Understanding Why Government Policies Fail
Gary Galles, an economics professor at Pepperdine University, has in this outstanding book shown how to apply basic economic principles to evaluate concrete policy proposals. In doing so, he offers a comprehensive defense of the free market and criticism of government programs that interfere with it. Galles combines two qualities rarely found together, and it is this combination that makes his book notable. Like Leonard Read, of whom he is a biographer, he can convey free market principles in a simple and memorable way; and he also has a detailed knowledge of the costs and benefits of the policies he analyzes. Pathways to Policy Failure consists of 137 of his articles, divided into four sections, though there is considerable overlapping between them: “Underselling Self-Government: Overselling the State”; “Lax Language”; “Measurements You Can’t Count On”; and “Evaluating Policy Paths.” In what follows, I’ll be able to discuss only a few topics in the book.
You might think it obvious that the best way to evaluate an economic system is through its results, but many critics of the free market are not satisfied with the prosperity it has given us. They claim it rests on base motives and actions. It operates, they say, through a Darwinian struggle in which the strong exterminate the weak. This criticism is the opposite of the truth, and Galles here quotes Murray Rothbard; “The ‘fit’ in the jungle are those most adept at the exercise of brute force. The ‘fit’ on the market are those most adept in the service of society” (quoted on p. 9).
Success in the market depends on how well producers are able to satisfy the demands of consumers. For this reason, the free market is far more under popular control than is government policy in a democracy. People have different preferences, and there is no way for a political system to establish a consensus that everybody will accept. Even a democracy that works well, if there is such a thing, can satisfy only the preferences of the winners of elections. In the free market, by contrast, those whose preferences few share can obtain what they want, so long as businesses can respond to their demand.
In response, market critics say that the free market is concerned only with money: economists who defend the market are like Oscar Wilde’s cynic, “who knows the price of everything and the value of nothing.” As Galles points out, the market does not reduce all behavior to trying to make the most money you can; to the contrary, profit-seeking businesses will endeavor to satisfy the tastes of consumers, whatever these might be. I’m inclined to think that he goes too far, though, when he claims: “To say that economists don’t know the value of anything is true, but irrelevant. Nobody knows the objective value of anything, because values are not objective” (p. 40). Whether values are objective is a vexed philosophical issue, and Galles’s stance on it is by no means obviously true. If an “objective value” is characterized as one that you ought to prefer, even if you don’t, what is incoherent about that? But this does not weaken the key point that the free market gives people what they demand.
In doing this, the market minimizes waste. “For instance, selling part of the output that would otherwise be thrown away or require costly disposal is as much a source of profit as any other way of increasing revenue or decreasing costs” (p. 110). Students, he says, seldom learn about this because it “appears to be a natural application of market entrepreneurship and the analysis of production processes that produce multiple outputs—joint products, or productive complements” (p. 110); and few textbooks discuss productive complements.
The efforts of entrepreneurs to pursue profit, Galles emphasizes, suffice in most instances to take care of the interests the free market is accused of neglecting—to the extent these should be taken into consideration. In an especially good article, he demolishes the influential “stakeholder” theory of the corporation, which holds that managers of corporations should take into account other interests besides those of the stockholders. Galles notes that “share prices reflect gains from better utilizing and motivating employees’ skills and abilities, from better developing and serving customers, and from product improvements that users value more than they cost…. Stakeholder claims beyond those enabled by pre-existing property rights can often be understood as ex post … theft or piracy. They wait until something valuable has been created by others’ voluntary relationships, then try to deal themselves into leverage or power over subsequent choices” (pp. 186, 188).
The critics of the market are not satisfied with profit seeking, even if this helps consumers. Those who seek profit are motivated by greed and selfishness. Galles challenges this complaint: What is wrong with caring about what is in your own interest? This does not exclude benevolence to others, and the wrong idea that it does Galles traces in part to Auguste Comte, who coined the word “altruism.” For him, an altruistic act must be motivated totally by care for others rather than yourself, but as Galles says, even “’love your neighbor as yourself’ fails the unlimited duty to others his version of altruism imposes” (p. 212). It is perhaps worth noting, though, that Comte’s account of altruism does not by itself imply that you ought always to sacrifice your own interests to others but only that whenever you don’t, you aren’t altruistic. To get to the antithesis of egoism, the premise “You should always be altruistic” needs to be added.
Most readers will already be aware of the arguments against rent control and minimum wage laws, but Galles makes a point about these misguided measures which I haven’t seen before. “If higher mandated wages increase the amount of labor services offered, the reverse must also be true. Lower wages must reduce workers’ willingness to offer labor services. But if that is so, rent controls must, symmetrically, reduce landlords’ willingness to provide housing, and rent control will restrict rather than expand tenants’ housing options” (p. 243). The arguments for rent control and minimum wage laws are at cross-purposes and you cannot consistently support both.
In a very useful criticism of the “food stamp” program (now called SNAP [Supplemental Nutrition Assistance Program]), Galles shows that in most circumstances its goals won’t be achieved. The aim of the program is to ensure that recipients get the food they need, or at any rate that bureaucrats think they need, and for that reason they are given food stamps rather than money, which could be spent on cigarettes, liquor, and other things the bureaucrats don’t want them to have. Galles points out that in most cases the dollar value of the SNAP grant is less than what the recipients would spend on food without access to the program. If that is so, the SNAP grant frees up part of the money that would have been spent on food to buy other things, including the “bad” items.
I have had space to cover only a few of the issues that Galles with so much analytic skill brings to our attention. The book contains many interesting byways as well. He notes, for example, that Walt Whitman was a strong defender of the free market and small government; and he points out that the biblical verse: “The love of money is the root of all evil” (1 Timothy 6:10) is better translated as “The love of money is the root of many kinds of evil.”