Federal Government Failure

CONCLUSIONS

The federal government and the private sector both fail. The difference is that the government fails more and fixes less. This study described many of the reasons why. The top-down nature of federal policies creates winners and losers and turns decisionmaking into guesswork. The government’s funding mechanism is compulsory, so there is no built-in mechanism to end harmful activities. And policymakers have strong incentives to favor new programs, but few incentives to prune the waste.

In the private sector, businesses learn from failure and continually redirect their efforts and resources to higher-valued uses. That is why in his book, Why Most Things Fail, British economist Paul Ormerod said, “America is the most successful society the world has ever seen … Yet, paradoxically, American success is built on failure. It is precisely the willingness to experiment, to try new ways of doing things, and to embrace change that distinguishes America from the less dynamic societies of Continental Europe.[i]”

America’s historical success was built on the freedom of entrepreneurs to take risks, challenge existing businesses, and build new industries. There have been many business failures, but that has led to ongoing regeneration—creative destruction—in American industry.

Governments are different. Rather than creative destruction, its failures lead to stifling obstruction. Failed programs do not disappear, they just keep piling up. “Governments of all persuasions,” says Ormerod, “appear chronically unable to admit that any single aspect of their policy has failed.”[ii] A half century ago, Ronald Reagan made basically the same point: “A government bureau is the nearest thing to eternal life we’ll ever see on this earth.”[iii]

For decades, federal bureaus, programs, laws, and regulations have proliferated. Policymakers do not have the time, inclination, or incentives to fix the constant stream of failures that develop in Washington. So the larger the government becomes, the more failed and obsolete policies it imposes on society.

What is the solution? The public should press Congress to make fiscal and procedural reforms. Those reforms might include tighter spending restraints, more rigorous evaluations of programs, and an overhaul of the tax code to reduce the economic damage. Constitutional amendments to limit congressional terms and impose greater budget discipline are also promising ideas.

However, the most important way to improve federal performance would be to greatly cut the government’s size. In recent decades, the federal government has expanded into hundreds of areas better left to state and local governments, businesses, charities, and individuals. That ongoing centralizing of government power is a terrible mistake, and it is delivering steadily worse governance to Americans over time.

Reforms should shift federal activities back to the states and the people. State and local governments certainly suffer failures, but their failures are not thrust onto the whole nation. Indeed, when policies fail in some states, other states can learn the lessons and pursue different strategies. Furthermore, the states compete with each other for people and investment, which creates discipline and ongoing pressure to reform. The states also have governance advantages over the federal government that help to reduce failure, such as legal requirements to balance their budgets.

Polls show that Americans support moving power out of Washington. Large majorities of people prefer state rather than federal control over education, housing, transportation, welfare, health insurance, and other activities.[iv] In recent decades, there has been a steady shift in public opinion in favor of federalism or the decentralizing of power.[v]

Why do Americans support federalism? Polls show that people have a much more favorable view of state and local governments than the federal government.[vi] More people think that state and local governments provide competent service than the federal government.[vii] And when asked which level of government gives them the best value for their tax dollars, two-thirds of people say state and local governments and just one-third say the federal government.

In sum, political and bureaucratic incentives and the huge size of the federal government are causing endemic failure. The causes of federal failure are deeply structural, and they will not be solved by appointing more competent officials or putting a different party in charge. Americans are deeply unhappy with the way that Washington works, and everyone agrees that we need better governance. The only way to achieve it is to greatly cut the federal government’s size and scope.