New book about government’s frequent failures … from a liberal’s perspective

schuckbookGene Epstein reviews for the latest issue of Barron’s an interesting new book about government’s shortcomings.

This lively and authoritative account of government failure deserves to be read by advocates of all political persuasions. In particular, fervent supporters of proactive government will find Yale Law School Professor Peter Schuck to be a sympathetic guide. A former official under President Jimmy Carter in what was then called the Department of Health, Education, and Welfare, Schuck reveals that he voted both times for Barack Obama, and declares in the book’s first chapter, “I support many public programs, and as a citizen I take no pleasure (indeed, I am dismayed) in finding how often my government fails, as I dutifully report in the chapters that follow.”

Dismayed and dutiful the author certainly is, to the point that his book will also appeal to those of us who would drastically downsize government. Focusing on the staggering array of federal spending on domestic programs, Schuck insists on judging them not by their stated intentions but by the metric of cost-benefit analysis. He doesn’t need to delve very deeply into this analysis, it turns out, because so many costly programs bring enormous harm that greatly offsets the benefits.

By Schuck’s reckoning, “unmitigated disasters” include the war on drugs and the ethanol program. As he also points out, a key harm resulting from many programs is “government-promoted moral hazard,” in which public policies encourage people to engage in risky behavior, often causing immense collateral damage. The federal government’s promotion of home-ownership via Fannie Mae (ticker: FNMA) and Freddie Mac (FMCC), essentially government agencies, helped bring “catastrophic damage to the larger economy” in the Great Recession of 2008-09. And lest we expect government to learn from such egregious mistakes, Schuck reports that “more than five years later—and even with all the benefits of hindsight—the Federal Housing Administration (FHA) is following those agencies’ catastrophic examples.” …

… As for why government fails so often, the author cites public choice theory. Appropriately dubbed “politics without romance,” public choice theory posits that people in politics are about as self-interested as people in business or in nonprofits. So, for example, politicians motivated by the desire to get re-elected can please their constituents by spending borrowed money that won’t have to be paid back until long after they leave office. Taxpayers who might be hurt by those policies have little or no incentive to inform themselves and get politically active, given their limited chance of affecting the outcome. By contrast, the private sector has the lash of profit and loss to channel self-interested behavior into productive ends.

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