Why Government Fails So Often: And How It Can Do Better (26 page)

Is this not a troubling paradox? On the one hand, most voters fail the minimal test of knowing enough about candidates and public issues to rationally decide which candidates will best promote their interests. On the other hand, America is in most respects a highly successful, if flawed, democracy. Caplan proposes two resolutions to this
paradox. First, data show that the median voter can make more rational political choices than the median nonvoter, largely because education correlates with both economic literacy and voter participation. Even if the mass of citizens fail minimal tests of knowledge and rational judgment, those who actually vote perform somewhat better. Second, voters’ outcome preferences are not necessarily the same as their policy preferences: as with the North American Free Trade Agreement, they want the economy to prosper even if they oppose the policies that make it prosper. This places policy makers in a tough situation but also enables them to enact wiser policies than the median voter prefers.
If
these policies can generate quick enough results for politicians to gain credit from satisfying voters’ outcome preferences, they can ignore or finesse voters’ policy preferences.
⁹⁹

This is a big
if
. After all, many sound policies will prove effective only in the medium or long term. Even if one accepts Caplan’s underlying analysis, then, his resolution of this paradox is not entirely convincing. Yet my analysis in the succeeding chapters only deepens it.
Chapter 12
offers some possible remedies.

*
For an (unpersuasive) argument that political markets are as efficient as economic ones are, see Donald A. Wittman,
The Myth of Democratic Failure: Why Political Institutions Are Efficient
(1995).

*
Obviously, such formulations beg the question of what the law or the public interest actually does require, but that question is irrelevant to our central concern here, which is what motivates officials, not the particular actions that their motivations dictate.

†
I presume that all citizens behind the Rawlsian veil of ignorance would do so. See John Rawls,
A Theory of Justice
(1971).

*
Another possibility is that every theory of political action is worthless, as it can explain and predict nothing, presumably because political action consists simply of random events exhibiting no regularities. I reject this notion.

*
Kenneth Arrow’s impossibility theorem is sometimes called the “voting paradox” (John B. Taylor & Akila Weerapana,
Principles of Microeconomics
, 6th ed. [2009], 453), but that is only because the theorem seems to violate commonsense assumptions about logical decision making. As explained below, however, irrationality in politics, far from being paradoxical, is commonplace. For an explanation of the Prisoner’s Dilemma and its erstwhile solutions, see Robert Axelrod,
The Evolution of Cooperation
(1984).

†
Markets can be distorted by a crowd psychology that produces bubbles and panics that seem (especially, but not only, in retrospect) manifestly irrational. The housing bubble that burst in 2007 and the Asian panic of 1997 are recent examples. Even such markets, however, produce a winner for every loser, and actors are disciplined by playing with their own money, not that of the taxpayers.

CHAPTER 6

Information, Inflexibility, Incredibility, and Mismanagement

I
n this chapter I extend the analysis of policy failure beyond incentives and irrationality to consider four other sources of ineffectiveness: (1) poor information; (2) rigidity where flexibility is needed; (3) lack of the credibility needed to secure the cooperation of other actors; and (4) mismanagement, particularly in the forms of fraud, waste, and abuse. These impediments to policy success are alike in their deep, structural, endemic nature.

INFORMATION

In addition to the problem of incentives (discussed in
chapter 5
), much government failure reflects the fact that information is costly—to gather, verify, contextualize, assess, deploy, and keep up to date. As we saw in
chapter 1
, markets are much more efficient than government in mobilizing the information needed for decisions. Unless protected through contract or intellectual property law, information is a nonexcludable good. That is, once it is produced it is available to all, which means that those who incur the costs of producing it cannot garner for themselves its full value, so we get less of it than we want. Accordingly, it becomes even more valuable but less available.

The public policy implications of this simple fact about information are enormous. First and most obvious, sound policies require good information—about the existence, nature, and causes of a problem, about the costs and benefits to the affected public of various possible solutions to the problem, and about the effectiveness of current policies. This information is hard to come by under the best of circumstances. More than a quarter century after Congress made control of the nation’s southern border a high priority and poured enormous sums of money into new surveillance technology, patrol staff, and the building of a border fence costing about $16 million per mile, the government still does not know enough about which conditions have caused the recent decline in illegal entries—economic and demographic changes in Mexico, criminal gangs in border cities there, a beefed-up Border Patrol, the fence, and so forth—to make rational budgeting decisions.
¹
Nor does the government even have goals and measures in place for this purpose.
²
The world is not organized in ways that make such information transparent, much less readily accessible by government. Rather, it must often be mined from resistant materials at great cost.

This point is vividly illustrated by information that the government requires sellers to disclose to consumers—ostensibly a relatively straightforward problem. Such policies are designed, among other things, to help consumers make rational choices in the market; they are discussed and assessed in some detail in
chapter 8
. Most policy experts consider such information disclosure to be a relatively straightforward, uncontroversial regulatory technique carrying a relatively low risk of error, compared with more interventionist and prescriptive policy approaches like command-and-control regulation or even decentralized market-based schemes (also discussed in
chapter 8
). A second implication of information costs relates to political information that is pivotal to effective policy making but that only insiders possess. Such information is often difficult to acquire and assess in a reliable form because of political actors’ opportunistic production and use of it. It includes, among other things, how intensely different groups feel about the proposals, which coalitions can be formed for
and against them, how politicians are likely to align themselves, how the internal politics of the relevant policy-making institutions will work, how bureaucrats are likely to use the discretion Congress would give them, how the courts will react to the proposals, how the proposals will affect other levels of government (and even foreign countries), how effectively they can be implemented in the real world (the subject of
chapter 8
), how long the adoption and implementation processes will take, and so forth.

A third implication of information costs relates to markets—foreshadowed in
chapter 1
and the focus of
chapter 7
. How markets will react to a policy proposal is as elusive as it is important. A policy that the markets condemn is probably doomed to failure—regardless of its political feasibility and theoretical merits. President Bill Clinton’s budget proposals, which angered many of his own supporters, reflected Wall Street–sensitive calculations driven home to him by Treasury secretary Robert Rubin, an aficionado of capital markets. But because markets reflect and respond to myriad influences that often confound predictions,
*
market movements are often difficult to explain even
after
the fact (postdiction). Years after the financial crisis of 2007–8, the most sophisticated analysts are still arguing about the precise causes,
³
yet policy makers have proceeded as if they knew the answer.

Fourth, information is seldom self-evident, self-defining, or self-authenticating. To the contrary, its uses and meanings often are ambiguous and require interpretation, which inevitably means competing interpretations. Much policy debate is about the epistemic, political, and moral implications of such ambiguities. This is why additional information seldom resolves political disputes, and indeed often inflames them.

Fifth, the distribution of information is markedly unequal. Members of Congress are far better informed about the specific policy issues that they deal with (on their committees and otherwise) than are
the vast majority of the voters who sent them to Washington. Typically, career administrative officials are even better informed than both their congressional masters and their own politically appointed superiors. This is most clearly true as to the more technical and data-dependent aspects of the relatively narrow policies for which they are responsible, but political information in the policy areas in which officials have long worked is skewed as well. Another problem with information inequality is the common situation in which market actors possess the information that policy makers need but have an incentive not to reveal it. Congress can demand or subpoena information it wants from private actors, but this remedy is costly and protracted, and its committees often do not know what information they need.

Steven Kelman’s detailed study of federal procurement of computer systems from private vendors vividly exemplifies this problem. To reduce vendors’ opportunities to corrupt procurement officials, the process mandates an “open competition” among potential vendors that severely limits officials’ ability to work with vendors during the contract negotiation stage to obtain the detailed information that the officials need to figure out and specify in the contract precisely which systems and service they should purchase; this also prevents the officials from rewarding the best-performing vendors by promising to buy from them in the future. This informational imbalance, coupled with a process that aggravates it, produces contracts that are costly, ill-informed, and difficult to enforce (“stupid” contracts, as one reviewer put it).
⁴

Sixth, informational gaps about social problems mean that policy makers often direct their efforts at the symptoms of social problems, not their root causes—and so the underlying problem may persist even if some of the symptoms have been addressed. This is not necessarily because they fail to recognize the difference between a symptom and a cause, but for two other reasons: either they do not know what the root causes are, or they know (or think they know) what the root causes are but for one reason or another they cannot deal with them. Crime is a good example.
⁵
Even today, despite billions of dollars spent on criminological research, we do not know what
ultimately
causes
crime—as distinguished from some of the social factors that are correlated with various crimes. Nevertheless, many criminologists believe that they know the root causes of crime, and that these causes are to be found in family life and the (anti) socialization process. But even if they were correct about this, and even if they could pinpoint those aspects of family life and socialization that cause crime, it is unlikely that public policy could do much about them because family life is considered largely a private matter, absent parental neglect or abuse, and because there may be legal, even constitutional, limits on how government may intrude. My point is not that policy makers should never focus their efforts on symptoms—indeed, they are often wise to do so because that may be the best that they can do under the circumstances
⁶
—but only that our ignorance about ultimate causes often requires this decidedly second-best approach.

A seventh reason why information costs confound sound policy making is not simply that the data systems that government demands of the private sector often misfire—Medicare’s troubled, overpromoted digitalized medical records program, discussed in
chapter 7
, is just one example—but that its
own
data systems are so poor, often undermining federal policies. As the Affordable Care Act geared up to begin operations, the government so despaired about the integrity and coordination of the essential databases that it had to abandon a main safeguard against fraudulent applications. Thus, it ruled that if these databases could not verify within one day the income and employment information needed to prove eligibility for the Act’s insurance and subsidy provisions, the government must approve them based on mere personal attestation.
⁷
This is no isolated example. An agency created by the Dodd-Frank law found the models used by officials to assess risks taken by regulated financial institutions to be simplistic and fundamentally flawed.
⁸
The Federal Housing Administration’s outdated information systems have impaired the accuracy of its data, helping to distort its disastrous loan programs—
even long after the mortgage crisis had erupted
.
⁹

Gun control is an even more tragic example, involving failures in the data systems of
two
agencies—the FBI (in the Justice Department)
and the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE, part of the Treasury Department). A
New York Times
analysis found that although Congress began requiring background checks for gun buyers almost two decades ago, the FBI’s spotty database of criminal and mental health records allows thousands of people to buy firearms every year whom the law should bar from doing so. Because of these data gaps, the FBI often cannot use the three-day waiting period to verify personal histories, thus enabling violent felons, fugitives, and the mentally ill to buy firearms. Since 2005, the
Times
found, 22,162 firearms—including nearly 3,000 in 2012 alone—have been bought after the waiting period by people later determined to have been disqualified by their criminal and mental histories.
¹⁰
As for BATFE’s gun control program, Congress has assured its failure by barring it from maintaining an effective database.
¹¹
In a particularly perverse demonstration of Congress’s determination to bar essential policy information, it acted—only months after the school shootings in Newtown, Connecticut, and other mass killings by gunmen that inspired public fury and demands for reform—to make
permanent
several earlier provisions preventing BATFE from compiling the database needed for effective enforcement.
¹²