idea of dumb government. They will not tolerate, however, a monolithic one."

The twentieth century saw the U.S. electorate move slightly to the left. Migrating from its farms and ranches to the crowded opportunism of big cities. In so doing, we recognized the need for certain safety nets. The ability to sustain ourselves between opportunities. Yet, November fourth reminded us that, while the electorate has migrated left, it has no intention of moving further. Nor will it be dragged.

Americans remain uniquely confident in their abilities, and those of their private institutions. Yet, while recognizing the need for specialized government roles (climate change, for instance), the public has little faith in its institutions. Harbors widespread mistrust of the executive, legislative and executive branches of government, not to mention large government organizations like the IRS, CDC and VA, to name a few.
Even as we adopt policies more aligned with Europe's big-government orientation, we maintain our prairie-bred dislike of government authority. Americans innately recognize that the nation's exceptionalism has little to do with government. Our achievements stem from core beliefs. The right to life, liberty and the pursuit of happiness. Codified in the nation's Constitution, and its Declaration of Independence.
In July, the Brookings Institution issued a report entitled, "A Cascade of Failures: Why Government Fails and How to Stop It" (here). The study identifies 41 major Federal failures occurring between 2001 and 2014. The authors examine official government reports of each incident. Categorize them by primary cause, those being insufficient funds, bad policy design or extreme difficulty.
One will not agree with all of the failures. Nor the evidence ascribed to each. But one cannot question the root cause that seems to link each instance, one long observed by objective economists: regardless of the branch, the individuals in charge or the effort undertaken, many government activities are doomed to mediocrity for to primary reasons. Poor incentives and insufficient knowledge.
These results are bolstered by the work of Nobel laureates James Buchanan, George Stigler and Vernon Smith, who have endeavored to help understand the reasons for repetitive government failures.
They reveal that any government, even one with unlimited resources and the best of intentions, will enact solutions that are not only unlikely to solve our problems, but often make matters worse.
In fact, the causes of public-sector failures are often the recipes for private-sector success. Unlike their private sector counterparts, elected officials and bureaucrats -- from the pure of heart to the most rotten of all -- are not rewarded for maximizing taxpayer value. Nor are they sufficiently punished for taking unnecessary risks or failing to minimize costs.
Bureaucrats are rewarded for being good bureaucrats. A trait in which there is little public value. Ludwig von Mises succinctly said as much in his 1945 tome, Bureaucracy.

"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 innovation if his superiors do not approve of them. His duty and his virtue is to be obedient."

Consider the evidence.
Government officials are rarely fired. Even after mistakes that would end a private sector career. Who was fired after the catastrophic healthcare rollout? After the CDC's vapid reaction to the Ebola crisis? After the Veteran's Administration admitted to mistreating the nation's war heroes? After the IRS targeted grass roots Tea Party activists? After the 2000 election's hanging-chad debacle? After the Federal government literally shut down in 2013? After the NSA admitted to surreptitiously, if not illegally, spying on nearly every man, woman and child on earth?
Making matters worse, especially for taxpayers, is the fact that the government has a propensity for throwing good money after bad. Bureaucrats are notoriously poor stewards of taxpayer dollars. Look at CGI, the contractor that won the $678 million contract to build the Obama Care website. Even after the firm had already been discredited for having blown the job done for the Canadian diabetes registry.
Unlike their private sector peers, public sector bureaucrats often operate with limited knowledge. Businessmen utilize the information embedded in pricing mechanisms to make purchasing decisions. If the price of goods and services rise, a business will seek out less expensive substitutes. Government decisions makers, however, often lack a comparable mechanism. Seeking goods and services that fulfill their "specs" without much concern for cost and quality.
While the dual problems of poor incentives and limited knowledge lead to persistent failure, they also result in consistent exploitation by special interest groups of all ideologies.
Consider the standing tradition of ethanol subsidies, as provided by the annual Farm Bill. Denigrated by economists from both parties, these payouts are rubber stamped each and every year. Much to the detriment of tax payers. As well as the free market.
Why was the Affordable Care Act designed to expand health care coverage, as opposed to improving health care outcomes? A disparity that benefits the U.S. insurance industry without necessarily providing better and more affordable health care? Because politicians and bureaucrats, by nature, seek to reward special interest groups more than they endeavor to provide for the public's benefit. And the Affordable Care Act, like Medicare, provides mostly for older Americans. Who happen to vote. At the expense of the nation's young and healthy individuals. Who are less likely to vote.
More money? Better leadership? Neither has traditionally been capable of curbing excessive government failures. Because government institutions are endemically unable to manage complex tasks. Regardless of how well funded, smart or experienced bureaucrats may be.
The War on Drugs. The War on Poverty. Both have sucked in billions of dollars while failing to even identify, let alone treat, any root causes. Drug consumption has risen. National poverty rates trend higher. Even as countless bureaucratic agencies join the fight. Year in, year out. In perpetuity. While taxpayers continue to foot the bill.
Once, Paul Revere took a midnight ride. He warned colonists of the pending British invasion. Of the tyranny, taxation and bureaucratic inefficiencies that followed. Today, those same problems present themselves not as exterior threats, but as creeping consequences of an ever-bloating bureaucracy.
Alexis de Tocqueville recognized that "the health of a democratic society may be measured by the quality of functions performed by private citizens."
Like a hammer, the government is a tool. Designed for specialized purposes. Nothing more. Nothing less. A hammer cannot inspire, save, create or overcome. It pounds nails.
Similarly, our government, its bureaucracies and special interests have no ability to enhance the American ideal. Not when that ideal already exists. Done well, government preserves and provides. Done poorly, it degrades. That ideal being a nation born, nurtured and raised on the wings of a private citizenry.
Accordingly, only those private citizens, powered by their their dreams and ideas, can preserve her.

Securities offered through Dempsey Lord Smith LLC – Dempsey Lord Smith LLC, Rome, GA Member FINRA / SIPC / MSRB.

Advisory Services offered through Dempsey Lord Smith, LLC, an SEC Registered Investment Advisor. Clearing through and accounts held at Charles Schwab & Co., Inc.

Dempsey Lord Smith, LLC nor Hyde Park Wealth Advisors LLC provides tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Hyde Park Wealth Advisors LLC is not controlled by or a subsidiary of Dempsey Lord Smith LLC. Investing in Alternative Investments come with a variety of risks that could result in a complete loss of principal investment.

Alternative Investments offered as private placement securities are offered only to qualified accredited investors via confidential private placement memorandum. Income and returns are not guaranteed and there are no assurances investments will meet their stated objectives.

© 2024 Hyde Park Wealth Advisors. All Rights Reserved