Government Failure is Overdetermined

Reflections on Michael's Huemer's new philosophy textbook

In Knowledge, Reality and Value, Michael Huemer writes:

In the wake of the [2008 financial] crisis, many people tried to explain why it had all happened. This included people with opposing ideologies. Roughly, there were people with pro-government and people with anti-government ideologies, and both tried to explain the crisis. Can you guess what the two sides said? The pro-government people said the recession happened “because” there wasn’t enough regulation – and they listed regulations that, if they had been in place, would probably have prevented the crisis. The anti-government people said the recession happened “because” there was too much government intervention – and they listed existing government policies that, if they hadn’t been in place, the crisis probably wouldn’t have happened.

Notice that the basic factual claims of both sides are perfectly consistent: It’s perfectly possible that there were some actions the government took such that, if the government hadn’t taken them, the crisis wouldn’t have happened, and also there were some actions the government failed to take such that, if it had taken them, the crisis wouldn’t have happened. It’s perfectly plausible that the crisis could have been averted in more than one way: either by adding certain government interventions, or by removing some other government interventions. Which alternative you focus on depends on your initial ideology.

Most social problems are overdetermined: There are things that, if the government stopped doing them, the problem would be solved, and also there are things that the government could do that would solve the problem. There is a multitude of equally valid solutions.

Take climate change. Climate change might largely be solved by deregulating nuclear power. And it also might largely be solved by a high carbon tax and subsidies for green energy. Is this a failure of too much government or too little? It depends. If deregulating nuclear is more tractable, then you can coherently say that the problem is too much government. But if carbon taxes and subsidies are more tractable, then you can coherently say the problem is too little government.

Of course, there’s no sliding scale called ‘government’ that we can fluidly move up and down. Talking about the ‘size’ of government is the wrong level of abstraction, for most purposes. However, it’s still meaningful in shaping your expectations about how successful government interventions are likely to be in the future. If you made a very clever argument that nuclear regulation was extremely harmful and that green energy subsidies hadn’t worked, then that would lower your confidence in the government’s ability to make good decisions about climate change in general. 

Thus, many arguments about government intervention are really arguments about our intuitions for which theory of change – government or market – is most plausible. But we don’t think this is what the arguments are about, which is why they are often so unproductive. Having said that, let me attempt an argument for why removing bad regulations is generally more tractable than adding good ones.

State capacity – the ability of governments to quickly execute big projects – appears to be going down almost everywhere. I don’t know why. One plausible explanation is that increases in labour and land costs have led to prohibitive cost increases in infrastructure projects. Imagine London trying to build the Tube today. But declines in state capacity are not limited to infrastructure, so the deeper answer probably has something to do with the accumulation of interest groups. The older and richer a country gets, the more special interest groups will try to get a bigger slice of the pie. A common misconception is that this is largely an American phenomenon: corporations and trade associations represent a third of American lobbying groups, so there is plenty of room left over for other interests. Ireland, with its incredibly strict campaign financing rules, does not get around special interest groups.

Too many interest groups make your country ungovernable, because whatever your goal is, there is almost certainly at least one group that stands to gain money, power, or social prestige from opposing you. They will use whatever channels they can to delay, discredit or demolish your agenda. This latter point is essentially what political scientist Francis Fukayama identified as ‘vetocracy’: rule by vetoes. New York was notably early to become ungovernable, which is precisely why the astonishing accumulation of power by Robert Moses, as masterfully documented in The Power Broker, was so unusual.

The most common goal for special interest groups is to maintain the status quo. Often they want new laws, subsidies or tax cuts, and other times they want to repeal existing laws. All amount to special treatment from the government that distorts the market. Now, some of this lobbying is admirable – how I wish there was a lobbying group to represent the interest of future generations! But the net effect is to make governing more difficult. 

Ungovernability implies a few things. First, the government is already considering many bad interventions. Second, interventions that do pass are likely to be significantly watered-down compromises. And third, if your preferred regulation is enacted, it is unlikely to be enforced strongly (because there are so many). Regulations also have time on their side: laws tend to accumulate over time, unless repealing them aligns with the interests of a particular group. 

Why don’t the very same arguments apply to deregulation? Because there’s only one equilibrium outcome. There’s no such thing as “good” deregulation and “bad” deregulation. There is deregulation with good and bad consequences of course. And deregulation with good and bad implementation and preparation. But an outcome is either a market equilibrium, or it is not. There is also no such thing as “enforcing” a market; markets are by definition that which does not need to be enforced (contracts are that which needs to be enforced). Tolstoy said that every happy family is happy in the same way, while every unhappy family is unhappy in a different way. Likewise, every happy market is happy in the same way, while every unhappy market is unhappy in a different way. 

This gets us into tricky territory. When and where are half-measures worse than no measures at all? Is it better to have compromises or extremes?

If deregulation is as tractable as I say, why don’t more people do it? In a word, because it’s so unpopular. Precious few people are trying to bulldoze regulations that are against the public good. The fact that many social problems can evidently be solved by the government does not defeat the pro-market position, any more than the converse being true defeats the pro-government position. So I say: bring on the bulldozers.