Peter Schuck’s Why Government Fails So Often is one of the most important books of the year and may be one of the most important books of the decade. Although I have seen this prolific author’s name over the years, I had never read any of his work. My loss. Fortunately, I have read every page—including endnotes—of his latest book, and it is a tour de force.

Schuck, the Simeon E. Baldwin Professor of Law Emeritus at Yale University, calls himself a “militant moderate.” I’m not sure what the “militant” part refers to; my guess is that it’s his word for “passionate.” And, although he does come off as a political moderate, his reasoning is radical. That is, in virtually all of the many government policies and procedures he considers, Schuck goes to the root of the problem. He dissects the workings of government, explaining why it works so badly and creates so many problems. It isn’t until Chapter 11 that he gets to his examples of policy successes, and most of them are either thin gruel or examples of successes resulting from reductions in government’s reach. In his final chapter, Schuck advises everyone, including libertarians, “to accept” both the fact of government’s many failures and his reasoning about those failures. But he then cautions conservatives to “accept the fact” that “big government is here to stay.” Although he accepts the permanence of big government, his analysis of government’s failures is so well-argued, so fact-based, and so devastating that it made me want to ask him, “Why aren’t you a libertarian?”

Success and failure / To explain why government fails so often, Schuck must establish that it fails often. He does so throughout the book in a nice weaving of cause and effect. In Chapter Two, titled “Success, Failure, and In Between,” he gives his measures of success and failure. Schuck has fairly demanding, but not unreasonable, standards for total success. To succeed, in his view, a policy should pass a cost-benefit test, be “fair,” and be manageable. He then gives 14 more principles that a policy should comply with to be implemented. I won’t state them all here, but all are sensible. The first is that policymakers “should intervene only when it will correct a significant market failure.” Another is that a program “should be target-efficient.” Yet another is that cost-benefit analysis “should be used to retrospectively analyze the effectiveness of existing policies, not just proposed ones.” The last of the 14 principles is that policymakers should avoid the “Nirvana fallacy.” Correctly citing University of California, Los Angeles economist Harold Demsetz (my mentor) as the originator of that term, Schuck explains that the Nirvana fallacy is what one commits when viewing a policy choice “as if it were one between an ideal program and the existing, flawed one.”

In his third and fourth chapters, Schuck discusses the structure of the U.S. political system and the political culture. Those chapters cover a lot of ground and are difficult to summarize succinctly. Suffice it to say that, although his own biases show at times, he does a nice job of explaining the federalist and cultural constraints under which U.S. policymakers must operate.

Although the whole book is interesting, it becomes a page-turner with Chapter Five, “Incentives and Collective Irrationality.” This is essentially Schuck’s version of public choice. Take one of the first sentences in the chapter: “First, incentives must be capable of eliciting the desired behaviors of both the policy makers and of the actors they must influence in order for the policy to work” (italics in original). This one sentence is far beyond what most advocates of government intervention ever discuss. What incentives do government officials have to do the efficient thing? Read through welfare economics articles and you can see sharp economists recognizing the various ways that markets can fail. But then, when they get to their government solutions, they write as if the incentives of the government officials trusted to formulate and implement the policies do not matter. That gap in thinking is a huge problem, and Schuck recognizes it. After listing five other factors that matter, he writes, “For deeply structural reasons, all six of these features are in shorter supply in government than budget is.” He then adds, “To show why, I contrast government with markets that, for all their well-known imperfections, earn high marks for incentives, rationality, information generation, adaptability, credibility, and management.”

In this chapter, Schuck explicitly defends public choice from its critics, writing, “[P]ublic choice theory’s rational actor model explains and predicts far more observed official behavior than its main rival, public interest theory.” He then lays out how well public choice predicts the destructiveness of many government programs—programs that are destructive precisely because of the many perverse incentives that motivate politicians, bureaucrats, special interests, and voters. Schuck gives many historical and contemporary examples of government programs that cause large inefficiencies, including unemployment insurance (creates the incentive to stay unemployed); disability insurance (creates the incentive to claim disability and quit work); and the Dodd-Frank Act (creates moral hazard by broadening the government’s safety net for risk takers). Interestingly, Schuck ends by critically discussing the claim of my co-blogger, George Mason University economist Bryan Caplan, that policymakers can sometimes “enact wiser policies than the median voter prefers.” When a noted moderate political scientist (Schuck) finds that a noted anarchist (Caplan) is too optimistic about the political system, you know you are reading an interesting book that cuts across conventional political categories.

Chapter Six, “Information, Inflexibility, Incredibility, and Mismanagement,” keeps up the drumbeat of government failure. Schuck lays out just how little government knows about many issues on which it acts. Take the fence on the U.S. border with Mexico that costs $16 million per mile. Schuck points out that the government doesn’t know whether the fence or other factors have caused the recent decline in illegal entries into the United States, but that ignorance hasn’t stopped government from spending more money on the fence. That’s not surprising. Members of Congress, he writes, “typically spend most of their time on fund-raising, campaigning, subcommittee work, and constituency-tending.” As a result, “they have little time to read or think deeply about issues.” Spend even a little time with congressmen, as I have, and you’ll see that first-hand.

In that same chapter, Schuck cites, as an example of government’s lack of credibility, the abrupt switch from George W. Bush’s goofy idea to fund a hydrogen car to Barack Obama’s goofy idea to place “his” money on electric-powered cars. Schuck also gives a devastating criticism—clearly written before the failed launch of the government’s health care website—of that website. And don’t miss his story about the U.S. Department of Agriculture’s office to inspect imported catfish, which, after it had spent $20 million to establish the office “and $14 million a year to run it,” had “not inspected a single catfish.”

In Chapter Seven, “Markets,” Schuck explains how well markets work and how policymakers who care about good results need to take account of that fact. He writes:

Paradoxically, markets are, as Adam Smith famously maintained, a civilizing, socializing, and pacifying process—even as they wreak “creative destruction” (as Joseph Schumpeter put it) with remorseless efficiency. In this way, markets make the toleration of differences an economic virtue not just a civic one, and they give their greatest rewards to those who know how to anticipate and promote differences for which people are willing to pay.

Indeed.

In the next three chapters, “Policy Implementation,” “The Limits of Law,” and “The Bureaucracy,” Schuck adds further to the case for government failure, with tight reasoning and multiple examples. Two examples stand out. One is his discussion of how the Clean Air Act, by imposing strict standards on new sources of pollution, caused many electric utilities to use their older, dirtier power plants longer. A related example is the Corporate Average Fuel Economy standards for cars and trucks, which cause people to hold on to their older, higher-pollution, fuel-guzzling vehicles longer.

Very seldom does Schuck’s political bias show, but one striking case is his discussion, in “The Bureaucracy,” of the recent Internal Revenue Service Tea Party scandal. He refers to it as “a rogue IRS unit’s targeting of conservative nonprofit groups for discriminatory treatment.” Schuck clearly makes the judgment that the IRS unit was “rogue,” and not directed from the top. There is more evidence for the latter view now than when Schuck wrote this, but he should not have presumed, as he did, to know the answer.

Finally, in Chapter 11, “Policy Successes,” we get to Schuck’s case for government. Lined up against his many chapters on many spectacular government failures, his “successes” are relatively weak. He gives nine contemporary examples: Social Security, interstate highways, food stamps, the Voting Rights Act of 1965, the Immigration Act of 1965, the Earned Income Tax Credit of 1975, the Airline Deregulation Act of 1978, the Welfare Reform Act of 1996, and the National Institutes of Health.

To his credit, Schuck is an honest scholar and so, even in making his case that these programs are successful, he points to weaknesses in his own argument. Consider the G.I. Bill. He cites the work of Cornell University’s Suzanne Metler, an expert on the G.I. Bill, who argues that “we know little about the actual effect of this program on the individuals who benefited from it.” For a number of the other programs, he also gives negatives that offset his positive case. Interestingly, the two programs for which he finds the least downside are not examples of increased government but of decreased government: airline deregulation (which, as the term implies, substantially reduced the government’s role in the airline industry) and welfare reform (which made welfare harder to get and keep).

In his penultimate chapter, “Remedies,” Schuck suggests ways to reduce the government’s failure rate. His suggestions are underwhelming, as I believe he would probably admit. One of his best suggestions, to deal with the moral hazard that so many government programs create, is “to avoid creating it in the first place.” His worst, in my view, is to give politicians who challenge incumbents “access to free [read “taxpayer-financed”] television and mail privileges.”

Schuck ends with a short chapter in which he gives his central message about government failure. One great quote sums it up:

The failures are not just random, occasional, or partisan; they are large, recurrent, and systemic. Few are total failures—after all, the government’s money and authority almost always do some group some good. But if the relatively small group of winners is powerful enough, the policy failures are that much more firmly entrenched. [Italics in original.]