Why Government Fails So Often: And How It Can Do Better (28 page)

Public expectations about the most popular—and highly regressive—“tax expenditures” are also deeply embedded and, at least so far, politically untouchable. These include the deductions for home mortgage interest, charitable contributions, and state and local taxes, as well as the exclusion of employer-provided health insurance benefits from income.
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Although eliminating these provisions—or at least limiting their regressivity—would go a long way toward solving the nation’s fiscal crisis, simplifying the tax code, and making it fairer, no major-party presidential candidate within memory has even proposed doing so. (During the 2012 campaign, Mitt Romney gestured in this policy direction, but steadfastly refused to specify which provisions he would change. President Obama did not even go this far.)

This is not to say that public expectations and the policies they engender can never be changed. The most courageous and talented politicians are skilled at managing and gradually altering those expectations, as was the case with president Lyndon Johnson and civil rights legislation.
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Until recently, laws authorizing homosexuals in the military, women in the Marines, and same-sex marriage would have been unthinkable. It is telling, however, that same-sex marriage has been instituted mainly by state courts, not legislatures, and that federal acceptance of it at the state level may also come about only through judicial action (by invalidating the Defense of Marriage Act). Not surprisingly, unelected judges with lifetime tenure are sometimes more willing than politically accountable legislators are to override public expectations.
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The challenge of policy adaptability, which would be difficult under the best of circumstances, is vastly magnified by the short time horizon of almost all elected politicians, which causes them to focus on the here and now, especially in response to crises, rather than on the longer term. In the jargon of policy analysis, they apply a very high discount rate to the future, focusing on the present and the short-term and minimizing or ignoring longer-term effects. This
myopia reflects their incentives, political needs, perceptions, and personal rhythms, which are largely dictated by the election cycle. Even senators with six-year terms are caught up in a permanent campaign.
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Although career civil servants have longer time horizons, they must look for leadership and policy guidance to their politically appointed superiors whose tenure in office, as detailed in
chapter 10
, tends to be even briefer than that of elected officials—only three years on average (fewer in executive agencies, more in independent regulatory agencies)
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—and whose time horizon is correspondingly short.
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These truncated time horizons have several distorting effects on policy. Government may act precipitously, as when policy makers are in a hurry to make a splash before some political or fiscal deadline.
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Instead, as with entitlements reform or stopgap financing measures, it may do the opposite—temporizing in hopes of not having to make difficult choices or leaving them to others to pay the political price. These incentives to either lurch or delay render longer-term policy planning impossible or irrelevant. As the next section shows, this radical present-orientation undermines the credibility that the government must have in order to induce others to make the long-term investments in reliance on government promises—investments that are often essential to policy success. Instead, programs are designed in order to address only current and short-term political needs.

Nothing better demonstrates this than the Budget Control Act of 2011, passed only days before Standard & Poor’s downgraded the government’s credit rating for the first time in our history. Designed to avert the public fury that would follow another government shutdown, the act deferred all of the tough policy reform and budgetary decisions to the lame duck Congress after the 2012 elections, thus creating paralyzing and costly uncertainty (a problem discussed more generally below) and fiscal and regulatory “cliffs.” At that point, federal officials once again kicked the can down the road to what they expected would be an action-forcing event—a procrustean sequester
on March 1, 2013. Seven months later, the government still had not made those hard decisions.

This reckless brinkmanship is only the most recent and dramatic instance of harmful inflexibility due to policy myopia. Alas, other troubling examples are more typical.

The US Postal Service, authorized by the Constitution,
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boasts a storied past going back to the beginning of the Republic with important technological advances along the way.
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It boasts an iconic brand name, universal service, and some efficiency advantages in package delivery. In recent decades, however, it has been heavily burdened by notorious inefficiencies. Congressional mandates, largely reflecting the power of federal employee unions, the relevant subcommittee members, and rural interests that fear restrictions of service and loss of patronage, have forced the Postal Service to run huge annual deficits. (So large are these deficits that it seems almost churlish to mention the $40 million that it wasted sponsoring Lance Armstrong’s doped cycling team.
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) The deficits have now reached crisis proportions: the postmaster general projects no cash or borrowing capacity. For appearance purposes, Congress has insisted that these deficits be off-budget, but has also required that Postal Service employees’ health and retirement benefits—which are extraordinarily generous compared with those of private-sector counterparts—be prepaid for future employees, a requirement that has no private-sector analogue and has forced the Postal Service to default on these prepayment obligations.
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Congress has also prevented it from installing far more efficient technologies, ending Saturday mail services at a saving of $2 billion a year,
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closing unneeded post offices, and substantially reducing its workforce. At the same time, private postal services such as Fedex and the United Parcel Service (UPS), as well as e-mail, have flourished because of their vastly superior efficiency, innovativeness, and quality of service. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at UPS and 32 percent at FedEx, which have utilized technology more efficiently.
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Some of the Postal Service’s higher costs are also due to its obligation to serve rural communities that are unprofitable for the market to serve. Yet it would
still be far cheaper and more effective for Congress to subsidize those services directly, if necessary, as it did with communities deprived of service by airline deregulation.
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The No Child Left Behind Act of 2001, a pillar of federal education policy, clearly requires a thorough overhaul, as both parties have conceded. Yet the immediate political needs of policy makers have stalled any renewal legislation for more than five years, leading the administration of president Barack Obama to waive some of its most important mandates for thirty-nine states and the District of Columbia (as of July 2013), which many commentators believe essentially nullifies the law.
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Another example is Social Security, discussed in
chapter 11
. Analysts largely agree on four facts about the program. Relentless demographic changes are making it fiscally unsustainable in its present form (barring an almost unimaginable long-term economic boom). A few relatively manageable policy fixes can protect the scores of millions who depend on it. These reforms must and will (in some combination) eventually be adopted. And the longer they are put off, the more costly and difficult implementation will be, and the more uncertainty they will inject into beneficiaries’ life plans and expectations. (Much the same is true of Medicare, except that its reforms are more politically controversial and more difficult to design and implement.) Yet both parties have refused to adapt the program to the demographic and fiscal trends whose general parameters have been obvious since the baby boomers were born and the economic growth rate began to decline.
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Again, a solution will surely be found, but at a time when the adjustment and transition will be more problematic.

Countless other instances of anachronistic policies burden society. Many farm subsidy programs, which originated in the days of the
Dust Bowl and the New Deal, are now egregiously bad policy—distributively perverse and cost-ineffective
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—yet their congressional support makes them relatively invulnerable.
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Much the same is true of the deductions for employer-provided health insurance and for home mortgage interest.
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By the same token, politicians often use the status quo’s inertial force to terminate or truncate programs that seem effective, as with a pilot voucher program for the famously dysfunctional District of Columbia school system.
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The tax code’s definition of “family” is inconsistent with many new social realities—for example, over 40 percent of children are born out of wedlock, and same-sex marriage and civil unions are legal in a growing number of states. The formula in Section 5 of the Voting Rights Act had become so patently outdated because of the vested interests that had encrusted it that the Supreme Court in 2013 took the truly radical step of holding it unconstitutionally anachronistic (as discussed in
chapter 11
). The ethanol program (discussed in
chapter 8
) is perversely rigid in the face of market changes. The EPA set a maximum safe level of fluoride in drinking water in 1986, received expert recommendations in 2006 to reduce it by half, and seven years later had not yet changed it.
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The Merchant Marine Act of 1920, better known as the Jones Act, requires that all shipments of cargo from one U.S. port to another to be carried on vessels built in the U.S., owned by U.S. citizens, and operated by a U.S. crew. (The same restriction applies to cargoes financed by the Export-Import Bank.) The domestic shipbuilding industry and labor unions traditionally cite national defense and security justifications (and some waivers are permissible), but the Act is a protectionist measure pure and simple. Senator John McCain, perhaps our leading national security hawk, rightly calls such arguments “laughable.” A government study estimated that repealing it would have saved $656 million in maritime services in 1999 due to the vastly higher costs of building and operating ships in the U.S.
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In 2012, for example, American ships moved oil from the Gulf Coast to the Northeast at a cost of $4 a barrel, compared with $1.20 for foreign vessels.
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Yet almost a century of efforts to repeal the Act have been unavailing, so powerful are the
interests and inertia that defend it. (The same study found that liberalizing all significant import restraints would have saved $14.3 billion in 1999.)
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Sometimes, the policy change that does occur is herky-jerky. The Treasury, Fannie Mae, and Freddie Mac initiated programs in the aftermath of the financial crisis to reduce homeowner and taxpayer costs through principal reduction, only to halt them before a CBA could be conducted to assess the results of this innovation.
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(Those loan modification programs, moreover, helped far fewer homeowners than predicted while still resulting in 27 percent re-defaults.
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) The agencies also failed egregiously to implement the Hardest Hit Fund for the most distressed homeowners.
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Our patent laws, designed to
promote
innovation, appear to be
inhibiting
it by awarding over-broad property rights and tying up inventors in costly, tactically motivated litigation.
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And in perhaps the most dramatic example of abrupt change, Congress created a major catastrophic coverage program under Medicare only to repeal it seventeen months later.
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As these examples suggest, much government policy inflexibility is caused by how Congress legislates—and fails to legislate. Consider the severe, costly, and universally unwanted travel delays resulting from the Federal Aviation Administration’s furloughs of air traffic controllers early in 2013 that were necessitated (so the agency claimed) by the fiscal cliff sequester law. What is most striking to a student of policy rigidity is that the statute governing the FAA denied it the administrative authority to shift its funds from less urgent uses to traffic controller compensation. It required new legislation, enacted quickly under emergency conditions, to authorize this commonsense repurposing of appropriated funds to forestall a genuine crisis.
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Occasionally, some changes in the external environment can actually increase policy effectiveness by simplifying the problem or providing a solution. An example is the development of air bags, which promised to reduce the toll of highway accidents and have fulfilled that promise. But even changes that regulators consider cost-effective usually entail countervailing disadvantages. Thus air bags also increased the cost of new cars, motivating owners to keep their old,
bagless ones longer, and also caused an increase in some types collisions and injuries even as they reduced the incidence of others. On balance, the air bag requirement passes any objective cost-benefit analysis (CBA) and must be counted a policy success.
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Other examples of policy game-changers are technologies that enable police agencies to detect crime more quickly, accurately, or cheaply, and new information systems that, if properly implemented (a precondition discussed in
chapter 5
) could improve the government’s record keeping, cost controls, and enforcement.
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