Book Review: 'Why Government Fails So Often' by Peter H. Schuck

Government's best practice is to set goals and arrange incentives so society's knowledge can be put to use by its dispersed possessors.

WSJ review by Yuval Levin. Excerpts: 

"Examining a vast array of federal policy disappointments from the early republic to today (with an emphasis on our present welfare state), Mr. Schuck argues that the endemic failure is a consequence of the nature of modern government."

"it is evidence about human beings living together and so must be analyzed with an appreciation of the diversity of social forms and the complexity of human motivations. That appreciation allows Mr. Schuck to avoid the twin temptations of social science: nostalgia and utopianism.

To be successful, he argues, a public policy has to get six things right: incentives, instruments, information, adaptability, credibility and management. The federal government tends to be bad at all of these. Take Medicare, a popular program. By paying a set fee for each service, it creates perverse incentives for doctors to perform more of them. Then, by using the instrument of price controls to limit costs, it creates shortages. By setting those prices administratively, it denies itself the information that only the interplay of supply and demand can offer. By imposing a mid-1960s insurance model on American medicine, it makes the health-care system inflexible. By relying on payment cuts that Congress routinely puts off, it makes a joke of its own fiscal projections. And by abiding billions in fraud, it invites waste and abuse."

"Especially insightful are his discussions of the fundamental dysfunction of the federal bureaucracy. Mr. Schuck argues (echoing Hayek) that it is essentially impossible for centralized managers to consolidate information to the degree necessary to manage complex social systems, and bureaucracies respond to failure by demanding even more power. This assertion of authority, precisely because it is poorly informed, further distorts the system, making it even harder to control. Think of the unintended consequences of airline and trucking rules before the late 1970s deregulation, for instance, or of what ObamaCare is now doing to the health-insurance system. The proper sphere of the central government, Mr. Schuck argues, is to set goals and arrange incentives so that society's knowledge can be better put to use by its dispersed possessors."

""When one compares government and market provision of essentially the same services," he writes, "the inescapable conclusion is that the market almost always performs more cost-effectively.""

"private companies are often an important cause of government's failures by, for instance, drawing away the best managers, using political contributions to influence policy or devoting their efforts to simply staying several steps ahead of regulators.

Alongside a lengthy list of federal failures, Mr. Schuck points to some notable successes—from the Homestead Act (1862) and the GI Bill (1944) to the interstate highway system (1956), the earned income tax credit (1975) and welfare reform (1996). What unites them is that they did not try to manage success so much as establish the circumstances for it."

"But without a doubt, Mr. Schuck's survey will make painful reading for American progressives. Their worldview depends on a degree of government competence that is simply unattainable. "The relationship between government's growing ambition and its endemic failure," he concludes, "is rooted in an inescapable structural condition: officials' meager tools and limited understanding of the opaque, complex social world that they aim to manipulate.""

"crafting policies as simple and incremental as possible. As Alexander Hamilton put it in Federalist 70, "a government ill executed, whatever it may be in theory, must be, in practice, a bad government.""