Cliff Winston's New Book Gaining Ground

 Cliff Winston sent me a copy of his forthcoming book Gaining Ground -– so I read it.  This is an optimistic book that celebrates the constructive role that markets play in improving our quality of life.  A theme throughout the book is the synergy between market forces and government activity.  Cliff does a great job surveying the recent empirical literature to inform his discussion.

Here is an important paragraph that packs in several of his “big ideas” in this U.S focused book.

“Most government policy inefficiencies appear to reflect status quo bias caused by some combination of policymakers’ preferences/ideology and resource constraints. Status quo bias inhibits policymakers from learning about the effects of their policies and how they could be improved, and enables X-inefficiencies in one area to persist and interact with inefficiencies in other areas. The self-selection of people who choose to work in government and the legal process undoubtedly strengthen status quo bias and make it less likely that government will reform inefficient policies and implement efficient ones.”   (Gaining Ground page 186)

On many occasions, I have blogged about urban policy with a focus on the failure of Coasian ideas. Why don’t congested cities have road pricing? Why don’t productive, high amenity cities feature less single family housing in order to more efficiently use scarce land?  If the Heckman early intervention program for helping children achieve their full potential is so cost effective, why don’t home owners in cities figure out a payment mechanism to offer this program to reduce urban poverty and local crime?

In cases where the winners win more than the losers lose from policy reform, why doesn’t policy reform occurs?  Cliff’s answer merits new research and discussion and debate.

Cliff’s quote above raises the question of why elected officials prefer to stick with the status quo.  A simple Peltzman Type I versus Type II error model can explain why career concerned government officials do not want to “rock their boat” with new ideas that may not work.

Most government officials do not “want to make waves”.  The simplest way to achieve this goal is to not introduce new policies that may not work.  In Peltzman’s typology ; type I errors are not implementing good ideas that would work.  Type II errors are implementing new policies that don’t work.  Since Type II errors are seen by the world , they pose more risk for the incumbent government official and thus are less likely to be implemented.

Let’s not forget market competition. While leaders in a private firm face the same tradeoffs, they face two additional incentives. Their pay may be directly tied to compensation and their firm may face an innovative hungry and disruptive rival. In this sense, the private leader faces greater incentives to innovate.