The Limits of What the State Can—and Should—Do for the Economy

The question of what governments can do, what they are capable of doing, will strike many Americans, and for that matter most non-Americans, as an easy one. For it is a belief, now widely held and strongly held, that the government can, if it really puts its mind and heart to a task, do anything that is not palpably impossible.

This acceptance of the omnipotence of the state does not represent a generalization of experience; it is not a product of demonstrated effectiveness in bending events to the wise or foolish designs of policy. On the contrary, the belief is an article of faith, indeed an article of almost desperate faith.

Our faith in the power of the state is a matter of desire rather than demonstration. When the state undertakes to achieve a goal and fails, we cannot bring ourselves to abandon the goal, nor do we seek alternative means of achieving it, for who is more powerful than a sovereign state? We demand, then, increased efforts of the state, tacitly assuming that where there is a will, there is a governmental way.

So what economic tasks can a state perform? I propose a set of rules that bear on the answer to that question.

Rule 1: The state cannot do anything quickly… A decent respect for due process lies behind some procedural delays, and poses a basic issue of the conflicting demands of justice and efficiency in economic regulation.

Rule 2: When the national state performs detailed economic tasks, the responsible political authorities cannot possibly control the manner in which they are performed, whether directly by governmental agencies or indirectly by regulation of private enterprise. The lack of control is due to the impossibility of the central authority either to know or to alter the details of a large enterprise. An organization of any size—and I measure size in terms of personnel—cannot prescribe conduct in sufficient detail to control effectively its routine operations.

Rule 3: The democratic state strives to treat all citizens in the same manner; individual differences are ignored if remotely possible. The striving for uniformity is partly due to a desire for equality of treatment, but much more to a desire for administrative simplicity.

Rule 4: The ideal public policy, from the viewpoint of the state, is one with identifiable beneficiaries, each of whom is helped appreciably, at the cost of many unidentifiable persons, none of whom is hurt much. The preference for a well-defined set of beneficiaries has a solid basis in the desire for votes, but it extends well beyond this prosaic value. The political system is not trustful of abstract analysis, nor, for that matter, are most people.

Rule 5: The state never knows when to quit. One great invention of a private-enterprise system is bankruptcy, an institution for putting an eventual stop to costly failure. No such institution has yet been conceived of in the political process; an unsuccessful policy has no inherent termination. The two sources of this tenacity in failure are the belief that the government must be able to solve a social problem, and the absence of objective measures of failure and success.

These rules, and others that could be added, do not say that the state cannot socialize the growing of wheat or regulate the washing of shirts. What the rules say is that political action is social action, that political action displays reasonably stable behavioral characteristics, and that prescriptions of political behavior that disregard these characteristics are simply irresponsible.

4 classes of important economic problems.

1. Monopoly
2. Poverty
3. Economic distress
4. Consumer and worker protection

I find it odd that a society that once a generation will send most of its young men against enemy bullets to defend freedom will capitulate to a small handful of citizens unequal to its challenge.

This basic position does not imply that we should accept the institutions of 1900, or 1963, or any other year, as ideal in the protection they have given to men against fraud and danger. We should be prepared to examine any existing institution, or any proposal for change, with an open mind.

We should not, however, simply assume that there is a useful law for every problem, and we should not lazily accept remedies that take freedom from 97 men in order to give protection to three.

These classes do not exhaust the range of functions undertaken by modern states, but they will suffice to illustrate the positions that seem to me to best meet the values of our society and the known limitations on its political processes.

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