I’m not convinced.

To be sure, it’s easy to see why an uncritical observer might think people like Krugman and Robinson are right. We can certainly look back on centuries—millennia, even—during which poor people have gotten the short end of the stick, in which poverty has coexisted, heart-breakingly, with great wealth. And perhaps those memories make it tempting for some people to buy the civics-class story that the only thing standing between us and a world full of Dickensian nightmares is activist government.

But that would be a mistake. The poverty and exclusion evident throughout history, and still very much a part of today’s world, can frequently be traced precisely to the unjust acts of government officials and their cronies. When people are denied ownership of land they’ve homesteaded with their labor so feudal overlords can turn them into serfs, the culprit isn’t freedom, or the market—it’s government support for the wealthy and well-connected. Ditto for cases in which people are denied the right to work by laws, like England’s old Acts of Settlement, that limit their ability to travel in search of new opportunities.

More generally: There’s no reason to trust activist government because the people in charge can be expected, time and again, to back those with power and influence over those without. Being poor doesn’t make you a favored object of government attention—instead, it means you’re likely to be used and abused. Politicians will claim to be defending your interests when they’re really promoting their own. They’ll continue to enact rules that limit your ability to support yourself and make it costly for you to provide decent shelter and clothing for yourself and your family. And law enforcement agencies will subject you to violence—whether they’re enforcing drug laws or immigration restrictions, or ensuring that you conform to zoning regulations and local codes designed to be easy for middle-class people to follow while making your life costly and difficult.

Government action in contemporary society makes and keeps people poor. Licensing laws, zoning regulations, and similar restrictions make it hard for poor people to enter particular job markets and to operate businesses out of their homes. Without these kinds of government regulations in place, people would be less likely to be poor.

Poverty is a systemic problem. It’s a product of lots of different, overlapping, mutually reinforcing factors. Getting rid of just one abuse or inequity here or there might well leave many people poor. But systemic change, change that addresses all the different factors that make poverty a persistent, ugly feature of our lives, can make a profound difference. And the kind of systemic change we need is change that eliminates State-secured privileges and State-imposed liabilities, not another State-created bureaucracy designed to ameliorate problems the State itself has created.

State Poverty

Government’s role in making and keeping people poor is just one of the factors that make poverty endemic and make it hard to survive while poor.

For instance: Governments don’t treat recipients of the antipoverty aid they disburse especially well. It’s important to avoid comparing idealized State practice with imaginary worst-case practice in the government’s absence. If we focus on actual government practice we find that poor people are not served particularly well by the State, which routinely intrudes into the lives of recipients of assistance, violating their privacy and seeking to regulate their behavior. People pay a high price for aid from the State. Government aid programs come with hidden price tags.

And governments increase the number of poor people in part precisely through some antipoverty programs, which can create perverse incentives both for people to remain poor enough to qualify for government funds and for bureaucrats to keep people poor in order to retain their own jobs.

Governments raise the cost of being poor. Building codes and zoning regulations raise the cost of housing and so make it harder for people to find inexpensive homes. Some people are forced to live without permanent housing at all, while others must spend much larger fractions of their incomes on housing than they otherwise would. As for food, that’s also more expensive thanks to agricultural tariffs and import quotas. In the absence of government policies that make meeting their basic needs unnecessarily expensive, poor people would have more disposable income and would be more economically secure.

More than that, though, governments actively take money from poor people. Many poor people pay more in taxes than they get back in services under the State’s rule. These people would have more resources on net in the absence of the State’s demand for tax money. In addition many people are poor, or poorer, today because the State has actively stolen land and other resources from them or their ancestors or has sanctioned such thefts committed by the wealthy and well-connected. (Think eminent domain among other methods.) Historically the existence of a peasant class and of a class of displaced urban workers willing to accept employment on dismal terms is inexplicable without reference to State violence or State tolerance for or endorsement of violence by the wealthy and well-connected.

The government raises the cost of obtaining key goods and services. The State does a range of things (notably requiring professional licenses, hospital accreditation, and prescriptions and enforcing drug and medical device patents, and other restraints on trade) to make particular services such as health care especially expensive.

All these different factors fit together, each one making people’s conditions worse than they’d otherwise be and making the effects of the other factors more severe. People often start out with less money because of large-scale past injustices. They have less money now because of government limitations on the kind of work they can do and where they can do it. Their ability to provide decent lives for themselves and their families is further limited because the government raises the cost of living, and government regulation of the economy drives down the overall level of productivity even further in ways that obviously hurt the poor the most.

In sum the government plays a crucial role in creating and perpetuating poverty—and that’s really the most important thing to recognize. But of course that doesn’t mean that, absent the government’s abuses, people wouldn’t have accidents, confront disasters, and make unwise choices. With costs of living reduced, as they would be if the government completely left the economy alone, people would find it easier to deal with these challenges. They’d still need one another’s help, but those who think there’d be no way to get this kind of help except through tax-funded government agencies are mistaken.

The existence of State antipoverty programs crowds out alternatives and reduces the effectiveness of those that remain. It’s easy to view these alternatives as essentially ineffectual and anemic. But a crucial reason they’re not more vibrant is that State action commandeers money and attention that might otherwise be directed to these alternatives, creating the illusion that in the government’s absence, they couldn’t be much more effective.

Support for poverty relief doesn’t just come from tax funds now. People give money to charitable causes over and above their tax bills today, despite the huge sums the State claims. There’s no reason to think they would not do so if the government absented itself from economic life. It is naive to suppose that the wealthy and powerful are opposed to State funding for services to the poor at present; the poor have far less clout than the wealthy and powerful, and yet the State provides minimal services for poor people. Why suppose that wealthy and well-connected people willing to see the State spend their tax money to support services for the poor would be dramatically less willing to contribute to the support of such services if the government weren’t involved? (Why do people give money to good causes, including voluntary programs that help the poor? Why do wealthy and well-connected people endorse State spending on programs that provide services to poor people? Presumably for a combination of reasons, including, in no particular order, compassion, social norms, the desire for good reputations, the desire to avoid bad reputations, and the desire to avoid social disorder. All of these reasons would be operative in a free society.)

Mutual Aid

In addition, mutual-aid networks could provide many of the services well-intentioned statists want the government to offer. Societies in which people pooled risk and provided pensions, health care, and other services functioned effectively before the rise of State social services, and there’s no reason they couldn’t do so again in the government’s absence—and, indeed, wouldn’t function much better given that people would have access to more resources and the State would not be regulating them out of existence.

Both charity and mutual aid are more viable than government-run antipoverty programs, more able to help poor people, precisely because those programs have high administrative costs. (Thanks to Tom Woods for this point.) Programs supported freely by people in the government’s absence would not feature such high costs. Because donors could choose among multiple programs, there would be persistent pressure for administrative costs to be reduced.

In addition, social norms could ensure predictable, consistent support of community-wide aid programs without taxation. General acceptance of a social norm entailing regular contributions to a community income support fund, or leaving the edges of fields available (as in Leviticus) for gleaning, could ensure that poor people who needed it could rely on community assistance.

State-managed antipoverty programs draw on tax resources taken unwillingly from people. People work less energetically and enthusiastically when they know that some of what they produce will in effect be taken from them at gunpoint. Thus taking resources from people through taxation to fund antipoverty programs can function as a drag on the economy. By contrast, when people give willingly to support antipoverty efforts, their own objectives are not being thwarted; if they wish to support these efforts, they will be willing to work hard to do so. With the government out of the economy, people can work enthusiastically to earn wealth and foster overall economic productivity even as they support significant antipoverty efforts.

Advocates of government antipoverty programs sometimes worry that the absence of the State would mean a return to the misery and squalor typical of many people’s lives in the eighteenth and nineteenth centuries; they too often attribute these conditions to the absence of State regulation and antipoverty programs. But it’s important to emphasize that these conditions reflected the much lower overall levels of societal wealth. People weren’t poor because of the absence of State regulations and antipoverty programs; they were poor in part because there was very little wealth overall and thus less for those who wanted to help the poor. (Thanks to Tom Woods again on this score.) And of course the misery and squalor weren’t entirely natural or inevitable: Some resulted from persistent—and remediable—injustice on the part of elites and their political cronies.

Rectification

It’s also important to emphasize that getting the State out of the economy doesn’t—can’t—mean simply stopping State intervention. It also has to mean providing rectification for State-committed and State-sanctioned wrongdoing. Politically privileged elites have stolen land and resources from poor, working-class, and middle-class people—directly and by securing tax-funded subsidies and government contracts. There’s no way to understand the distribution of wealth and power in contemporary society without acknowledging this history of theft and violence. To the extent that it’s possible, past injustice ought to be remedied. For instance, people ought to be able to homestead land engrossed by the State, especially land allocated arbitrarily to the State’s cronies. If land and other resources were made available for homesteading or returned to those from whom they were taken, the poverty of the State’s victims could be significantly reduced.

Structural changes would also make poverty less likely in the absence of government intervention. Rules that made it harder for absentee landlords to sit on undeveloped, uncultivated land could open up this land for homesteading by people with limited resources and thus provide them an avenue to greater economic security. Eliminating subsidies and legal privileges for hierarchical corporations would increase the likelihood that people could enjoy the job security associated with working for themselves (with less risk than accompanies being an independent contractor in a less healthy economy) or in partnerships or cooperatives and that, when they did work for others, they could bargain successfully for better compensation.

Libertarianism isn’t a philosophy of atomism. Libertarians have every reason to value interdependence and shared responsibility. Obviously, that’s true of the interdependence fostered by the market order. But it’s also true of the interdependence of friends and family members and strangers who work together to help one another meet life’s challenges. People working together don’t need the government’s help to deal with poverty. The government often makes the problem worse, and it’s definitely not needed to remedy deprivation and economic insecurity.

Poverty has multiple causes—but many of those causes interact with and reinforce one another. Many are created by government action. If we get the government out of the economy and see to it that past injustices committed or sanctioned by the government are remedied, we can effectively meet the challenge of poverty together.

The minimum amount of recovered funds that can earn a reward is $1 million, but the sky’s the limit on the upside. The whistleblower gets to keep 10 to 30 percent of the amount collected, including fines, interest, and disgorgement of ill-gotten gains. We’re talking about big game here, with awards conceivably topping $100 million.

Eric Havian, an attorney with a law firm that represents whistleblowers, noted in an interview with the San Francisco Chronicle’s Kathleen Pender that the securities laws cover a “huge category of bad conduct,” such as illegal insider trading, cooking the books, market manipulation, stock option back-dating, false or misleading disclosures, and the deceptive sales of securities. Almost anything potentially can be illegal, and these vaguely defined offenses leave much room for government mischief. As for insider trading, this is a practice that does little harm and may actually provide benefits to small investors. (See my January/February 2011 Freeman article, “Inside Insider Trading.”)

If corporations felt they needed limits on insider trading or other conduct to attract shareholders, they could write prohibitions into their bylaws so that violations, if not settled internally, could be remedied under civil law.

The mind boggles at the incentives the whistleblower program establishes. Law firms must be gearing up already to coach whistleblowers in the fine art of identifying and documenting actions that can be gussied up into plausible cases. It would make sense for law firms to take cases on a contingency basis because this sort of lawyering could be very lucrative. The SEC staff, concerned primarily with covering its collective rear end, will shy away from dismissing all but the most frivolous cases.

The road to riches will not be short or direct. Many years could elapse, if only because of bureaucratic inertia, between the time of filing and the bestowal of an award. “There will be more people struck by lightning in a given year than will get a check from the SEC in the next five to ten years,” cautioned Tim Mazur of the Ethics and Compliance Officers’ Association. But once the first awards hit the headlines, “a lot of people will start paying attention,” he added (San Francisco Chronicle).

All whistleblowers run the risk of retaliation from their employers, but in today’s climate this risk seems minimal. Besides, complaints may be filed anonymously.

Whistleblowers will lose their incentive to pursue complaints through their companies’ internal review process, an avenue that could correct any genuine wrongdoing relatively quickly. With such a massive potential pot of gold beckoning, why not wait and let the supposed wrongdoing fester for a while?

To be sure, the SEC rulemakers are aware of at least some perverse incentives. The website announcement contains a section headed, “Avoiding Unintended Consequences,” which excludes certain people from eligibility. The SEC also says information presented must be the whistleblower’s independent knowledge or analysis. But these limits seem to leave enough space to drive a truck through, and the truck drivers are revving their engines.

New Uncertainty

Of course corporate officers will be aware of the new incentives for whistle-blowing, which may well make them more cautious about taking on the risks of new or expanded production. Too bad. Investment is exactly what the country needs to get out of its economic funk. New uncertainty will further delay recovery.

Meanwhile, government whistleblowers aren’t doing nearly so well. Thomas Drake, a National Security Agency employee, found hundreds of millions of dollars being squandered on failed programs and tried to expose them. He did not leak any classified information, and he tried informing his bosses, the NSA inspector general, the Defense Department inspector general, and congressional intelligence committees before taking his findings to the Baltimore Sun. Rather than a pile of cash, Drake’s reward was an indictment on ten felony charges that could have gotten him many years in prison. But earlier this month, following a New York Times article on his situation and a judge’s ruling that certain classified information which prosecutors wanted to use against him could not be kept under wraps, all charges were dropped in a deal in which he pleaded guilty to one misdemeanor.

A recent petition signed by 20 noted whistleblowers calls for rescinding a “Transparency Award” given to President Obama recently. The President “has invoked baseless and unconstitutional executive secrecy to quash legal inquiries into secret illegalities more often than any predecessor,” the complaint noted. “Ignoring his campaign promise to protect government whistleblowers, Obama’s presidency has amassed the worst record in U.S. history for persecuting, prosecuting and jailing government whistleblowers and truth-tellers.”

But hey, we should just be glad the feds are protecting us from those nasty corporate insiders.

The proximate impetus for the current national standards push is the failure of the No Child Left Behind Act (NCLB). The law—a bipartisan 2002 reauthorization of the Elementary and Secondary Education Act—is intended to be all things to all federal politicians, a “no excuses” hammer against academic failure that also protects state and local school control. So the law demands that all states have standards and tests in mathematics, reading, and science; test all students on a regular basis in those subjects; and have all students make “adequate yearly progress” (AYP) toward 100 percent math and reading “proficiency” by 2014. However, it leaves it to states to write their own standards and tests and define “proficiency” for themselves.

The incentives for states are obvious: Set the lowest “proficiency” bars possible so they’re easy to vault and in so doing, stay out of trouble under the law, which institutes a cascade of punishments for schools or districts that fail to make AYP. It’s a structure that makes little logical sense but gives federal politicians the ability to simultaneously claim to be unforgiving on educational futility while also being staunch defenders of state and local control.

That these perverse incentives have been prevailing has been borne out in comparisons of state standards with those of the National Assessment of Educational Progress (NAEP), a federal testing regime that, in contrast to state testing under NCLB, is unlikely to be gamed because how a state or district performs on NAEP carries no rewards or punishments. Federal comparisons have shown that states had either set very low proficiency levels before NCLB or lowered them in response to the law. Indeed almost all states have set their proficiency marks equivalent to “basic” or below on NAEP tests.

This standards bottom-scraping, coupled with significant variation between states in their standards and proficiency measures, has energized the current national standards drive, which has been spearheaded by the National Governors Association (NGA), the Council of Chief State School Officers (CCSSO), and the right-leaning Thomas B. Fordham Institute. A major rationale for imposing national standards, as enunciated in the 2006 Fordham report To Dream the Impossible Dream: Four Approaches to National Standards and Tests for America’s Schools, is to “end the ‘Race to the Bottom’” set off by NCLB. If states have to use the same standards, advocates reason, they won’t be able to hide their poor performances behind differing proficiency definitions.

The result so far has been the creation of so-called “Common Core” standards, grade-by-grade benchmarks in mathematics and English Language Arts (ELA) created by the NGA and CCSSO, which were released in June 2010. States have already been coerced into adopting them by the Obama administration’s “Race to the Top” competition, a $4 billion, stimulus-funded beauty contest in which the federal government selected winners based on what it considered the prettiest state promises to initiate preferred reforms including adoption of the Common Core standards. In addition Washington has awarded $330 million to two consortia of states developing tests to accompany the standards.

This is likely just the beginning of federal shoving and bribing. President Obama proposed connecting national “college- and career-ready” standards to much bigger pots of federal education money in his 2010 “blueprint” for reauthorizing NCLB. If this were to become law states would almost certainly be required to adopt national standards lest they lose far more than just a shot at part of $4 billion, including perhaps their entire share of the formula-apportioned $14.5 billion delivered under the law’s first title.

Despite the potentially huge transformational impact the national standards movement could have—most notably, Washington taking de facto control of the curricula of every government school in the nation—the drive has received scant media attention. Why?

The answer lies in a previous effort to set uniform curriculum standards for the entire country, one from which standards advocates learned valuable political lessons.

In the 1990s President George H. W. Bush and President Bill Clinton each attempted to create and implement “voluntary” national standards and tests. Unlike the current initiative, the federal government openly commissioned and funded the creation of the would-be standards. The standards in some cases were highly detailed, and the effort was much ballyhooed by both presidents.

When the proposed national standards were eventually released they were quickly destroyed by vehement high-profile opposition from across the political spectrum. This was especially true for the U.S. history standards, the first released, which were widely seen as hopelessly politically correct. The high degree of detail in the standards and their transparent federal origins were their undoing.

Sneaking In

From that experience, it seems, current advocates learned that national standards must look innocent and come in quietly through the back door. They have maneuvered carefully to adopt that strategy, keeping their efforts low-key and repeating ad nauseum that the movement is “state-led” and “voluntary.” In addition they have so far avoided the extremely contentious subject of history and prescribed almost no specific reading selections in the ELA standards. They have also assiduously avoided offering any specific content so people will have little that’s concrete to object to.

Specific content, however, is almost certainly coming. For one thing the tests being funded by Washington will have to assess something, and because under a reauthorized NCLB, performance on them is likely to drive rewards and punishments for schools, districts, and states, they will ultimately dictate what the real standards are. Unfortunately, what those tests will contain will probably not be cemented until 2014, when they are supposed to be completed. By then, if the standardizers get their way with a reauthorized NCLB, all states will already be locked into national standards and testing.

In addition to having the tests on the horizon, some standards advocates are putting together more detailed curriculum guidelines that they would like to see accompany the standards and, quite possibly, be pushed via the federal treasury. In March the Albert Shanker Institute—an arm of the American Federation of Teachers (AFT)—released a manifesto calling for the creation of curriculum guides that signatories recommended be coupled with, among other things, “increasing federal investments in implementation support.” Unfortunately in education “federal investments” are often synonymous with federal extortion using taxpayer money.

It’s not as if national standards have driven achievement, although that’s what their champions would have us believe. As such proponents as AFT President Randi Weingarten are fond of pointing out, most countries that beat us on international exams have national standards. Therefore, they argue, national standards must produce better outcomes.

No Link to Performance

The thing is, there is actually no correlation between having national standards and performance on exams like the Trends in International Math and Science Study (TIMSS). Why not? Because almost all countries that participate in the tests have national standards, meaning that both the top and bottom ranks are dominated by educationally centralized nations. So while the eight countries that outperformed the United States on the 2007 eighth-grade TIMSS mathematics exam had national standards, so did 33 of the 39 countries that placed beneath us, as well as 11 of the 12 lowest performers. Meanwhile, whenever Canada—which has no national-level education authority—participates in international exams, it finishes near the top.

So the one piece of evidence that supporters cite to show that national standards are necessary to academic success is bunkum. Their problem might be, as I explain in Behind the Curtain: Assessing the Case for National Curriculum Standards (2010), that there is very little research of greater rigor to draw on. Indeed what research there is has been conducted largely by one man—Cornell University economist John H. Bishop—and he has focused not just on national standards but national standards coupled with high stakes for students, such as grade-promotion and graduation decisions. Even that shows at best no meaningful positive effect on achievement, with any benefits disappearing when such variables as national culture are accounted for.

Of course even were national standards shown to have strong positive impacts on academic achievement, before the federal government could twist state arms to adopt them, it would be necessary to show that doing so is legal. At least it should be necessary.

The gateway question for the legality of federal action is whether or not the steps being contemplated are constitutional. In almost all things education—save striking down discriminatory provision of schooling by state or local governments and exercising control over education in the District of Columbia—the answer will always be, “No, it is not constitutional.” Education and schooling are nowhere to be found in the specific enumerated powers given to the federal government in Article I, Section 8, and as both James Madison and Alexander Hamilton made clear in the Federalist papers, the “general welfare,” “necessary and proper,” and taxation clauses do nothing to change what that means: Washington cannot govern education.

The Constitution Doesn’t Matter

Unfortunately, the Constitution ceased to be adhered to decades ago, as evidenced not just by federal education involvement but countless other things Washington does. Yet keeping federal hands out of curricula isn’t just required by the Constitution—it is also enshrined in federal law. Neither the Department of Education Organization Act of 1979 nor the No Child Left Behind Act gives the federal government authority, as NCLB puts it, “to mandate, direct, or control a State, local educational agency, or school’s specific instructional content, academic achievement standards and assessments, curriculum, or program of instruction.”

In light of all this the national standards crusade clearly has crippling empirical and legal shortcomings. Those practical matters aside, though, the ultimate problem is that moving to even greater centralization of education is lurching education policy further in exactly the wrong direction. We know from experience both inside and outside of education that individual freedom is the key to sustained, dynamic success, both because it spurs competition, innovation, and efficiency and because government power tends to be taken over by narrow special interests who use it for their own advancement instead of the “public good.”

This latter reality is borne out brilliantly in education, with teachers’ unions having accumulated massive political power—the National Education Association almost single-handedly forced creation of the U.S. Department of Education—and having consistently used that power to enact laws and contracts that give them strangleholds over taxpayer money and government school employees. Administrators’ and school boards’ associations are also big political players.

Meanwhile, though not easy to see because most states and nations have embraced the same government-monopoly schooling model, the superiority of freedom in education is well established. Research from the United States and around the world—where there is often significantly greater educational freedom than in the United States, though nothing close to ideal—reveals that the more freedom there is in education, the better the outcomes.

Of course, the most compelling evidence of the superiority of freedom comes from outside the government-intensive realm of education. It is the lightning-fast evolving and improving computer industry. It is the incredible scaling up of in-demand products ranging from Starbucks coffee to iPads. It is the American versus the Soviet economy. And it is the huge productivity improvements we see in almost every market-based industry but do not see in American elementary and secondary education.

What we clearly need in education, but have had less and less of as the decades have passed, is freedom. Unfortunately, the most powerful drive in education today—the national standards movement—is taking us in exactly the wrong direction.

Why is it that spending larger sums for public education does not lead to better results while a higher price purchases a higher-quality service nearly everywhere in the private sector? And why haven’t fundamental changes to the schools been made through the political system despite long-falling student achievement? Public Choice theory and economic reasoning make it clear that, far from being contradictory, the current state of affairs in American public schools is the logical result of the processes by which they are run and funded, and that the continuance of the status quo is the result of rational choices by voters within the current democratic system.

Just how much is spent on schooling in the United States? In 2004–2005, the average expenditure per pupil was $9,266, the National Center for Education Statistics says, while the average expenditures in 1984 and 1994 were $6,219 and $7,504, respectively. This represents a 23.5 percent increase over ten years and a 49 percent increase over 20. It’s also 52 percent more than what 29 other countries spent in 2003, according to the Organization for Economic Cooperation and Development.

Yet despite the vast spending increases, the average combined SAT score dropped from 1060 in 1967 to 990 in 1980, after which it rose modestly to around 1028 in 2005. Fifteen-year-old U.S. students scored 483 on the 2003 Program of International Student Assessment, 17 points below the average of all the countries that participated. Thus by the dual standard of cost and benefit, the public school system is doing poorly.

One great difference between government-run operations (such as the public schools) and all organizations on a free market, whether for-profit or nonprofit, is that government agencies are allocated funds by political decisions, while free-market organizations must earn their revenue either through voluntary gifts or voluntary exchange. This distinction has important implications for the actions of these two groups. Free-market organizations strive to maximize profit by increasing revenue and reducing costs; these profits are then either distributed to owners or shareholders or are used to further the goals of the organization. Organizations in which costs exceed revenue earned close or go bankrupt. Thus they constantly strive to become more efficient and productive, and the inefficient producers are driven out.

As Public Choice theory tells us, however, the people who run government agencies have no such incentive to decrease costs and increase revenue because they are not subject to market competition and do not stand to benefit from any profits made. In fact, through a perverse process exactly opposite to the market process, failing schools and districts are often given more money in the desperate hope that the problem will be solved. Public Choice theory also demonstrates that for any public school or school system it is rational to waste resources because of the “use it or lose it” phenomenon. If a school were to have a budget surplus, its budget for the next period might be curtailed—something its administrators would abhor. Thus the public education system typically does not provide incentives for cost-cutting and quality-improving measures. In fact, it does the opposite.

Cost and Quality at Private Schools

Based on this reasoning, and other things equal, one would expect to see, on average, private schools providing better-quality education at lower cost (per pupil) than public schools. Indeed this is exactly what we find. Adam Schaeffer of the Cato Institute, in his policy analysis, “They Spend WHAT? The Real Cost of Public Schools,” found that in the five metro areas studied, public schools spend nearly twice the amount of money per pupil (93 percent more) than the estimated median private school does. That students were sent to these tuition-charging schools instead of to “free public” schools is further evidence the private schools were providing a higher-quality education even at lower total cost.

Instead of competing for students and donations, public schools and school systems compete for allocations from legislatures and bureaucracies. One factor in making these allocations is student performance on standardized tests. This artificial substitute for competition creates perverse incentives for all levels of the education apparatus. Individual teachers and schools, for example, knowing that funding is dependent not on general student knowledge and sharp critical thinking skills, but rather on one test, are induced to teach students only those skills which will be tested (a process known as “teaching to the test”). When schools receive money according to how many students enroll in upper-level classes, they have an incentive to spur more students to take those classes, resulting in unqualified students falling behind and advanced students being held back. In addition, states have an incentive to make standardized tests easier rather than harder so that more students will pass. Thus the perverse results are seen at all levels: individual schools, districts, and state governments.

Rational Ignorance and Bundle Purchases

Public Choice also explains why voters don’t show up en masse on election day to vote for candidates who will change the educational system. Although many citizens agree that the schools could and should be run better, few have a detailed plan of how that could best be done, and therefore few have a standard by which to judge the education proposals of candidates. This is a result of rational ignorance. To cast the smartest vote regarding education policy, a parent (for example) would have to devote an enormous amount of time to learning about the various issues related to education: the inner workings of the local school system, the broader laws of economics, Public Choice theory, the structure of the teachers’ unions, the fine print of the No Child Left Behind Act, and more. Yet after all this work, the parent would still only have one vote to cast. Thus the cost to the parent of learning about this political issue far outweighs the potential benefit of one well-informed vote.

Even more, an informed parent might still not vote for the candidate with the better schooling plan because political decisions, unlike market decisions, are “bundle purchases.” While one chooses any variety of individual goods and services on the market, one must choose a single politician with all of his policy positions. Stuck with a choice of two candidates, each of whom has some agreeable and some disagreeable views, voters are very often forced to choose the lesser of two evils. Note that such language is rarely used to describe market purchases.

Even if a parent voted for the politician who advertised the best plan for educational reform, the politician might fail to live up to his campaign promises. Candidates compete for votes and have an incentive to say or promise whatever is necessary to be elected. But dishonest campaigning is not illegal—no politician ever went to jail for breaking a campaign promise. In addition, politicians generally cannot be ejected from office during their terms; thus in the case of a lying candidate, the voter would be stuck with a representative committed to the status quo until the next election, at which time entirely new issues (apart from education) might take priority. This is the opposite of the market, where many goods can be returned immediately for full refunds, and where false advertising is punished both by the law and by consumers who withdraw their patronage. So widespread public dissatisfaction persists but the education system does not change.

A few alternatives to the current public system have been proposed, including school vouchers and charter schools. While both options stimulate a limited sort of competition on the supply side of schooling, they too are fundamentally flawed. First, the requirements and mandates that the government would impose on all schools accepting vouchers (in terms of curricula, standardized tests, and hiring policies) could create even more State control over education than already exists. Second, these proposed solutions would do nothing to address the abnormally large quantity of education that is demanded under a system of taxpayer-financed schooling.

In the final analysis, the only solution that solves all these problems is the complete separation of state and school. Only in this way can a high-quality, low-cost, diverse, and voluntary educational system be achieved.

At first glance, these child murders may seem an inexplicable, isolated tragedy; a closer look reveals that this outrage was constructed, piece by thoughtless piece, by the modern welfare state.

In It for the Money

The first error came with the selection of Bowman as the adoptive parent. She was obviously a negligent and seriously deranged person who never should have been approved for adoption. Well, who approved her? The adoption had been supervised from start to finish by a government agency, the District of Columbia’s Child and Family Services. In theory, it was supposed to establish that Renee Bowman was a suitable parent. In practice it didn’t even notice, or care, that she had a criminal record—she threatened a 72-year-old with bodily harm—a rather glaring instance of “government failure” by this notoriously incompetent agency.

The next link in the tragedy concerns Bowman’s motivation for adopting the children. If she did not love children, if she saw them as a burden, why had she bothered with the expense and effort of adopting them? The answer is money. In 1980 Congress approved a subsidy program to provide payments to parents who adopt children from foster care. I’m sure lawmakers thought it was a useful idea. If the federal government can buy tanks and bombs, after all, why can’t it buy adoptions?

Well, it does buy adoptions, but not high-quality ones. Worthy parents adopt out of love, conviction, enthusiasm, and dedication. They are willing to make real sacrifices for their children. Putting money on the table changes the mix of motivations. Yes, loving parents will still appear, but insensitive people who view children as an economic commodity also come forth. Renee Bowman was one of these insensitive, grasping types. She was being paid $2,400 a month by the federal government to be listed as the mother of these three girls; altogether she collected $152,000. “This woman was in it for the money,” said the prosecutor at the trial. “And by killing the children, keeping them literally on ice, the money continued to flow.”

Keeping Adoptions Low, Abuse High

Officials point out that without adoption subsidies to attract parents, children would languish in the state foster care systems. There’s some truth to this, but it exposes another flaw in the state system of handling orphans. A survey by the National Center for Health Statistics found there were nearly 600,000 women seeking to adopt children, a figure over four times the total of 129,000 children in foster care available for adoption. The oversupply of willing parents holds for all categories of children, including older children, black children, and children with disabilities. But under government management, adoption from foster care has become a tortuous, burdensome process demeaning to prospective parents. The government agencies are so focused on trying to apply a host of bureaucratic regulations that they repel many, especially independent-minded individuals critical of silly red tape and micromanagement. The result is that children remain stuck in foster care. Even so, hundreds of thousands of people would like to adopt them.

The severity of government impediments to adoption was documented by a study undertaken in 2005 by Listening to Parents, a nonprofit research group. It followed 1,000 prospective parents who called a public child-welfare agency seeking to adopt. Out of this initial group, only 36 adoptions occurred.

Having inadvertently contrived a deplorably low adoption rate, government sought to correct the problem by applying government’s inevitable fix-all: throwing more money at the problem, in the form of adoption subsidies. They created a situation of moral hazard where a person like Renee Bowman might adopt children primarily for the money, and, lacking love and a sense of responsibility, might neglect and abuse them.

Bowman’s was not an isolated case. Washington Post columnist Courtland Milloy reported in February 2009 that in the previous eight months at least seven adopted children in D. C. had been killed, their adoptive parents charged or suspected in the homicides. And those are just the murder cases—that we know about. Given the number of children in Washington, D.C.’s adoption subsidy program, it’s fair to wonder if neglect and abuse short of murder are far more widespread than anyone would like to imagine.

This brings us to the most shocking failure in this sorry episode. After the deadly consequences of the misguided adoption subsidy became screaming headlines, officials did nothing! They didn’t close down the program. They didn’t fire, fine, or imprison employees responsible for the miscues. They didn’t resign in shame and embarrassment. Jobs and careers depend on this program: It’s in officials’ economic self-interest to downplay its problems. The same is true of the pressure groups that represent parents taking the subsidy. Their attitude was captured by a Washington Post reporter: “Even with limited oversight, most children end up in safe and supportive families, advocates said.”

In the old days, before we got hardened to welfare-state abuses, we would have said that a system that resulted in even one murdered child was unacceptable. Today, the self-interested participants of the welfare state are content with a program where “most” of the children aren’t slain.

The solution to the travesties being committed by government child welfare agencies lies right before us: Move away from the welfare state as fast as we can. Turn the problems of orphans, foster care, and adoption back to private charitable and commercial entities, unsubsidized by tax money and largely unregulated.

Will errors occur in this voluntary system? Undoubtedly they will, but they wouldn’t be met with institutional shrugs of the shoulders. The voluntary system would have this advantage: If a private agency was implicated in a tragic malfunction, donors and customers would be free to turn away from it and the agency would disappear.

In urging Congress to pass medical “reform,” the Times claims that this country can “afford” this multitrillion-dollar monstrosity because it ultimately will “cut costs,” lower the federal deficit, and make “affordable medical care available to all:

Over the next two decades, the pending bills would actually reduce deficits by a small amount and reforms in how medical care is delivered and paid for — begun now on a small scale — could significantly reduce future deficits.

My response is simple: How do we know this legislation will accomplish these things? From what I can tell, the Times says we know it because, well, the legislation declares it to be so. In other words, we are supposed to take Congress and the White House at their word because, after all, they allegedly have our best interests at heart, just as Congress and the White House claimed that the Iraq war would be done on the cheap (paid mostly through oil exports from Iraq, something that did not exactly work as planned).

However, the editorial claims that there are real-live portions of the bill that should result in the supposed federal budget savings:

Electronic medical records could eliminate redundant tests; standardized forms and automated claims processing could save hundreds of billions of dollars; “effectiveness” research would help doctors avoid costly treatments that don’t work; various pilot projects devised to foster better coordination of care and a shift away from fee-for-service toward fixed payments for a year’s worth of a patient’s care all show some promise.

In the next paragraph the editorialist admits:

These reforms are mostly untested. And the C.B.O. is properly cautious when it says that it does not see much if any savings for the government during the next decade, in part because of upfront costs and in part because no one knows what will work.

Let me get this straight. The Times is urging us in the name of “cost reduction” to accept a huge new government expense that will affect us all in ways we cannot imagine because the regime in power declares that it will cut costs. It must be so because, well, it must be so.

The mind boggles at this logic. According to those who want government-run medical care (actually, most of medical care today already is run by the government one way or another), profit-seeking medical-insurance, drug, and private-care firms deliberately are driving up their costs in order to become more profitable. If that were true it would be the first time that profitability in a market system was positively related to firms’ artificially raising their own costs.

Indeed, as economists such as Ludwig von Mises and Murray Rothbard clearly demonstrated, firms earn profits by cutting costs, being resourceful, and creating goods and services that consumers want to purchase. The notion that companies become profitable through high production costs turns economic logic on its head.

For example, we have seen prices fall in the production and sale of computers and personal electronics in some of the freest markets on the planet. However, if these firms had adopted a production plan akin to what the Times demands for medical care, we would be paying a fortune for inferior electronic goods and there would be a “cost crisis” in that industry.

Sheldon Richman recently wrote about the “perverse incentives” that government has created in modern medical care, and he said that free markets in health care would better serve people than what we have now. Granted, he is using real economic logic, something that the political classes and their media allies have rejected as politically unsuitable. The rest of us will pay dearly for that arrogance.

What? Does that mean that until last fall the Bush administration embraced the free market? Nonsense. Governments at all levels have regulated and subsidized the housing and financial industries for years. Nothing changed under President Bush.

The government-backed Fannie Mae and Freddie Mac were created precisely to interfere with the housing and mortgage markets. In effect, Freddie and Fannie diverted money to people who wouldn’t have qualified for mortgages in a real private market.

Had actual private companies performed these activities, they would have been subject to market checks. But they were not. The results were predictable.

Now that it’s all tumbling down, the politicians and pundits blame the free market.

It’s not simply misunderstanding. It’s demagoguery by people who will never admit that their “progressive” social policies have spawned a taxpayer bill that boggles the mind.

This is a story not of private enterprise but of cynical political opportunism. Moral hazard—the poisonous mix of private profits and taxpayer-covered losses—is what you get when politicians indulge their hubris to redesign society. The bailout of those companies holding bad mortgages—big-business socialism—sets us up for the next crisis.

Could we count on the Republican presidential candidate to dissent? Not a chance.

John McCain said, “We are going to fight the greed and irresponsibility on Wall Street. These actions [leading to crisis] stem from failed regulation, reckless management and a casino culture on Wall Street. . . . We need strong and effective regulation. . . .”

He proposed a new bureaucracy, the Mortgage and Financial Institutions Trust (MFI), which he said would “provide troubled institutions with an orderly process to identify bad loans, provide funding and eventually sell them at a profit. . . . The MFI will supervise the sale of loan assets at market prices and purchase them as necessary” (emphasis added).

A government agency is going to buy bad loans and make a profit selling them. Give me a break!

Perverse Incentives

Irresponsibility induced by government-created perverse incentives is the culprit. For decades politicians of both parties have relieved big companies of the responsibility that market discipline would have imposed. The promise—explicit or implicit—to bail out companies “too big to fail” weakens market discipline. That invites recklessness.

What if the government cut Freddie, Fannie, Bear, AIG, and the others loose and let them do what other businesses do in hard times: renegotiate with creditors and revalue assets? Would there have been another Great Depression? Not likely. What turned a recession into the Great Depression was the Federal Reserve’s contraction of the money supply. I doubt they’d make that mistake twice.

Public officials say the big companies must be saved to prevent a devastating credit “lock.” Really? Without a federal bailout, lending wouldn’t have resumed? The market wouldn’t have sorted it out? Prices wouldn’t have found a more solid floor? We’ll never know.

We do know that the taxpayer will buy—probably for too much money, because the private sellers will fool the government managers—at least $700 billion in “illiquid” assets. Where will this money come from: taxation, borrowing or the printing press? What will that do to our economic well-being?

Crisis is the friend of the State. The politicians are desperate to be seen as “showing leadership,” so we’re surely in for a new round of government interventions. Watch for the equivalent of the Sarbanes-Oxley Act. There’ll be much posturing about how the new regulations “will keep this from ever happening again,” but that’s more nonsense because the root problem is not lack of regulation. It’s government social engineering of the housing market, which will be unchanged.

This is the path to stagnation and poverty. As Nobel Laureate F. A. Hayek taught, markets are too complicated for planners to know enough to plan them. The relevant information, scattered unspoken among billions of market participants, is beyond the bureaucrats’ reach.

We do need protection from reckless businessmen. But there is only one way to provide that: market discipline. That means no privileges and no bailouts.

I recalled that exchange recently after reading that government employees get an entire week dedicated to their “service.” This year, “Public Service Recognition Week” ran from May 5 to 11, and state government workers got their own recognition day on May 7. The U.S. Senate and House of Representatives honored the occasion by passing proclamations commending the nation’s noble public servants.

Special weeks or not, many of us have no special appreciation for government workers. The vast majority of them perform jobs that should either be eliminated or handled by the private sector (the real private sector, not “private” firms using taxpayer dollars). Besides, even workers who perform arguably legitimate tasks are well paid for their efforts. Roofers, car mechanics, taxi drivers, and journalists perform important services also, but one doesn’t find entire weeks devoted to their heroics. Furthermore, government officials do not behave like noble doers of the public good. Instead, they are regular human beings who use their power and position to advance their own interests. That’s to be expected, so why treat them like heroes?

But the best argument against honoring public “servants” is the one made by my mother in her concise rebuttal: Isn’t every day Public Employees’ Day?

A Public-Employee Smorgasbord

Thanks to craven politicians seeking government-union support, shameless exploitation by those unions of national tragedy (such as the death of firefighters in the World Trade Center collapse), and other factors, including the public’s increasing embrace of big government, government workers have turned themselves into a coddled class that lives better than their private-sector counterparts and is exempt from many of the standards and laws that apply to the rest of us. Instead of offering accolades and honors, the public should be mad at the current situation and ought to question what it says about the nature of our society.

The Orange County Register published a front-page investigation in April about a special license-plate program for California government workers. The drivers of nearly 1 million cars and light trucks—out of a total statewide registration of 22 million—have their addresses shielded under a confidential records program.

“Vehicles with protected license plates can run through dozens of intersections controlled by red light cameras with impunity,” according to the Register’s Jennifer Muir. “Parking citations issued to vehicles with protected plates are often dismissed because the process necessary to pierce the shield is too cumbersome. Some patrol officers let drivers with protected plates off with a warning because the plates signal that drivers are ‘one of their own’ or related to someone who is.”

As I wrote in my newspaper column, “Readers have been shocked to learn that California has about 1 million citizens who are literally above the law. Members of this group . . . can drive their cars as fast as they choose. They can drink a six-pack of beer at a bar and then get behind the wheel and weave their way home. They can zoom in and out of traffic, run traffic lights, roll through stop signs and ignore school crossing zones. They can ride on toll roads for free, park in illegal spots and drive on High Occupancy Vehicle lanes even if they have no passengers in the car with them. Chances are they will never have to pay a fine or get a traffic citation.”

Yes, rank has its privileges, and it’s clear that government workers have a rank above the rest of us.

If officials who claim to be protecting the public’s safety were told that one out of every 22 California drivers had a license to drive any way they choose, these officials would be demanding action and more power to protect Californians from the potential carnage. But until the newspaper series, we’d heard nothing about the situation from police officials and legislators. The reason, of course, is that the scofflaws are the police, their family members, and other government agents.

The special-license program started in 1978 with the seemingly unobjectionable purpose of protecting the personal addresses of officials who deal directly with criminals. Police argued that the bad guys could call the DMV and get home addresses. They could then go and harm the officers and their family members. There was no rash of such actions, only the possibility that this danger could take place.

So police and their families got their confidentiality, but then the program expanded from one set of government workers to another. So now parole officers, retired parking-enforcement employees, DMV workers, county supervisors, social workers, and many other categories of workers get the special protections. By the way, the protections are pointless now, given that the DMV long ago abandoned the practice of giving out personal information to the public. Yet the list of categories keeps growing and growing.

A few days after the newspaper investigation caused a buzz in Sacramento, legislators voted to expand the protections to even more classes of government workers. An Assembly committee, on a bipartisan 13–0 vote, agreed to extend the protections to veterinarians, firefighters, and code officers. One legislator justified the vote with a horrific story about code officials who were murdered after breaking up a dog-fighting ring. After the vote, the story was revealed as largely bogus, but just as government officials constantly parade their heroes in front of the public to secure more funding, so too do they tell tales of the grave dangers they face.

Rationalizations for Special Privileges

One Democratic Assembly member justified her support for the bill this way: “[T]his is a public safety issue. And there are lives of public workers, public safety officers, that are put on the line every day on our behalf that need to be protected.” Said a Republican member of the committee: “I don’t want to say no to the firefighters and veterinarians that are doing these things that need to be protected.” Never mind that there is no longer any need for the protection and that the main purpose of the special plates is to protect government employees and their families from tickets and tolls while they drive in their personal vehicles on their personal time.

With the government employees’ addresses kept confidential, toll-road operators, parking enforcement, and red-light-camera operators either cannot access them or don’t go through the extra steps necessary to find the addresses. So the government employees often rack up thousands of dollars individually in unpaid fines or in tolls. This costs the quasi-private toll operators millions of dollars. Furthermore, when police spot these special plates or pull people over and look up the plates, they realize that the driver is special. They then extend what the police call “professional courtesy”—that is, they don’t ticket other members of the brotherhood of government enforcers.

“It’s a courtesy, law enforcement to law enforcement,” said one police spokesman to the Register.

I have gotten calls from police whistleblowers alerting me to, for example, a local cop’s spouse who allegedly was pulled over stone drunk, then given a courtesy ride home. Any average citizen pulled over for a DUI would end up in the county’s notoriously abusive jail system for a day or more. Don’t ever expect such “courtesy” for a mere citizen or taxpayer! This obviously is the type of thing more appropriate to an authoritarian or totalitarian society, where the rulers get to behave according to a different set of laws than the ruled.

In California, law enforcement gets its own “Peace Officers Bill of Rights,” which offers a comprehensive list of special protections in case officers are accused of wrongdoing. Even the name of that law is offensive—the Bill of Rights is meant to protect the public from the government, but this one offers an added layer of protection from public accountability for the agents of government.

“More”

Being exempt from traffic laws is bad, but government workers are always pushing the envelope. It’s like the union leader who was once asked, ultimately, what it was he wanted for his members. His answer: “More.” That applies not only to salary and benefits but to special protections.

In April the California Assembly Public Safety Committee was set to consider—and most likely pass, with little apparent opposition—Assembly Bill 2819 by Mark DeSaulnier. The bill states, “No firefighters, EMT-1, EMT-II or EMT-P employed by the state or a local agency shall be subject to criminal prosecution for any legal act performed in the course and scope of his or her employment to carry out his or her professional responsibilities.” The only way a firefighter could be prosecuted is if he or she committed an act “with demonstrable general criminal intent”—an extremely high standard for a prosecutor to meet. An earlier version of the legislation would have prevented firefighters from “civil or criminal liability unless the act was performed in bad faith or in a grossly negligent manner with demonstrable, willful criminal intent.”

Despite the words “legal act,” the clear result of the legislation would have been to protect firefighters from prosecution for gross negligence. If, say, a firefighter committed an intentionally illegal act such as murder or theft, he would still be subject to prosecution. But if he was involved in otherwise legal behavior, such as driving, but acted in a grossly negligent way when doing so, he would be exempt from prosecution. This goes far beyond the current civil protections for “good faith” mistakes a firefighter or paramedic might make in the line of duty.

The impetus for the legislation was a controversial prosecution by a district attorney against a firefighter who killed someone because he was driving a fire truck allegedly in violation of department standards. Even though prosecutors are loath to file charges against firefighters, the firefighter unions grabbed onto this one incident as a means to gain blanket immunity for their members, even for outright misbehavior. One Assembly member told me that if the legislation became law, a firefighter or paramedic would be protected from any civil or criminal claim even if he showed up at an accident, saw someone in severe distress, but decided to get a hamburger instead of doing his job.

As the Register opined at the time: “The Assembly Public Safety Committee today is considering one of the most noxious, special-interest pieces of legislation we’ve seen in a while—one that will endanger public safety, tread on the California constitution and reinforce the perception that some government workers are part of a special, coddled group that’s exempt from the normal legal and ethical standards that are applied to other Californians.”

The constitutional problem: The legislature cannot dictate to the executive branch who it can and cannot prosecute. This legislation was first introduced for firefighters, but before long police, animal-control officers, and others would be demanding the same protection. The bill was pulled from the calendar at the last minute due mostly to the bad publicity the editorial generated, but it will surely be back again. Government workers and their unions are quite shameless about pushing their self-interest.

There was a time when government work offered lower salaries than comparable jobs in the private sector, but more security and somewhat better benefits. These days, government workers fare better than private-sector workers in almost every area—pay, benefits, time off, and security.

“Today, government employees in the vast majority of job classifications earn considerably more than those in the private sector doing similar work,” wrote Jon Coupal of the Howard Jarvis Taxpayers Association and Richard Rider of the San Diego Tax Fighters in a recent column in the California Republic. “They have even better job security than before and they enjoy many far superior benefits—including a pension which can exceed the salary they earned while working.”

The Asbury Park Press in New Jersey reported recently that “Federal workers, on average, are paid almost 50 percent more than employees in the private sector.” The reason, according to a Heritage Foundation legal analyst quoted in the article: “The government doesn’t have to worry about going bankrupt, and there isn’t much competition.”

One result is the huge public liability created by government pension and retiree health-care plans. Elected officials are generous in granting expanded benefits to government employees. They buy labor peace and political support, letting future legislatures, councils, and taxpayers deal with the growing debt. This is no minor problem. “The funds that pay pension and health benefits to police officers, teachers and millions of other public employees across the country are facing a shortfall that could soon run into trillions of dollars,” the Washington Post reported in May. “But the accounting techniques used by state and local governments to balance their pension books disguise the extent of the crisis facing these retirees and the taxpayers who may ultimately be called on to pay the freight.”

The second part of that quotation is harrowing. The unions and government agencies have cleverly hidden the extent of the deficit. But courts have ruled that the promises made by elected officials to government unions are ironclad contracts that must be kept. That leaves the nation’s taxpayers stuck footing the bill. Even as private-sector workers must toil longer to shore up their eroding retirement funds, so too must they work extra to make good on the unsustainable promises elected officials have made to government workers. Only the best for our rulers!

Institutionalizing Perverse Incentives

It’s easy to understand why the pension deficit continues to grow. In California, for instance, public-safety employees—police, fire, prison guards, and an expanding number of law-enforcement categories—receive “3 percent at 50” retirements. That means at age 50 they are eligible for 3 percent of their final year’s pay times the number of years worked. So if a police officer starts working at age 20, he can retire at 50 with 90 percent of his final salary until he dies, and then his spouse receives half that for the rest of her life. The taxpayer typically makes the complete retirement contribution throughout the officer’s years of work. Many police—more than half in some agencies—claim an injury (such as back pain or bad knees) a year before their retirement age, which not only gives them a year off for disability, but protects half their retirement from taxes.

Police and firefighters are legally presumed to have a work-related illness when they get common ailments such as heart attacks or cancer. The bottom line: Public-safety officials have many ways to gin up their already generous retirements benefits to astronomical levels. Most garden-variety government employees get lucrative pensions also. It is common for them to retire at age 55 with more than 80 percent of their final year’s pay. Most public employees receive defined-benefit retirement plans, in which the taxpayer promises a set rate of return, as opposed to private-sector workers who have 401(k)s and other defined-contribution plans in which the market sets the return.

The Trouble with Vallejo

This situation is bringing trouble. Vallejo, a city of 120,000 in the San Francisco Bay area, declared bankruptcy because tax revenues remained relatively static while public-employee salaries continued to grow out of control. Police and fire budgets consume three-quarters of the city’s budget, leading to the zeroing out of other government programs (libraries, museums, senior-citizen centers). Despite the enormous spending on public safety, city officials have warned citizens to be judicious in their use of 911. When government overspends, the public has to suffer.

The San Francisco Chronicle reported that the base salary of firefighters in Vallejo is $80,000 a year, that 21 firefighters earn more than $200,000, and that 77 of them earn more than $170,000. The Chronicle also reported that these excessively paid folks have been spending their time “going abalone diving, grilling tri-tip and drinking cocktails on the public’s dime.” The city manager, by the way, earns a total compensation package of $400,000 a year. The downtown is decrepit, in large part because the city has no money to spend on infrastructure.

Even with bankruptcy, it’s uncertain whether Vallejo can get out from under the outrageous union contracts that are turning it into a Third World city—one that comes complete with an arrogant and corrupt aristocracy that doesn’t care about the public.

Even worse than the fiscal mess is the kind of society we’re creating. It’s one where the government elite get special pay, special benefits, special privileges, and special exemptions from the law, and where the rest of us have to play by the rules and work extra hard to pay for these excesses. And yet so many people believe the private sector is the problem! Go figure.

“Need” has the political advantage, but the logical disadvantage, of lacking a clear meaning. That allows it to be systematically abused to distort understanding and to reach desired conclusions that justify picking people’s pockets to pay for what someone else wants.

The concept has no universal meaning beyond “I want it, but I do not want to pay for it.” I learned this from my children, who wielded the word almost exclusively to extract benefits for themselves at parental expense. However, once we move beyond childhood’s focus on getting what is wanted by verbally manipulating parents, there is less reason to invoke “need.” In a world of voluntary market arrangements, one seldom uses the word (except when explaining why one did or planned to do something). If you really “needed” something, rather than saying so you would simply buy it or earn the resources to do so. Need would result not in mere complaining, but rather in actions that benefit others as well.

When public policy is discussed, though, “need” is resurrected as a weasel word by whoever wishes to avoid paying for what he wants—a return to the paternalism of childhood—and it should therefore raise a warning whenever it is used.

In that context “need” assumes away the consequences of unavoidable scarcity. Scarcity exists for each of us, individually as well as for society, making tradeoffs imperative.And some of those tradeoffs involve choices among various “needs.” Therefore, calling something a need diverts attention from the actual choices faced.

“Need” makes people focus on the wrong margins of choice. For instance, that you need water to drink is irrelevant to virtually every policy choice made about water. If the price of water rose, it would not be drinking water that people cut back on, but rather some of their many other, lesser-valued uses for water. (We all frequently treat water as nearly valueless because it’s so cheap, and we use it whenever the benefits exceed its very low price.) So discussing water in terms of need adds confusion, rather than insight, to decisions. And the same is true for innumerable other “needs.”

“Need” implies agreement on what and how extensive it is. However, needs are in the eye of the beholder, and their perceived extent varies dramatically from person to person. (How much of X does one need?) When we don’t agree on its extent, using the word “need” masks that disagreement. It implies that the beneficiaries’ view is the relevant one, even when they are unwilling to offer enough to attract volunteers to supply their needs in the market. The often-different views of those forced to finance those needs are dismissed as irrelevant.

The idea implies that since people ought to have what they need, others have the responsibility to pay for such things if the ones in need cannot or will not do so. Unlike the cooperation in markets, this creates conflict whenever some of those “who can afford it” fail to volunteer to finance someone else’s need.

“Need” sometimes also implies that the impossible is possible. Saying we need to ensure that everyone on earth gets enough to eat is false. In all of human history, that has never been the case. Such assertions actually state desired situations—goals, not needs. And however much we may desire those goals, we often know no way to accomplish them, so they will be only distantly related to what is done in the name of achieving them. In such cases, “need” is used to argue that we must do something, ignoring that we will do little to achieve our goals or will even make things worse, especially in the long run as people respond to the perverse incentives produced by the policy.

In day-to-day conversation we are all sloppy with the word “need.” (For example, I need a shower.) That is fine as long as we know what we really mean. (I want to feel and smell clean.) The problem arises when we transmute the word into a central premise to justify policies that violate other people’s rights and property. “Need” means “need in order to accomplish desire X.” The simple use of the word, however, does not mean others have the responsibility to accomplish X on someone else’s behalf. And it does not justify violating “Thou shall not steal” through the subterfuge of government.

Judging from what public-policy responses to “need” assertions have actually accomplished, they are just the rhetorical garnish necessary to justify using political coercion to plunder those who disagree about the extent of those needs. Those assertions don’t eliminate the alleged need, but they give more power to governments, which have never been known to be particularly responsible. That’s why the trillions of dollars spent on government programs addressing “needs” has accomplished so little.

The only thing that can ultimately help individuals meet their “needs” without infringing on others’ ability to meet their own is freeing them from the power others have to dictate to them, so they can make whatever voluntary arrangements that satisfy them. Government “solutions” that undermine voluntary arrangements cannot provide for our needs as well, no matter how many times we invoke the word as a smokescreen to justify coercing others.

The National Flood Insurance Program (NFIP) is the Federal Emergency Management Agency’s crown jewel. Unfortunately, the heavily subsidized insurance bribes people to scorn common sense, damages the environment, and creates staggering liabilities for taxpayers. Federal flood insurance illustrates how selling at a loss can be politically profitable. The horrendous damage from Hurricane Katrina in late August is in part a tribute to the folly of politicians “managing” risk. This is one more reminder why people should not trust the government to save them.

At the time that the United States was founded, there was no expectation that federal bureaucrats would compensate people for flooded basements or washed-away front porches. Until 1917 disaster response was handled almost entirely by state and local governments and by private charities. In that year President Wilson pushed through a bill to provide limited federal aid for flood relief. Unlike nowadays, there was no “automatic pilot” system that allowed the president almost unlimited discretion and control over disaster spending. Disaster relief proved a popular pork barrel, and aid was gradually expanded over the decades.

The NFIP was created in 1968 to lower the costs of federal disaster assistance. Politicians at that time claimed that selling federal insurance for flood damage would help cover the cost of repairing and rebuilding after floods.² Instead, Uncle Sam’s subsidized insurance provided a green light for far more building in river flood plains and coastal areas long favored by hurricanes. FEMA ran a national ad telling viewers: “We can’t replace your memories, but we can help you build new ones.” Unfortunately, FEMA and the NFIP have long been inducing people to build homes in areas where their memories get swept away.

A 1997 Idaho Statesman report on a Boise river flood concluded that the NFIP “has backfired—bringing more people into harm’s way” and has made risky development “look not only possible, but attractive.”³ Doug Hardman, Boise-Ada County emergency services coordinator, observed that subsidized flood insurance “did exactly the opposite of what it was designed to do. It has encouraged people to move there and encouraged developers to develop there.”⁴ The NFIP amounts to a type of anti-environmental socialism. Scott Faber of American Rivers, a conservation organization, observed, “Prior to the 1960s, you didn’t have much development in flood-prone areas because you couldn’t find any insurer crazy enough to underwrite it. But the federal government came along and said it is okay—we are going to make it financially possible for you to live in a flood plain. The effect of this has been much more dramatic in coastal areas, where we have seen a huge boom in coastal development in the last 30 years.”⁵

The primary effect of federal flood insurance is that far more property is now damaged by floods than would have occurred if the insurance had not made it possible to build in flood-prone areas.The Long Island Regional Planning Board in 1989 complained that federal flood insurance “in effect encourages a cycle of repeated flood losses and policy claims.”⁶ And, especially in places like Long Island, the program underwrites the vacation homes of the wealthy.

Consider the experience of Topsail Island, a 26-mile island off the North Carolina coast right in the middle of “hurricane alley.” At a time when North Carolina Governor Jim Hunt was trying to discourage rebuilding on the island, FEMA came in and deluged the area with more than $100 million to rebuild private and public facilities after two hurricanes hit the island in 1996. In 1998, the island was hit by another hurricane—and FEMA rushed in to spend another $10 million to repair things. The 1998 damage was greater than it otherwise would have been because FEMA had extended the sewer system after the previous hurricane, thus opening the door to new development.⁷ Federal relief spending over a three-year period amounted to more than $10,000 for each permanent resident on the island.⁸ “The original development wasn’t sound, and now for the third time in three years, we’re going to have to come in and provide assistance. There’s very little common sense,’’ observed Kevin Moody of the U.S. Fish and Wildlife Service.⁹ FEMA paid almost the entire cost of rebuilding local government buildings and infrastructure, and federal flood insurance paid the large majority of the cost of rebuilding private homes. The News and Observer in Raleigh noted that “the taxpayer-financed [FEMA] bailout [after the preceding hurricane] has reimbursed resort towns for just about any piece of public property that blew away in the storm. . . . [It] has undermined years of efforts to discourage unwise development.”¹⁰

FEMA pretends that merely shifting the cost of flood damage from a homeowner to taxpayers in general is almost as good as preventing a flood. In the late 1990s it ran a national television advertising campaign (titled “Cover America”) urging Americans to buy into the NFIP. President Clinton’s FEMA director, James Lee Witt, declared: “The greater the coverage we can achieve, the healthier the flood insurance program will be, and there will be less of a burden on the disaster program.”¹¹

However, it is scant consolation for taxpayers whether they get boarhawged for disaster relief directly or for payouts under an insurance program designed to reward risky behavior. According to one FEMA analyst, “The way they advertise the flood insurance is disgusting. It is a Ponzi scheme—and they have to replenish that sucker because it is running dry. The NFIP is amazingly generous: you are talking of up to $250,000 for property damage coverage for only a few hundreds a year. . . . That is absurd.”¹² Private insurance companies in some cases would charge a $10,000 annual premium for many of the insurance policies which FEMA gives away for chickenfeed.

Misleading the Public

FEMA has continually sought to mislead the American public about the nature of its flood “insurance.” In 1997, in response to an article of mine whacking the NFIP in the Los Angeles Times, FEMA chief Witt declared that I was wrong when I said flood insurance was “subsidized.” Witt explained: The NFIP is a self-supporting program; claims and operating expenses are paid from policyholder premiums, not taxpayer dollars.”¹³ But the NFIP has repeatedly been bailed out by Congress, thus creating a fiction that the program is not an actuarial rat hole. Since FEMA is subsidizing many, if not most, of the people who buy the policies, the more policies FEMA sells, the greater the financial crash-and-burn will be when Mother Nature catches up with the agency.

Witt claimed that communities are required to “enforce sound flood plain management in exchange for the availability of affordable flood insurance.”¹⁴ But since FEMA is anxious to sign up as many people as possible for the NFIP, the agency is grossly negligent at requiring sound policies in return. Beth Milleman of Coastal Alliance, an environmental activist group, scorned FEMA’s campaign to get more flood-insurance enrollees: “They are merrily skipping around the country tossing subsidized insurance policies at anyone who has a damn bathtub.” Milleman observed that the flood insurance “encourages people to rebuild in harm’s way, which is also bad for the coastal environment. What disaster relief and flood insurance wind up doing is giving people the financial means to build or rebuild in exactly the same spot that we know is disaster prone. And it is no strings attached nine times out of ten.”¹⁵

FEMA claims that the flood-insurance program encourages responsible behavior because, unless a person gets the insurance contract, the agency will only give him one bailout of up to $10,000 to cover his losses from a flood—next time he is out of luck. However, even this Wiffle-ball penalty provision is a mirage. The agency’s inspector general reported, “FEMA regional staff generally were not effective in identifying ineligible applicants who received grants during previous disasters but did not comply with flood insurance purchase and maintenance requirements.” The report also noted, “Neither FEMA nor most states maintain records of who purchased insurance and if they maintained it for the required time.Without such records, it is not possible to monitor compliance.”¹⁶

Flood insurance has been horribly managed for decades. “Forget and forgive” is FEMA’s attitude towards repeat claimants. Roughly 1 percent of insured properties “have cost the program 38 percent of the claims since 1978, because they repeatedly flood,” the Sarasota Herald-Tribune reported.¹⁷ A National Wildlife Foundation study estimated that 2 percent of properties covered by federal flood insurance had “multiple losses accounting for 60 percent of the program’s total claims.”¹⁸ Almost $3 billion has been spent in the last two decades “repairing and rebuilding the same structures two, three and four times.”¹⁹ One Houston home suffered 16 floods; its owner collected more than $800,000 in compensation for repair costs.²⁰ The flood-insurance program paid $200,000 to repair and rebuild a Louisiana home, hit by 15 floods, that was worth only $30,000. The Houston Chronicle reported the case of “a modest $49,300 home in Canton, Miss., which was flooded 25 times and brought $161,279 in insurance payments.”²¹

While the federal government heavily subsidizes flood insurance, it also has dozens of programs to prevent a shortage of floods. As Sierra Magazine noted,“More than 40 separate federal programs and agencies, governing everything from highway construction to farm export policy, encourage building and farming on flood plains and wetlands. In 1996 alone . . . over $7 billion was poured into ten programs that aggravate flooding.”²²

Bush Team Perpetuates the Fictions

Bureaucrats cannot be counted on to make sound decisions on other people’s scarce resources. In congressional testimony in March 2004, then-FEMA chief Michael Brown declared,“The number of NFIP policies will be increased by 5 percent.”²³ This is a typical Soviet-bloc accounting mentality—as if the goal was simply to have more customers—not to make a profit or achieve something more than bureaucratic bragging rights. Brown assured a Senate appropriations subcommittee:“ The National Flood Insurance Program (NFIP) has a significant impact on reducing and indemnifying this Nation’s flood losses. Prior to the creation of the NFIP, floodplain management as a practice was not well established, and only a few states and several hundred communities actually regulated floodplain development.” This is simply repeating the same fictions by which NFIP subsidies have been justified for two generations.

Brown told the Senate that FEMA’s “Flood Map Modernization Program provides the capability to broaden the scope of risk management. . . . Communities, lenders, insurance agents, and others use the maps and the flood data approximately 20 million times a year to make critical decisions on land development, community redevelopment, insurance coverage, and insurance premiums.”²⁴

Brown neglected to mention that FEMA’s flood maps are often hopelessly out of date. FEMA is currently using floodplain maps as old as 1979—despite the vast changes in coastal areas, watersheds, and development. FEMA set up a helpline, but up to 40,000 people in one year were given responses that may have included “significant errors,” which may have resulted in “significant financial loss to the customer, including but not limited to wrongful denial of insurance coverage at the time of the loss.”²⁵ Callers were often falsely assured that they did not live in a floodplain and thus did not need flood insurance. An audit report in early 2005 titled “FEMA Call Center Assessment” was so damning that the agency tried to suppress it. (A copy leaked out to ABC News.) Robert James, the author of the report, said of FEMA’s call-takers: “Most of them, as far as work experience, had fast food, Wendy’s, pizza places.”²⁶

The 2005 Knockout Combo

Hurricanes Katrina and Rita shattered whatever pretense of fiscal responsibility the NFIP once possessed. As of early October 2005 the program was estimated to go $20 billion into the red as a result of claims from the two hurricanes that hammered the Gulf Coast. The NFIP collects only about $2 billion a year in premiums—thus guaranteeing the program would go belly up. Except that politicians cannot resist restocking the program’s coffers with cash.

In November FEMA announced that it was suspending payments for flood-insurance damage claims, effectively, if temporarily, defaulting on its promises to claim holders. Congress responded by rushing to pass legislation entitling the NFIP to siphon off $18.5 billion from the U.S. Treasury to pay off its claims. The action is labeled “borrowing”—but anyone who expects FEMA to repay the Treasury (and taxpayers) is naïve enough to buy Florida swampland. President Bush’s signature on the bailout was barely dry before David Maurstad, the acting NFIP chief, announced that “FEMA will continue to work with lawmakers on securing additional borrowing authority.” FEMA is expected to pay out roughly $23 billion for claims related to the major hurricanes of 2005.

Not surprisingly, congressmen are anxious to exploit the flood-insurance program to camouflage the welfare they give to often affluent voters. After Katrina clobbered Mississippi, Rep. Gene Taylor of Mississippi introduced a bill titled the “Buy-In Act” to permit people to buy flood insurance retroactively. If some private company permitted people to retroactively buy fire insurance after their homes burnt down, and then backdated the policies to hide the retroactive sleight of hand, the company officials would almost certainly be sent to prison for fraud. However, when the U.S. Congress does the same thing, it is public service. The fact that congressmen would even talk of people retroactively buying insurance is testament to the congressmen’s gauge of the stupidity of the American public.

The massive flood-insurance payouts caused by the hurricanes are spurring the usual calls to reform the program. But, with much fanfare, Congress had already enacted legislation early in 2005 to reform the program. The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act sought to curb the repeated bailouts of property owners. Naturally, Congress sought to solve the problem by throwing more money at the people who had already pilfered the Treasury. The new law obliges FEMA to offer to pay much of the cost of “mitigation” — such as raising a house above likely flood levels. How did it become your or my responsibility to pay to have some homeowner’s vacation place raised? If a homeowner with flood insurance refuses the government’s handout offer, the feds can raise his floor insurance premium by up to 150 percent. However, if somebody is already getting a de facto 90 percent subsidy on his insurance rates, a 150 percent increase would still leave him massively subsidized—and would continue to encourage him to live and rebuild in harm’s way. Thus, the “reform act” was simply another in a long series of frauds.

The only sound way to reform federal flood insurance is to abolish the National Flood Insurance Program. Politicians and bureaucrats cannot be trusted to make policies or set rates in ways that will serve the public. But there is no way to reform the incentives or boost the responsibility of members of Congress. Thus whatever paper reforms are made to the flood-insurance program will almost certainly be transient—overturned at the first viable opportunity by members of Congress waiting to jigger the system to subsidize constituents. There is no way that a program can run well in the long term when the primary incentive is for congressmen to sabotage its soundness in the short term. Congressmen win votes for boondoggles, not for judicious management.

Some private insurance companies are beginning to offer insurance policies for luxury homes on the coast. This is a niche that can be filled by private enterprise. Professor Rob Young of Western Carolina University declared after Katrina: “If coastal development is such an economic powerhouse that it is essential to the viability of a locality or a state, then let’s let the free market decide. No more federal money for rebuilding infrastructure. No more federally subsidized flood insurance.”²⁷ It is no loss to the nation if people build houses a mile or 10 miles out of harm’s way.

The political windfall profits that follow a natural disaster epitomize how politicians’ and citizens’ interests are antithetical. The more citizens suffer, the more politicians profit by throwing money and promises in all directions. The only concept of “disaster” guiding federal policy now is the horror that politicians may miss a chance to use tax dollars to buy themselves more votes.

Footnotes:

1.“Laugh Lines,” Los Angeles Times, July 10, 1997.
2. John Riley, “Shoreline in Peril/Flood Of Claims,” Newsday, August 18, 1998.
3. Rocky Barker, “The Flood—Next Time,” Idaho Statesman, March 19, 1997.
4. Ibid.
5. Author interview with Scott Faber, July 8, 1996.
6.  Riley.
7. “How Often Should Taxpayers Foot Bill for Coastal Rebuilding?”
Associated Press, August 30, 1998.
8. Ibid.
9. Greg Jaffe and Motoko Rich, “N.C. Island Attracts Tourists,
Hurricanes, Federal Disaster Aid,” Palm Beach Post, September 6, 1998.
10. George M. Stephens, “Let States Finance Their Own Disasters,”
News and Observer, November 24, 1996.
11. “Prepared Statement of the Honorable James L.Witt, Director
Federal Emergency Management Agency, before the House
Committee in Appropriations VA, HUD and Independent Agencies
Subcommittee,” Federal News Service,April 30, 1996.
12. Author interview with a FEMA employee who wished to remain anonymous, August 1, 1996.
13. James Lee Witt,“Federal Flood Insurance,” Los Angeles Times, July 2, 1997.
14. “Testimony of James L.Witt, Director Federal Emergency
Management Agency, Senate Appropriations,VA, HUD, and Independent
Agencies, FY98 VA HUD Appropriations,” Federal Document
Clearinghouse, March 18, 1997.
15. Author interview with Beth Milleman, August 2, 1996.
16. FEMA Inspector General, “Audit of the Enforcement of Flood Insurance Purchase Requirements for Disaster Aid Recipients,” FEMA IG, H-14-95, July 1995.
17. Cory Reiss, “Flood Funds Drying up Fast,” Sarasota Herald-
Tribune, October 3, 2005.
18. James Toedtman, “Curbing Coastal Development/Officials
Recommend Revamp of Insurance Policy,” Newsday,April 11, 1999.
19. Gene Marlowe, “Agency Fed up with Rebuilding Flood Zones,” Tampa Tribune, June 15, 1998.
20. “Seeking an End to a Flood of Claims,” National Wildlife
Federation, July 1, 1999.
21. Rad Sallee, “Federal Flood Payoffs Crest Here, Study Says,”
Houston Chronicle, July 22, 1998.
22. Bob Schildgen, “Unnatural Disasters; Areas That Suffer Repeat Flooding Yet Continue To Rebuild,” Sierra Magazine, May 1999.
23. Statement of Michael D. Brown, House Committee on
Appropriations: Homeland Security Subcommittee, March 24, 2004,
www.globalsecurity.org/security/library/congress/2004_h/.
24. Testimony of The Honorable Michael Brown, Under Secretary,
Emergency Preparedness and Response, United States Senate Committee on Appropriations, February 26, 2004, www.globalsecurity.org/security/library/congress/2004_h/040226-brown.htm.
25. Joshua Partlow, “Aid for Those in Flood Zones Fell Short,” Washington Post, September 26, 2005.
26. ABC News: “Inaccuracies Abound in FEMA’s Flood Insurance Program,”ABC News, October 4, 2004.
27. Rob Young,“Why Are We Building in Harm’s Way?” Asheville
Citizen-Times (North Carolina), September 25, 2005.