In like manner several commentators are singing the praises of the federal government lately, claiming that in the wake of recent natural disasters, federal agencies like the Federal Emergency Management Administration (FEMA) have done a fantastic job.

The Washington Post’s Dana Milbank is typical of the pro-government cheerleaders. “Big Government finally got one right,” writes Milbank of FEMA’s response to Hurricane Irene. Arguing that “the federal government can still do great things,” Milbank reckons that FEMA’s response to Irene should help restore the public’s sagging confidence in government. Yet despite this stellar government performance, wouldn’t you know, FEMA faces budget cuts at the behest of those scornful Tea Partiers in Congress. Thus instead of improving the federal government’s image in the eyes of citizens, FEMA’s newfound brilliance is liable to go unnoticed.

I’ll concede that Hurricane Irene was FEMA’s best showing ever. (We’re all still here, aren’t we?) This sudden outbreak of governmental competence notwithstanding, Milbank’s appraisal of FEMA as a model of salubrious big government is flawed on economic grounds. Resting his newly buttressed faith in big government on a sample size of n=1, Milbank precludes some highly relevant comparisons. Perhaps FEMA functioned well for once, but should we take this as the new normal for FEMA, or the exception to the rule? And even if we can count on a better FEMA, is federal government-centered emergency response the best we could possibly have?

It’s easy to say FEMA was better this time than in its dismal past. The agency’s infamous blundering response to Hurricane Katrina (a truly epic category 5 storm) would be comic if it weren’t so tragic. Bureaucratic ineptitude led to a hesitant response, as federal officials actually halted emergency supplies and workers coming into New Orleans in the days after the storm. FEMA arguably contributed directly to Katrina’s death toll of over 1,800 by blocking or overriding local evacuation efforts. FEMA’s top-heavy D.C. bureaucracy was roundly criticized as, well, a disaster.

In stark contrast, a slew of nonfederal response initiatives, from local government authorities to mega-corporations, brought in all manner of people and supplies quickly and effectively, where they were needed most. As Freeman contributor Steven Horwitz has amply documented, companies like Walmart were far more efficient and proactive than the centralized FEMA bureaucracy in getting relief goods to the people in need.

Horwitz and others have noted that incentive structures facing different organizations explain the difference between successful and bungled relief efforts. Those in decentralized competitive situations, such as retailers like Walmart, have the localized knowledge of what goods are needed and where, as well as profit-and-loss incentives motivating them to act on this knowledge. Folks in centralized bureaucracies, on the other hand, naturally lack intricate knowledge of the local details and tend to be motivated by political concerns in distributing the resources they do have.

The divergent results after Katrina are not surprising. While FEMA bureaucrats were halting relief convoys, misdirecting their own supplies, and hosting phony press conferences to placate the media, Walmart, Home Depot, and others were tracking the storm and massing supplies days in advance. They delegated authority to local store managers, some of whom took drastic steps to get their stores open and supplies flowing immediately.

Politicians’ knee-jerk response to government failure is, naturally, to increase their own budgets. But with bureaucracies facing such systematically bad incentives, increasing their budgets is not guaranteed to improve results. Nonetheless, Milbank frets about as-yet-unspecified potential cuts to FEMA’s budget. To put his worries into perspective let’s look at FEMA’s spending record over the last few years. In 2005—a year of at least three major hurricane strikes in the United States—FEMA spent around $4.8 billion. By 2010, a year with many hurricanes (but none making landfall in the United States), FEMA’s budget had been pumped up to a whopping $10.4 billion, and it was on pace to meet or exceed that number last year.

So FEMA’s budget has doubled since Katrina, and only now do we see basic competence, in relatively quiet disaster years? If FEMA faces another really harsh hurricane season—a repeat of 2005—and drops the ball again, does this mean its budget will again need to be doubled, to $20 billion? I can see the dollar signs in the bureaucrats’ eyes already. Indeed, as Public Choice economics predicts, and former Obama White House chief of staff Rahm Emmanuel conveniently admitted, big-spending bureaucrats like those in FEMA have strong incentives to “never let a crisis go to waste.” They thrive on crises as a primary rationale for larger budgets, even if they played a big hand in making such crises worse to begin with.

In light of this it’s not at all surprising that the number of “major disaster” declarations has been rising over time, even in years when nature is relatively calm. FEMA had already declared 78 disasters by the fall of 2011, 30 more than the mega-storm year of 2005. Because disaster declarations are a prerequisite for unlocking federal disaster funds, it’s not surprising that FEMA finds ways to define disaster down, or that the number of declarations goes up for election years and in politically sensitive swing states (tinyurl.com/5usys7s).

In reality FEMA’s seemingly fantastic response to Irene is likely a product of media hype. The storm had basically fizzled out by the time it hit densely populated areas. Recall that Irene had weakened to a mere tropical storm by the time it reached the Jersey shore, and the main effect on the mid-Atlantic and New England states was torrential rain—not nearly as severe as the massive storm surge and catastrophic flooding from Katrina. Yes, there were power outages and locally severe flooding with Irene, but such are common in the United States. Private businesses and local authorities responded well, as they always do. Milbank offers no compelling reason to believe that a bloated FEMA bureaucracy is essential, or even beneficial, in helping these responses along.

This week I want to return to that theme but with a different example that provides a another window on what we mean by innovation and how hard it can be to measure improvements in well-being.

My example this time is the Keurig coffeemaker my department recently purchased.  For those unfamiliar with Keurigs, they make coffee one cup at a time through an ingenious brewing system that runs the hot water right through a small container that holds the coffee, dispensing it right into your mug.  Unlike instant coffee, this is actually brewed — and quickly.  The coffee tastes pretty close to what you’d get from a typical automatic drip system.  It can also brew tea and even hot chocolate.

Design-Consciousness

So what’s so great about this device?  First, it’s beautiful — and that matters.  You can see from the picture that it looks like something Apple or some other design-conscious company would make.  Second, the single-cup technology (known as K-cups) is a wonderfully consumer-friendly innovation.  If you live in a house or share an office with people who like different kinds of strengths of coffee, or, like me, prefer decaf, you are used to the problem economists call “imperfect preference satisfaction.”  Even the best solution is likely to be imperfect for most, if not all.

The Keurig system solves this problem.  One colleague can have the lighter roasts she likes; another can have tea; and I can have my French roast decaf — all without affecting the ability of others to satisfy their preferences.  Imagine a car that can change models depending on who’s driving it and how that would solve the problem couples face in finding a car they both really like.

This may seem like a little thing, but it’s part of an important trend of the last few decades, a process that some have termed “mass customization.”  Innovations in technology and production processes have increasingly enabled us to purchase products that are either created uniquely for us or that permit customization.  The most obvious example is Dell computers, which was one of the first companies to let consumers pick the components they wanted rather than take a unit “off the rack.”  At one time Burger King was able to differentiate its product by telling us to “Have it your way,” but now this is increasingly standard operating procedure across an increasing number of industries.

Missed by the Data

The ability to fine-tune a mass-produced device to one’s own preferences cannot be accounted for easily in the traditional economic data.   Our incomes aren’t any higher, nor is there an obvious net effect on GDP.  However, the ability to have a product that more precisely matches your preferences is clearly a gain in consumer well-being.

Finally, the Keurig is a really nice example of consumer sovereignty.  The wonderful thing about markets is that firms are always trying to figure out how to deliver the things consumers want.   This is also what government bureaucracies are notoriously bad at.  Compare, for example, the one-size-fits-all approach of government schools to the idea of mass customization.  Can we even imagine a machine whose central purpose is to individualize the coffee-drinking experience being produced in the former Soviet bloc?

The Keurig is not just a beautiful piece of innovative technology, it’s also a symbol of many of the things markets do so well and how our lives are better as a result, whether or not we can measure them in the usual ways.  The world of the Keurig is not a world of stagnation, but one of small changes (one might even say “marginal revolutions”) that improve our lives bit by bit, year to year.

* * *

Happy holidays to all. To regular readers of this column, thanks for spending another year with me and for all of your kind words in the comments and email.

Take MSNBC’s Rachel Maddow. Maddow is intelligent, serious, and well-meaning – which makes her vision all the more unsettling: It has ominous implications not only for individual liberty, but also for its concomitant: authentic spontaneous social cooperation.

Maddow might say that if she had her way, the bureaucracy would reflect the people’s interests, perhaps even consult them from time to time. But the naiveté of that vision is apparent from even a brief reading of political-economic history. When has bureaucracy actually represented – or cared about – plain people rather than being a tool of the power elite she claims to abhor (at least when Republicans hold some branch of government)?

Small Things

Her commercials on MSNBC (said to be shot by Spike Lee) well articulate her bureaucracy-first vision. I’ve taken the liberty of transcribing her words:

When people tell us, “No, no, no. We’re not going to build it. No, No, No. America doesn’t have any greatness in its future. America has small things in its future. Other countries have great things in their future. China can afford it. We can’t” — you’re wrong! And it doesn’t feel right and it doesn’t sound right to us because that’s not what America is.

Note the nationalistic “we” and the equation of national greatness with big government projects. (Neoconservative empire-builders have no monopoly on this.) The things unencumbered people would build in a freed market are too small and insignificant for Maddow. The State bureaucracy knows better. (Why are Progressives enamored with China?)

She amplifies the point in another spot:

Not every idea that’s good for the country is a profit-making idea for some company somewhere. It’s never going to be a profitable venture for some company to come up with this idea [pointing to a railroad bridge] and build it on spec. That’s not gonna happen! It needs some government leadership frankly to get something done in common that’s gonna benefit the country as a whole.

The Social Problem

In disparaging profit as impotent to produce big things for the general good (with no evidence proffered), she moves bureaucracy — by nature self-serving, inflexible, conservative – center stage. She shows her unfamiliarity with how competition and entrepreneurship would function in a freed market (as opposed to the corporatist economy she conflates it with). Entrepreneurial profit, as both a motive and a reward, helps human beings cope with pervasive ignorance about how best to use scarce resources in addressing our endless wants. Rhapsodizing about the wisdom and efficiency of bureaucracy shows an obliviousness to the most basic social problem: How can a multitude of people with different values, preferences, and tastes, as well as diverse and incomplete information about the world around them, coordinate their activities for maximum mutual benefit?

Two basic approaches to the problem are available: 1) Let individuals, guided by the price system, strive for what they want by cooperating freely (no privileges, no restraints on peaceful action) under rules that respect all persons as equals, or 2) let bureaucracy – that is, the coercive State — decide for them, perhaps periodically administering the opium of democracy to lessen the pain of their essential powerlessness. Big things must crowd out small things. The latter approach assumes (or pretends) that politicians and bureaucrats possess the knowledge and commitment to the public weal to make the optimal tradeoffs. The freed market would provide a check on waste while respecting free choice. Bureaucracy does neither.

Maddow doesn’t simply favor stopgap Keynesian spending to restore economic vitality. She disturbingly equates pervasive bureaucracy with national greatness:

This . . . whole fight about whether or not the government should be doing anything right now . . . that’s a fundamental fight about what kind of country we’re going to be and whether or not we take recovery from this economic disaster seriously. You have to build your way out of it. You have to be a stronger country when you come out the other side of this recession than when you went in. You have to or you will be left behind.

“You” equals bureaucracy. If the State does great things, the country will be great. The people must be shown the way.

Sound Familiar?

That has an eerily familiar ring.

[Our] conception of life stresses the importance of the State and accepts the individual only in so far as his interests coincide with those of the State. . . . It is opposed to classical liberalism which arose as a reaction to absolutism and exhausted its historical function when the State became the expression of the conscience and will of the people. Liberalism denied the State in the name of the individual; [we reassert] the rights of the State as expressing the real essence of the individual. And if liberty is to be the attribute of living men and not of abstract dummies invented by individualistic liberalism, then [our conception] stands for liberty, and for the only liberty worth having, the liberty of the State and of the individual within the State. . . .

The State . . . is a spiritual and ethical entity for securing the political, juridical, and economic organization of the nation, an organization which in its origin and growth is a manifestation of the spirit.

That’s Benito Mussolini.

I was reluctant to invoke the F-word because some will take it as mere sensationalism. I do so only to make an analytical point. Despite their many differences, Maddow and friends want one thing that Mussolini wanted: national glory and prosperity through State-chosen and State-coordinated grand projects. Bureaucracy first. Individual freedom is to be tolerated only so long as private preferences don’t interfere. (Let’s not forget that before World War II, respectable world leaders saw fascism as a promising third way between the extremes of Marxism and liberalism.)

Of course Maddow thinks liberal values — such as free speech and dissent — can be preserved. Mussolini knew better. What would happen to an Occupy Wall Street-style protest against some big State project initiated by Barack Obama?

Bureaucratic dominance does not merely lower material living standards or reduce profit opportunities. It crushes lives and dreams. Government’s grand projects – the interstate highway system and urban renewal, for instance – steal homes, shops, and communities through eminent domain and other interventions, while well-connected corporate interests reap benefits. They also harm people by damaging the environment and fostering big “private” firms over those of human-scale.

Maddow might say that in her vision, bureaucracy would be different. It would not. Exploitation by a ruling elite is inherent in its nature.

Law professors Frederick Tung of Boston University and M. Todd Henderson of the University of Chicago recently asked that question about the banking industry. They propose that bank regulators should receive incentive pay linked to banks’ performance. They argue that giving regulators a stake in the success of the firms they regulate will motivate them to make better decisions. Freakonomics blogger Matthew Phillips commented that Tung and Henderson “are essentially proposing giving regulators stakes in the banks they oversee, by tying their bonuses to the changing value of the banks’ securities. . . . The proposal would completely change the role of the regulator, from antagonist to partner.”

While this particular study is new, the idea is not. Every so often academics rediscover the superior incentives that private companies provide to ensure their employees work to advance the central mission of the organization – to overcome what is known in management parlance as the principal-agent problem.

The principal-agent problem occurs when individuals in a department of a firm face incentives to pursue departmental goals that conflict with the overall goals of the firm. For example, environmental compliance officers have an incentive to please environmental lobbyists and EPA regulators. In other words, they face a strong temptation to, as diplomats say, “go native.” Firms need incentive structures to motivate employees to resist and overcome that temptation.

Tung and Henderson seek to quantify and duplicate how private companies accomplish this so that public agencies can adopt similar structures – to advance the “public interest” rather than institutional self-preservation and advancement.

Big Difference

This may sound like a good idea at first, but there are inherent differences between the private and public (government) sectors that hinder its successful adoption by government.

Private firms have a clear objective – to maximize profits for shareholders. This requires managing risks and planning for the future. For example, a loan officer’s job is to not only make loans but to ensure that those loans are profitable. They must balance the risks of overly strict lending standards against the risks of overly lax ones. When government rushes in with explicit and implicit guarantees, this balancing task is distorted.

The problem with trying to adapt business-like incentives to a government agency’s overall focus is . . . government. Government cannot utilize market mechanisms because it is a monopoly by definition, and that creates incentives unique to State actors. In government the distortion is built in.

Perverse Incentives

Public Choice theory helps explain the incentives faced by those working in government. As Nobel Prize-winning economist James Buchanan, one of the founders of Public Choice, points out, “[T]here is no center of power where an enlightened few can effectively isolate themselves from constituency pressures.” In other words, actors within the bureaucracy cannot operate away from the political pressures of trying to please politicians and the voters who elect them. Thus institutional self-preservation wins out.

The government’s clumsy response to the financial crisis made the shortcomings of State regulation evident, but the problem is not new.

In fact this lesson should have been learned during the savings and loan (S&L) crisis of the 1980s and early 1990s. The Federal Savings and Loan Insurance Corporation (FSLIC), which was expanded greatly during that crisis, ensured that “smart money” was attracted to poorly managed S&Ls willing to offer high interest rates. The managers of these S&Ls recognized their bankrupt status, but they were being kept alive by a government guarantee.

A government-guaranteed entity isn’t really allowed to die until the government says it can. Until that time (which rarely arrives), the risks were transferred from the S&Ls and the depositors to the taxpayer. Indeed, S&L management shifted from small-town bankers to some of the world’s most, well, “creative” financiers. As a colleague at the time, Catherine England, noted, no system was better designed to attract “crooks, scalawags and sharp dealers” than the then-existing regulatory structure.

Responsive to Politics

Why didn’t regulators do their duty? Because the FSLIC was more responsive to its political leaders than to financial reality. House Speaker Jim Wright (D-Texas) argued zealously that Texas banks were not insolvent but illiquid.

Sound familiar? Zombie S&Ls stayed open far longer than they should have, and the S&L crisis was the result – with over a thousand failed institutions and an estimated cost to taxpayers of $124 billion.

Do Tung and Henderson believe regulators would have done a better job if their rewards for doing so had been greater? The rewards of government service are not necessarily economic. Avoiding trouble with lawmakers is a strong motivation on its own. So when asked to solve zombie S&Ls’ “illiquidity,” regulators could be counted on to bend to political pressure.

Wright left Congress many years ago, but his successors are doing as much damage today. The bureaucrats enforcing the slew of new regulations – from Dodd-Frank to Obamacare to CAFE on steroids – will face the same incentives as did the staffers at the FSLIC.

Markets work by rewarding the success of individuals who, at their own risk, venture forth and succeed – whether by brilliance or luck – in fulfilling unmet consumer needs. Bureaucrats, by contrast, are risk-averse and respond to political incentives. No “bonus” for making the right decision can change that.

Playing Chicken

Josh is a Mennonite friend who happens, by the grace of native talent and a powerful work ethic, to produce magnificent chickens. Raised on green growing pasture, they are never medicated, never fed artificial supplements or genetically selected to grow abnormally fast. They develop rich golden fat and a deep flavor, characteristics that have been more or less lost in modern, streamlined, highly efficient poultry production. Not surprisingly, Josh’s chickens are in high demand among food cognoscenti and fine restaurants. A couple of years ago I began bringing Josh’s chickens to my farmers’ market stand to sell alongside our equally popular grassfed beef. Josh and I, in a classic entrepreneurial endeavor, have made these wholesome chickens available to happy, discerning customers who would otherwise be unable to justify a three-hour commute to buy a bird for dinner.

Josh processes his chickens on his farm under a legal exemption allowing him to avoid industrial (and expensive) processing plants. Each chicken he produces is clearly labeled as to origin, method of production, and added ingredients (none); the label also cites the statute that allows him to operate unmolested.

Recently he was informed by the Food Safety Inspection Service, the regulatory arm of the USDA, that he faced a “situation.” They had discovered a chink in the otherwise protective “non-molestation” statute. Because he is marketing chickens to an intermediary (me), his product is therefore rendered illegal and he must desist. In a disturbing addendum the inspector also let slip that the USDA would be willing (“free of charge”) to take over inspection of his facilities and that they would be “more than happy to help him get going,” presumably in the chicken business.

The same authority willing to allow a company to distribute (and I’m not making this up) a neon-green sugar drink with the word “sweetener” (in quotes) on the ingredient list believes that customers cannot be trusted to buy a natural chicken from a reputable farmer.

Raising the Roof

I have an old shed I’d like to turn into an office. It’s a small, uncomplicated project. I do not intend to host conventions there or otherwise expose innocents to my construction acumen.

I could use a hand, so I called a man advertising his handyman services on a placard outside the feed store. We talked it over; he needed capital and I needed labor; we had a deal. I had expected to be hammering on joists this morning instead of this keyboard but for the fact that he didn’t show up today. Why? The county, vigorously addressing this “situation,” had torn down all his signs (including one in front of his home), citing him for neglecting to indicate his contractor’s license. Fair enough, you say; he knows the rules and got burned. So why the stink?

Well, here is a gentleman in his mid-50s with more than 25 years of construction experience who was a licensed contractor in Florida before moving to Arizona. For more than six months he has been fighting to gain the requisite licensing. He is obliged, among other onerous duties, to provide 25 references spanning his entire career and from across a continent before his application can enter the waiting list. He estimates his application will cost $10,000 and take another six months. He is afraid to work with me, even as a “tutor,” because he has been told that counties often set people up to entrap them.

Once again presumptuous authority has stepped between educated, intelligent adults to prevent free, fully cognizant transactions. Am I a pathological obediphobe to find such meddling unsavory?

Even if these cases turn out to be simple errors in communication or an innocent overstepping of authority, the damage has already been done. The perception alone is enough to chill behavior. In relaying these injustices I have now wasted hours that could have otherwise been spent creating outstanding beef; Josh is reducing his next order of chicks; and an out-of-work man with a lifetime of skills sits idle wishing for work.

Perhaps these are just the fickle vagaries, the marginalia of an otherwise appropriate regulatory regime. But I’m afraid they represent a deeper, metastasized, problem. The late Mr. Jefferson, that “intellectual voluptuary” according to his Big Government nemeses, explained that government’s only purpose is to secure natural rights. Governments, he believed, exist to protect life, liberty, property, and little else. It’s probably archaic of me to wish for a return to such a limited view, but I can’t help it. The kind of absurd oversight now considered standard practice feels fundamentally unjust.

It would be wonderful to live in a world where selling a chicken and remodeling a shed weren’t rife with official allegations or burdened with State prohibitions.

The American economy after the Civil War became increasingly dominated by large organizations. I’ve written in The Freeman before about the role of the government in the growth of the centralized corporate economy: the railroad land grants and subsidies, which tipped the balance toward large manufacturing firms serving a national market (“The Distorting Effects of Transportation Subsidies,” November 2010), and the patent system, which was a primary tool of consolidation and cartelization in a number of industries (“How ‘Intellectual Property’ Impedes Competition,” October 2009, tinyurl.com/lqzehv)

These giant corporations were followed by large government agencies whose mission was to support and stabilize the corporate economy, and then by large bureaucratic universities, centralized school systems, and assorted “helping professionals” to process the “human resources” the corporations and State fed on. These interlocking bureaucracies required a large managerial class to administer them.

According to Rakesh Khurana of the Harvard Business School (in From Higher Aims to Hired Hands), the first corporation managers came from an industrial engineering background and saw their job as doing for the entire organization what they’d previously done for production on the shop floor. The managerial revolution in the large corporation, Khurana writes, was in essence an attempt to apply the engineer’s approach (standardizing and rationalizing tools, processes, and systems) to the organization as a system.

And according to Yehouda Shenhav (Manufacturing Rationality: The Engineering Foundations of the Managerial Revolution), Progressivism was the ideology of the managers and engineers who administered the large organizations; political action was a matter of applying the same principles they used to rationalize their organizations to society as a whole. Shenhav writes (quoting Robert Wiebe):

Since the difference between the physical, social, and human realms was blurred by acts of translation, society itself was conceptualized and treated as a technical system. As such, society and organizations could, and should, be engineered as machines that are constantly being perfected. Hence, the management of organizations (and society at large) was seen to fall within the province of engineers. Social, cultural, and political issues . . . could be framed and analyzed as “systems” and “subsystems” to be solved by technical means. . .

During this period, “only the professional administrator, the doctor, the social worker, the architect, the economist, could show the way.” In turn, professional control became more elaborate. It involved measurement and prediction and the development of professional techniques for guiding events to predictable outcomes. The experts “devised rudimentary government budgets; introduced central, audited purchasing; and rationalized the structure of offices.” This type of control was not only characteristic of professionals in large corporate systems. It characterized social movements,the management of schools, roads, towns, and political systems.

The managerialist ethos reflected in Progressivism emphasized transcending class and ideological divisions through the application of disinterested expertise. Christopher Lasch (The New Radicalism in America) wrote:

For the new radicals, conflict itself, rather than injustice or inequality, was the evil to be eradicated. Accordingly, they proposed to reform society . . . by means of social engineering on the part of disinterested experts who could see the problem whole and who could see it essentially as a problem of resources . . . the proper application and conservation of which were the work of enlightened administration.

In Shenhav’s account this apolitical ethos grew out of engineers’ self-perception: “American management theory was presented as a scientific technique administered for the good of society as a whole without relation to politics.” Frederick Taylor, whose managerial approach was a microcosm of Progressivism, saw bureaucracy as “a solution to ideological cleavages, as an engineering remedy to the war between the classes.” Both Progressives and industrial engineers “were horrified at the possibility of ‘class warfare’” and saw “efficiency” as a means to “social harmony, making each workman’s interest the same as that of his employers.”

The implications, as James Scott put it in Seeing Like a State (about which much more below), were quite authoritarian. Only a select class of technocrats with “the scientific knowledge to discern and create this superior social order” were qualified to make decisions. In all aspects of life, policy was to be a matter of expertise, with the goal of removing as many questions as possible from the realm of public political debate to that of administration by properly qualified authorities. Politics, Scott writes, “can only frustrate the social solutions devised with scientific tools adequate to their analysis.” As a New Republic editorial put it, “the business of politics has become too complex to be left to the pretentious misunderstandings of the benevolent amateur.”

It’s true that Progressivism shaded into the anti-capitalist left and included some genuinely anti-business rhetoric on its left-wing fringe. But the mainstream of Progressivism saw the triumph of the great trusts over competitive enterprise as a victory for economic rationalization and efficiency—and the guarantee of stable, reasonable profits to the trusts through the use of political power as a good thing.

In the end the more utopian or socialistic Progressives found they’d become “useful idiots.” Their desire to regiment and manage was given free rein mainly when it coincided with the needs of the corporatist economy created by Rockefeller and Morgan. These needs were for what Gabriel Kolko (The Triumph of Conservatism) called “political capitalism,” the guiding theme of Progressive-era legislation. Political capitalism aimed to give corporate leadership “the ability, on the basis of politically stabilized and secured means, to plan future economic action on the basis of fairly calculable expectations” and to obtain “the organization of the economy and the larger political and social spheres in a manner that will allow corporations to function in a predictable and secure environment permitting reasonable profits over the long run.”

Mainstream Progressivism, far from embracing a left-wing vision of class struggle, saw class conflict as a form of irrationality that could be transcended by expertise. To quote Shenhav again:

Labor unrest and other political disagreements of the period were treated by mechanical engineers as simply a particular case of machine uncertainty to be dealt with in much the same manner as they had so successfully dealt with technical uncertainty. Whatever disrupted the smooth running of the organizational machine was viewed and constructed as a problem of uncertainty.

As Hilaire Belloc said (The Servile State) of its Fabian counterparts in Britain, the mainline of the Progressive movement quickly accommodated itself to the impossibility of expropriating big business or the plutocratic fortunes and found that it could be quite comfortable as a junior partner to the plutocracy, directing its lust for regimentation against the working class:

Let laws exist which make the proper housing, feeding, clothing, and recreation of the proletarian mass be incumbent upon the possessing class, and the observance of such rules be imposed, by inspection and punishment, upon those whom he [the Fabian] pretends to benefit, and all that he really cares for will be achieved.

As Scott put it, the managerial classes’ virtually unbounded planning instincts were directed mostly downward:

Every nook and cranny of the social order might be improved upon: personal hygiene, diet, child rearing, housing, posture, recreation, family structure, and, most infamously, the genetic inheritance of the population. The working poor were often the first subjects of scientific social planning. . . . Subpopulations found wanting in ways that were potentially threatening—such as indigents, vagabonds, the mentally ill, and criminals—might be made the objects of the most intensive social engineering.

Progressivism was a branch of what Scott called the “high modernist” ideology, which “envisioned a sweeping, rational engineering of all aspects of social life in order to improve the human condition.” High modernism carries with it an aesthetic sensibility in which the rationally organized community, farm, or factory was one that “looked regimented and orderly in a geometrical sense,” along with an affinity for gigantism and centralization reflected in “huge dams, centralized communication and transportation hubs, large factories and farms, and grid cities. . . .” If you’ve read H. G. Wells’s “Utopias” or looked at Albert Speer’s architecture, you get the idea.

High modernism was scientistic, not scientific, based on, writes Scott, a “muscle-bound . . . version of the beliefs in scientific and technological progress” of the Enlightenment, centering on “a supreme self-confidence about continued linear progress . . . , the expansion of knowledge, the expansion of production, the rational design of social order, the growing satisfaction of human needs, and, not least, an increasing control over nature (including human nature) commensurate with scientific understanding of natural laws.” The high priesthood of this ideology was precisely the same as Progressivism’s social base: “planners, engineers, architects, scientists, and technicians [high modernism] celebrated as the designers of the new order.”

One aspect of Scott’s analysis of high modernism, his use of the concept of metis, is especially relevant to us here. Scott’s book, more than any other I can think of, should be read as a companion to Hayek’s discussion of what’s variously called distributed, tacit, or idiosyncratic knowledge in “The Use of Knowledge in Society.” (As Hayek put it, this is the knowledge of circumstances necessary to make a decision that exists “solely as the dispersed bits of incomplete . . . knowledge which all the separate individuals possess.”)

Scott distinguished metis from techne, which is a body of universal knowledge deducible from first principles. Metis, in contrast, is (largely irreducible) knowledge acquired from practical experience, concerning the particular, the variable, and the local, and involving a “feel” for the unique aspects of situations obtained over a prolonged period.

High modernism tended to see metis as an enemy and sought to supplant it by central schemes of planning and control, whether at the level of society as a whole through State social engineering or at the level of the firm by Taylorist managers.

High modernism, Scott writes, placed remarkably “little confidence . . . in the skills, intelligence, and experience of ordinary people.” The dispersed, local knowledge of the general population was, at best, to be patronized as prescientific and purified of its partial or local character by codifying it into a set of universal rules that could in turn be reduced to a verbal formula and transmitted as knowledge by the priesthood.

What we know as Taylorism is one facet of the larger high modernist project in this regard. One feature of high modernism, Scott notes, was “a narrow and materialist ‘productivism’ [which] treated human labor as a mechanical system which could be decomposed into energy transfers, motion, and the physics of work,” so that work could be simplified into “isolated problems of mechanical efficiencies” and brought under scientific control. Taylorism, in particular, attempted a “minute decomposition of factory labor into isolable, precise, repetitive motions.” Taylor’s goal, in his own words, was for management to “assume . . . the burden of gathering together all of the traditional knowledge which in the past has been possessed by the workmen and then of classifying, tabulating, and reducing this knowledge to rules, laws, formulae. . . . Thus all of the planning which under the old system was done by the workmen, must . . . be done by management in accordance with the law of science.”

The idea was that understanding and decision-making should be divorced from the performance of tasks. The managerial caste determines “best practices” and breaks tasks down into the most efficient possible set of simple sub-processes, and workers perform the tasks as instructed without the intervention of critical thought.

But by its nature, Scott says, high modernism is reductionist or “schematic” and “always ignores essential features of any real, functioning social order.” Progressivism, as a high modernist ideology, makes no allowances for hidden knowledge.

In the case of Taylorism, this means that the suppression of metis sacrifices the distributed, job-related knowledge possessed by workers whose consideration is indispensable to any adequate governance of the production process. Taylorist management can no more render the production process amenable to central control without the dispersed knowledge of its workers than a central planning office can render a national economy transparent to its understanding and control.

According to David Noble (Forces of Production), large-scale computer numeric-controlled (CNC) machine tools were introduced in mass-production industry (first and most heavily in the military-industrial complex, mind you) as a way of supplanting metis with centralized control by managers and engineers, and of overcoming the knowledge rents inherent in distributed knowledge. The CNC tools were intended to shift the balance of power upward by putting production under the control of engineers and deskilling master machinists on the shop floor.

Unfortunately for this design, CNC machinery did not eliminate the need for metis. As Noble pointed out, management quickly found out that the only thing the machines could produce “automatically,” without ongoing worker intervention and concrete judgment, was scrap. When workers withheld their metis on a “work-to-rule” strategy, scrap rates went through the roof.

(Ironically, today we’re in the early stages of the shift of a great deal of manufacturing capability from mass-production industry to small job-shops—with small-scale CNC tools, in the latter, operated by skilled craftsmen.)

So it seems metis or distributed knowledge, in the end, is one of those stubborn traits of human action that outlasts all attempts to supersede it.

Gray metal devices the size of small microwave ovens cling to light poles in Tempe and Chandler. There are about 1,400 of them. And they don’t do anything. The devices are remnants of outdated technology and a visionary service that began with big promise but fizzled in early 2008. They came before smartphones, iPads and 4g networks and are so 2006.

Being able to connect your laptop to the Internet wirelessly on a citywide or even regional basis was the wave of the future – five years ago. All you needed was a $4 million investment and a private partner. If ever there were a surefire “shovel ready” infrastructure project that our elected officials believed could extend into the foreseeable future, this was it. The problem is, the future is very hard to foresee.

In this case, the project lasted two years. Then everyone starting buying iPhones and iPads and Droids and – poof! – all of a sudden you don’t need a laptop anymore to access the New York Times or email or Facebook. The superfluous Wi-Fi devices today have zero scrap value.

All people, of course, have to try to predict the future to one degree of another, or their lives would be chaotic. To paraphrase Milton Friedman: Planning, whether each of us for ourselves or for someone we know intimately, is necessary and good, even when this is done a large scale. Planning for strangers with one’s own money, or especially with other people’s money, is very questionable. And when it’s done on a very large scale, it’s very, very questionable. The amount in this case, $4 million, is a pittance and came from private sources. As we all know, however, governments at the local, state, and national levels do spend much larger sums of tax money, and the basic problem is the same.

But is the Tempe/Chandler fiasco an isolated incident? Doesn’t the same problem plague private investments too? The future is inherently unknowable, and everyone makes mistakes, so there’s no getting around this problem, I’m afraid. What can we do?

Three Things

Three things at least. First, try to minimize the cost of the errors that you do make. Second, learn from your mistakes and adjust for the future. And third — this is probably the most important — become aware that you’ve made a mistake. The beauty of the free market is that it creates incentives to do all three.

When planning an investment in your business, you want to achieve a certain goal without spending any more than you have to. But you’re also aware that the contractor you planned on hiring may not be available. So beforehand you try to take into account as many contingencies as you deem relevant, as long as this itself doesn’t cost too much. If you do plan appropriately for contractors and such, but you don’t account for higher-than-expected labor costs, next time you have an incentive to do so — again, as long as it doesn’t cost too much. Finally, if you’re not making as much profit as you could be – say you’re charging too much so that potential customers go elsewhere – it’s costing you and you have an incentive to notice it. But just as important, your competitors have a strong incentive to notice it, too, and to respond by underpricing you and making sure the business you’re not getting is going to them.

The problem with government projects, even those that partner with a private investor, is that they dampen these incentives. It’s likely the Wi-Fi scheme in the story ended so abruptly because a private company did most of the financing and operation. That was lucky.

Bureaucratic Management

Limited-government libertarians believe that government should only do those things that on net promote the general welfare and that could not be done voluntarily. These tend to be very big projects such as national defense because large-scale financing is usually the main problem; and they tend to be a monopoly ultimately under the control of government at some level.

Ludwig von Mises explains in his book Bureaucracy that the management of government programs, even when they meet the limited-government libertarian’s criteria, is inescapably “bureaucratic management.” The central feature of bureaucratic management is rule-following, while the central feature of management in the free market is profit-seeking. The difference is profound. Managing for profit, ipso facto, is done to minimize cost and to discover new opportunities. Even a private monopoly with market power, which restricts output below what consumers are willing to pay for, would still seek new markets and to minimize production costs.

In contrast, bureaucratic management, precisely because it’s used in cases where the private costs would exceed private benefits (otherwise private firms not government would undertake them), is inherently inefficient. Or more precisely, the criterion of efficiency does not even apply. If it were possible in principle to measure costs against benefits, then private firms would do it. But since it’s not, government should do it. And because it faces no close competition, it has less of an incentive to innovate.

The bottom line is that when it comes to government programs justified under the limited-government approach, it’s not reasonable to expect them to be efficient or innovative. That’s one reason for limiting government to those particular activities. Indulge me while I make a another subtle but important point.

A Happy or Not-So-Happy Coincidence

Bureaucratic management is neither efficient nor inefficient so long as government is doing only those things that the limited-government criterion says it should. This is a sort of “happy” coincidence because people who are working in government bureaucracies don’t really have an incentive to be efficient anyway. And that’s because they operate under a “soft budget constraint”: The revenues for the agency don’t come from sales (otherwise a private firm could do it) but rather ultimately from the taxing power of the State. So if the agency makes losses, even for a very long time, there is little incentive to reduce costs or even to realize improvement is possible.

Now this situation becomes much less “happy” when the government moves into areas that a private firm could handle. If the government were to start a restaurant chain, for example, pretty much the same lack of incentives would operate as before. (We’ve seen this, for example, with the post office.) But because a restaurant business can measure costs and benefits, it’s possible to say whether the government restaurant is more or less efficient than a private one. And it would most probably be less efficient because of the lack of incentives mentioned earlier.

Again, although private firms aren’t perfect either, they have a far greater incentive to minimize costs, learn from mistakes, and discover errors.

Limited Government Is Bureaucratic Too

If you believe that government has any legitimate role in society at all, you will have to rely on bureaucracy. There’s the obvious question of how, if such cost-measurement is not possible, we could ever really know if government, minimal or not, ever promotes the general welfare. I doubt that we can tell (which is why I lean more toward the anarchist end of the libertarian spectrum).

In the meantime, I will endorse what Mises says in Bureaucracy: “What people resent is not bureaucratism as such, but the intrusion of bureaucracy into all spheres of human life and activity.” These days things change quickly, and you’ve got to be pretty light on your feet. That’s just not bureaucracy.

In his State of the Union address earlier this year, President Obama spoke of the need for the federal government to help boost the economy by making “investments” in a wide variety of areas, including construction jobs, high-speed rail, education, biomedical research, “clean energy” technology, and even high-speed wireless Internet access. But this “investment” is just a code word for more spending on pet programs. This will only lead to more economic stagnation, not economic recovery, because the wealth-consuming nature of public investment is fundamentally different from the wealth-creating nature of private investment. Taxpayers ignore this difference at their peril.

President Obama’s form of investment promises to “create countless new jobs for our people,” but he does not stop to ask from where the money to pay for all these new jobs will come. It must be taken from others “of our people,” either today, through tax increases, or tomorrow, through borrowing (which will harm the economy in the future and delay the ultimate recovery). Of course, taking money from taxpayers to fund these new jobs means there is less money left in the private sector to invest in new jobs and business growth.

The crucial difference between the public sector and the private sector is that the public sector cannot create wealth; it can only shift resources from one group of people to another (after skimming some off the top to placate special-interest campaign donors and support bureaucratic inefficiency, of course). In the private sector, job growth—and economic growth generally—occurs when firms create something that consumers value. In the public sector, government growth occurs whenever government can appropriate more money from the people, and these funds are directed to whatever politicians desire.

The government’s “investment” in green energy startup Solyndra Inc. is a case in point. Last May, President Obama visited the Fremont, California-based solar panel maker in a highly publicized photo-op to hail it as the kind of business in which he thinks the country should invest. And that’s just what the government did. In September 2009 the administration announced that it was awarding Solyndra $535 million in taxpayer-funded loans to finance the construction of a new solar-equipment factory. The following June, just one month after the President’s visit, the company cancelled its initial public offering, and its CEO quit the following month. In November 2010 the company announced it was abandoning its plans to expand its Fremont facility (and the planned hiring of a thousand workers) and would even have to close another factory in the East Bay, eliminating nearly 200 additional workers. That’s some investment.

Throwing Good Money after Bad

This episode did not prevent Obama from visiting another green-energy company two days after delivering his State of the Union address to tout the benefits that surely would come from investing in such technology. During his trip to renewable-energy firm Orion Energy Systems in Manitowoc, Wisconsin, Obama lamented that the United States was falling behind the investment of even more centrally planned economies: “China’s making these investments and they have already captured a big chunk of the solar market, partly because we fell down on the job. We weren’t moving as fast as we should have. Those are jobs that could be created right here that are getting shipped overseas.” While China has made great strides toward a more open economy in the past couple decades, the communist country is hardly a model for economic policy. China’s growth is due to its economic liberalization, not the arbitrary decisions of the ruling elite, yet these command-and-control elements of economic planning that remain in China seem to be Obama’s model of the ideal. This does not bode well for economic liberty and growth here in the United States.

Government has never been particularly good at picking economic winners. Consider, for example, the government “investments” in Amtrak, which has never turned a profit since it began service in 1971 and has lost about $35 billion in its 40 years of operation—or the U.S. Postal Service, which lost a record $8.5 billion last year alone and has projected an additional $6.4 billion loss this year.

The reason for this failure of government investment is not simply poor leadership (although this is certainly endemic and does not help matters) but rather an inability to determine value in the public sector. There is no market price system in government, so there is no measure of profit and loss. As Mises noted in Human Action, “There is no such thing as prices outside the market. Prices cannot be constructed synthetically, as it were.” In Bureaucracy he added, “Bureaucratic management is management of affairs which cannot be checked by economic calculation.”

Value

In a free market prices are determined by supply and demand, by changing consumer preferences, differing knowledge and evaluations of market information, and the risk-taking of entrepreneurs. A greater desire for a good or service will be reflected in consumers’ willingness to pay more for it and bid up the price.

In the political sphere “value”—such as how much to spend on a particular government program—is determined by the force and influence politicians, bureaucrats, and special interests can exert to extract money from taxpayers and divide it up as these elites please. There is rarely even any semblance of competition for the provision of these services and thus little incentive to maximize productivity and service quality or minimize costs. Since there are no price signals to reveal people’s preferences for one thing or another, there is no good mechanism to determine if programs are useful or satisfying constituent demands.

In the absence of a true market price mechanism, how do you tell if an investment is profitable? And where is the incentive to avoid unprofitable investments? If a government program is deemed successful, there are calls to provide more funding. If it is a failure, we are told we must double down on the spending in order to turn it into a successful program.

Private investment means putting your own money at risk in anticipation of realizing a gain later; public “investment” means taking and spending someone else’s money to support your idea of how you think they should live, or to satisfy the special interests that help get you reelected. Private investment requires putting off spending today so that you may (hopefully) earn more in the future; public “investment” is all about spending today.

Unfortunately, the federal government has not learned the lessons history has tried to teach us about subsidizing business and illusory job growth. This ignorance is especially on display when politicians react to the onset of a recession. The prescription made famous by economist John Maynard Keynes is to “stimulate” the economy through government spending and job creation (otherwise known as “make-work”). Never mind that this means fighting a problem of too much debt by incurring even more debt. As Freeman columnist Robert Higgs, senior fellow in political economy at the Independent Institute and author of Crisis and Leviathan, has said, “Every drunk understands this way of fighting depressions.”

Lost Decade

In the 1990s—and beyond, as it turned out—Japan faced a financial crisis as asset bubbles in the real estate and stock markets, stoked by the central bank’s expansionist monetary policy of the late 1980s, burst and prices came crashing down. The ensuing government response and policy errors paralyzed the economy and ultimately led to a series of economic recessions. Japan followed the Keynesian remedy—with disastrous results—and the country still has not recovered to this day. During the 1990s, Japan passed ten fiscal stimulus packages, focused largely on public works. When one construction plan did not work (meaning it did not return the economy to rapid growth), another was tried. Altogether the Japanese government spent about $6.3 trillion on construction-related projects between 1991 and 2008. Those plans did not revive the economy, but they did saddle the nation with a mountain of debt that postponed any recovery at all for many years, leading the period to be dubbed Japan’s “Lost Decade.”

The construction jobs for the government’s infrastructure projects were not sustainable and did not lead to systemic economic growth. Public debt skyrocketed, unemployment actually doubled, and the economy remained stagnant. (Does any of this sound familiar?) As Gavan McCormack, Pacific and Asian history professor at the Australian National University, noted in his book The Emptiness of Japanese Affluence, “The construction state is in some respects akin to the military-industrial complex in Cold War America (or the Soviet Union), sucking in the country’s wealth, consuming it inefficiently, growing like a cancer and bequeathing both fiscal crisis and environmental devastation.”

The Great Depression

Even during the Great Depression, often held up as a great example of government creating jobs to help get the nation out of an economic recession, President Roosevelt’s massive spending program, which actually had its roots in the Hoover administration, did not stimulate the economy. Despite all that spending and all those jobs programs, unemployment remained extremely high. Prior to the stock market crash in 1929, the unemployment rate stood at a little over 3 percent. By 1933, in the midst of massive spending and public-works projects, it had risen to 25 percent. Even after years of New Deal programs unemployment remained around 15 percent or higher through 1940. It was not until World War II that unemployment dropped back to the low single digits (and then only because millions were drafted into military service).

This led Henry Morgenthau, treasury secretary under Roosevelt, to make a startling admission in 1939:

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong . . . somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. . . . I say after eight years of this administration we have just as much unemployment as when we started. . . . And an enormous debt to boot! (Morgenthau Diary, Roosevelt Presidential Library)

The fact is that economic recessions—and even more serious depressions—need not be so severe or so long-lived. It is government policies that prevent the natural pressures and incentives of the market from purging bad investments and other economic decisions and returning to a path of stable growth. As Murray Rothbard wrote in the introduction to the third edition of his book, America’s Great Depression,

Before the massive government interventions of the 1930s, all recessions were short-lived. The severe depression of 1921 was over so rapidly, for example, that Secretary of Commerce [Herbert] Hoover, despite his interventionist inclinations, was not able to convince President Harding to intervene rapidly enough; by the time Harding was persuaded to intervene, the depression was already over, and prosperity had arrived. When the stock market crash arrived in October, 1929, Herbert Hoover, now the president, intervened so rapidly and so massively that the market-adjustment process was paralyzed, and the Hoover-Roosevelt New Deal policies managed to bring about a permanent and massive depression, from which we were only rescued by the advent of World War II. Laissez-faire—a strict policy of non-intervention by the government—is the only course that can assure a rapid recovery in any depression crisis.

After more than two and a half years and trillions of dollars worth of bank and auto industry bailouts, stimulus packages, and Federal Reserve interventions, the American economy remains sluggish and unemployment is still about 9 percent. According to Federal Reserve Chairman Ben Bernanke, it could take another four or five years for the labor market to “normalize fully.” Unless the government’s interventionist policies are abandoned and reversed, it appears that the United States is headed for its own Lost Decade.

The United States’ $14 trillion federal debt and annual deficits of over $1 trillion are reducing productivity and hindering economic growth. It is time we learned the repeated lessons of the past that government spending, particularly when used to try to stimulate an economy, is simply a bad investment.

But isn’t food safety a pressing concern, a public-health problem we can’t afford to fool around with? Problem is, the problem isn’t. Emotional rants that “thousands die every year!” do not help us grapple with the scope or magnitude of this alleged threat. Let’s try some perspective: According to the Centers for Disease Control, the estimated number of deaths caused by foodborne illness falls between 5,000 and 8,000 a year (down a substantial 35 percent, by the way, from ten years ago). Sounds pretty bad, eh? Time to call in the Salmonella SWAT team? Before you do, consider that the same number of people die by intentionally strangling themselves each year. Or that the same number of people die from Alzheimer’s in California alone each year. Or that four times that number die each year accidentally falling off of things. Moreover, 70 percent of foodborne illness (and presumably deaths) results from poor food-handling procedures during preparation, not from poor food-production practices. The number of people we’re attempting to save with this kind of legislation, in a cosmic feat of irony, is significantly lower than the number of people who die each year from malnutrition (known in the business as “starving”).

Unless you’re also on a crusade to flatten everything, I’d think twice about ceding greater authority over our food system to centralized management.

True to form, Congress has blithely offered its professional problem-solving services to rid us of the menace of deadly food. And, true to form, it’s about to embark on another unarmed expedition into the tortuous territory of unintended consequences.

Adding more regulations to a sector always reduces the number of operators in that sector. It can be dramatic (as in the case of the payday loan industry), or it can be insidious (as in the case of the livestock industry). The food industry is no exception; it’s impossible to envision a wave of enthusiastic newcomers clamoring at the gates to enter the food business now that the FDA has been granted the most sweeping extension of its powers in 70 years. Granted, some of the bad actors need to be pushed out of the industry (as in the Peanut Corp. of America, which apparently intentionally distributed salmonella-laced product). Call me a Pollyanna, but I don’t think the bad actors generally represent the food industry. The people who do represent a large part of the industry are the small, local, independent operators who have been squeaking by for decades. This kind of regulatory barrage is exactly the sort of thing to make them call it quits. BSE (mad cow) regulations pushed my predecessor at the meat-packing operation I own to hang up his hat. The increasing silliness over E. coli testing pushed his predecessor over the brink years ago. Warranted or not, an increasingly difficult regulatory environment will always winnow out the small players, leaving the field more sparse than before.

Fewer Hands

Of course the demand for food hasn’t gone down, so how does the system accommodate a hungry public? Well, that’s where Cargill, Tyson, Monsanto, and the rest of the Big Food set come in. They’re not evil (despite bumper-sticker claims to the contrary); they’re just picking up the slack left when the small guys get pushed out by big government. I know, I know: It’s easier to blame their success on high-priced lobbying and a cozy relationship with regulators. But consider this: The lobbying and cozying can only manipulate government action when government hands are firmly on the wheel of that particular industry.

The unintended consequence in this legislative bid to create safer food is to push more and more production into fewer and fewer hands. As we all know, the more top-heavy a thing gets, the more prone it is to toppling. As Tom Philpott writes, “[T]he real systematic risk of the food system [is] the exponential expansion of hazard that comes from concentrating huge amounts of production in relatively small spaces.”

So is there any solution? If we agree that even one death from foodborne illness is too many (and it is), then how can we aim to squeeze out that lingering menace without artificially exacerbating the very problem we are trying to solve? How can we do to Listeria what we did to malaria in the United States?

I may be waxing heretical, but might I suggest deregulation? Contrary to myth, markets are in fact very good at giving us what we want, even if those things are intangibles like clean air or safe food.

Let me give you an example: As a producer of livestock and owner of a small (very small, according to the USDA) packing house, I know about the raft of bureaucratic “protections” between you and the beef I produce. There is little or no incentive for me to create a remarkably safer production system because my processes are effectively in the hands of our state inspector. The incentive among producers is to win the race toward the bottom, where you can most cheaply and easily meet the minimum standard. Imagine for a moment what the food world would look like if we made food safety a competitive advantage. What if I could demonstrate (through third-party quality assurance, a sophisticated testing regime, or something completely unthought-of as yet) that my beef was quantitatively safer than my competition’s? I suspect that the maligned self-interest of “money-grubbing capitalists” would be instantly harnessed toward the greater public good. I for one would probably behave considerably differently if I were continually striving for the next-higher grade on something like a “Good Housekeeping Seal of Approval” scale instead of aiming simply for the “Inspected—Passed” stamp.

We didn’t regulate malaria out of existence; we simply ensured that millions of empowered individual actors had the information to combat it (that, and some choice applications of DDT). Allowing food processors to compete for customers by marketing their very best possible food-handling practices would have a similar effect.

Regulations are good for imposing minimums, but not for creating excellence. Since our food safety “problem” is clearly in the vanishing margins, excellence is what we need. This can only really be attained when incentives are structured to push our producers (and consumers) to go the extra step to make food as safe as it can possibly be.

Many foodies rightly criticize government meddling in the food sector in the late 1940s for attempting to create cheap food at tremendous ecological and sociological expense. Let us not condone the same mistake under the aegis of “safe food.”

Many governors of both parties are diverting money from schools in thoughtless and self-destructive ways. Hawaii decided to cut the number of days in the school year. Of all the ways to cut education, why on earth would you reduce student time in the classroom?

Texas is taking the meat cleaver approach. School financing will be cut by at least 13.5 percent, around $3.5 billion. About 85,000 new students arrive in Texas every year. There will be no additional resources to accommodate them.

To Brooks’s relief, the Obama administration has at least one voice of sanity:

Education Secretary Arne Duncan gave a superb speech in November called the New Normal. He observed that this era of austerity should be an occasion to increase productivity and cut the things that are ineffective.

As though a bureaucrat’s bromides about increasing productivity and reducing ineffectiveness stands a chance of righting what’s wrong with education. We’ve had quite a lot of that over the years, with little to show for it. Education budgets went up; the quality of education did not.

Bureaucracy

There’s a reason for that: bureaucracy. That’s the antonym of “competitive entrepreneurial undertaking.” If we’re truly in a budget-cutting mood and wish to breathe life into education at the same time, we should de-bureaucratize schools by putting them entirely into the entrepreneurial arena: the marketplace.

I do not mean vouchers or charter schools. At best they operate according to a constricted model of competition tended by education bureaucrats and legislative bodies. The central flaw in these “reforms” is taxpayer financing. As long as the money comes through government, demands will be made for schools to be accountable to government rather than parents and students, setting limits to competition. Tax financing also reduces individual responsibility, while limiting — because of the double payment — most people’s ability to break out of the system altogether.

Moreover, financing learning through the compulsion of taxation is perverse. Education should be a consensual relationship among parents, children, and (when necessary) formal teachers. I’m fond of Isabel Paterson’s questions to teachers in her book The God of the Machine: “Do you think nobody would willingly entrust his children to you or pay you for teaching them? Why do you have to extort your fees and collect your pupils by compulsion?”

What’s Really Radical?

No school taxes and no compulsory attendance. Sounds radical, but what’s really radical is the State’s asserting the power of parens patriae over children and forcing everyone to pay for the outrage. As education historian E. G. West noted, it did not take laws to achieve virtually universal education in the nineteenth century (among the free population). But it did take laws to give us schools that function like indoctrination centers, preaching the glory of government while preparing children to be quiescent taxpaying citizens who will take their place in industry, the bureaucracy, or the military. Today the goal is to train the personnel necessary to assure America’s status as the undisputed leader of the global economy, as though the world marketplace were a race among nations.

My references to competition, entrepreneurship, and markets do not imply that education should be provided by for-profit firms only or even predominantly. A freed education market would include nonprofits, co-ops, extended homeschooling, and things no one has thought of yet. The key is to liberate all participants from the heavy hand of bureaucracy. No authority should interpose itself between aspiring providers competing with one another and consumers of education services. Only then will the “discovery procedure” that F. A. Hayek identified with competition be fully ignited.

What about the Poor?

That’s the inevitable question. The irony is that poor children in this society have been treated disgracefully by government school authorities. It is sheer chutzpah for advocates of “public education” to say they worry about the poor after having inflicted and/or tolerated such abuse for so long.

The poor would stand a much better chance in a freed education environment. If some of the most destitute places on earth manage to have private for-profit schools for poor children, then so can the United States, especially if the shackles were removed. Of course, there would be far fewer poor people in a freed society.

Will School be separated from State any time soon? Unlikely. The public-school industry, including the unions and all the vendors selling things to school districts, is big, rich, and powerful. The education-industrial complex surely rivals the military-industrial complex in its capacity to consume tax revenues.

But if for no other reason, the dismal fiscal condition of the states makes this a good time to talk about separation. It certainly won’t happen if nobody ever mentions it.

How would we go about it? I’ve long thought the best way would be simply to turn each school over to the people who work in it. Let them run the schools and compete independently of government without tax revenues. An alternative would be to turn the schools over to the parents if they want them. Just get them away from the bureaucracy.

Brooks is right. Education is important – far too important to leave to politicians and bureaucrats.