Twenty years ago renowned economist, author and teacher the late Dr. Milton Friedman explained to serious thinkers, and those who could accept reality, that government is a problem to a society that hopes to have freedom for the individual citizen. He said in a 1993 essay titled “Why Government is the Problem” that it’s easy to demonstrate the problem with government, but more difficult for people to understand why. He puzzles about why it is that if a random sample of people were to replace incumbent politicians in Washington, bad policies would “very likely not be improved.”
Dr. Friedman describes ways the federal government has caused our problems in education, lawlessness, “homelessness,” family dysfunction, housing, medical care, finances, highway congestion, air traffic, and a host of other “botched economic and environmental policies.”
Friedman shows how government “actions often provide substantial benefits to a few while imposing small costs on many.” Concentrated benefits and dispersed costs describe many government programs. This doesn’t explain, however, why government projects are so less efficient than private enterprises. The answer resides in our human nature.
Whether we work in government or outside it, every individual person has the same incentive: “to promote their own interest,” writes Friedman. In my opinion, this is a good thing, even essential, for our survival and personal successes. But when applied within government this human characteristic has a very different result. Why, for example, “should the U. S. Post Office be less efficient than United Parcel Service?” asks Friedman. It’s simple, but discouraging.
UPS owners have to use their own earned resources to survive. Managers have strong incentive to make the company work; if they don’t serve customers with efficiency and effectiveness the company will shut down. Owners’ investments are personally at risk. No one can make excuses for failure. Contrast a government enterprise:
Government managers have no “skin in the game,” to quote President Obama. They don’t have to admit to mistakes. They justify failed schemes because of low scale of operation and too few resources. To preserve their visions they simply ask for more from the “deep pockets” of government—and they know they’ll almost always get it. As Friedman summarizes it: “If a private enterprise is a failure, it closes down…if a government enterprise fails, it is expanded.” He challenges us to find exceptions.
Dr. Friedman gives examples of his premise in the essay—one is relevant today. The federal government imposed wage and price controls during World War II. To attract employees, difficult to recruit because of wage controls, employers offered health insurance. It was nontaxable income until the IRS discovered a new source of revenue. By that time, employees regarded nontaxable medical insurance as an entitlement. After a “big political fuss” Congress legislated employer-provided medical insurance nontaxable.
Friedman doesn’t condemn government employees as bad people with harmful intentions. In my experience, good intentions alone justify government programs. Unfortunately, they are usually promoted with no new evidence or history to support any expectations of success; e.g. the long, expensive and lost wars on “Poverty” and “Drugs” in America.
Reversing the famous Adam Smith “invisible hand” economic rule, Dr. Friedman wrote: “People who intend to serve only the public interest are led by an invisible hand to serve private interests which (were) no part of their intention.” Smith’s economic law stated: “People who intend only to seek their own benefit are ‘led by an invisible hand to serve a public interest which was no part of’ their intention.” (Italicized to more clearly show the distinction.)
So, we have arrived at a point far removed from our Founder’s belief in government “instituted among Men, deriving their just Powers from the Consent of the Governed.”
Many of us agree with Dr. Friedman’s declaration that we now have a federal government system “of the people, by the bureaucrats, for the bureaucrats, including the elected representatives who have become bureaucrats.”
Thanks to Milton Friedman, and many other scholarly, freedom-loving people, we know why government is the problem. Now the question is what are we willing to do about it?