The Cost of Blindness

posted at 5:02 pm on November 1, 2009 by Doctor Zero

Suppose an automobile company launches a major campaign to sell new cars, built around a $4500 rebate for anyone who trades in an old car.  The company manages to sell a good number of new cars under this program, but discovers the company somehow paid $24,000 for each of those $4500 rebates.  Worse, sales figures from the following months prove this expensive program did nothing but shift car sales forward during the time of the rebate program, making third-quarter sales look good at the expense of fourth-quarter sales.  The company has lost over twenty thousand dollars per sale, and received almost zero net growth in sales volume over the long term.  The executives in charge of the rebate program cruise into the next shareholders’ meeting with big smiles, proclaiming their program a fabulous success.  It requires little imagination to see the executives leaving that meeting in the company of security guards, with an hour to clean out their desks. 

What if the company discovered it was unable to fire, or even discipline, the executives responsible for this disaster, because they were hired under ironclad four-year contracts?  And what if the shareholders were forced to rely on performance reports prepared entirely by the incompetent executives, with dissenting voices shouted down as corporate saboteurs? 

You might have a dim view of this company’s long-term prospects for survival, but the situation is even worse than you might think.  Because the executives insist on proclaiming their awful rebate program to be a roaring success, cook up reports that reinforce their claims, and face no disciplinary action, the company will be inclined to make future decisions under the faulty premise that the rebate program was a good idea.  This bad idea will become the precedent for other bad ideas in the future, leading the company on a downward spiral into collapse.

The above example precisely mirrors the performance of the government’s Cash for Clunkers program, the latest example of a horrendously wasteful and wrongheaded government plan to be hailed as a triumph by the politicians who designed it.  At least $23,500 of taxpayer money was spent on each $4500 clunker rebate, and the net sales benefit to the auto companies was essentially zero.  Another failed government program touted as a success is President Obama’s pork-laden “stimulus” plan, which wasted over $800 billion in taxpayer money, and stimulated nothing.  In both cases, the President and congressional Democrats will survive disasters that would immediately end the careers of private-sector executives who turned in similar performances… or the companies would not survive their failure to terminate them.

The institutional blindness of Big Government is one of the most compelling reasons it should be trimmed down to size.  The effectiveness of a large system can be judged, in part, by its ability to respond to feedback.  The ability of the system to cope with failure is at least as important as its ability to achieve its initial goals.  What good is a diet plan that helps you lose weight, but destroys your heart and liver in the process?  Would it be reasonable to judge the success of such a diet solely by the number of pounds lost… right up until you dropped dead on the scale during your morning weigh-in?

The economy of the United States is a fantastically complicated system, and its performance is shaped by random and unpredictable events, including natural disasters and unexpected technological breakthroughs.  There is no way anyone can set a few clear objectives, and steer a typhoon of trillions of transactions toward those goals with mechanical precision.  The only way politicians can pretend they have that ability is to cook the books, and convince the electorate to consider only a few carefully-chosen statistics – ignoring the present and future damage to major economic organs, to applaud the pounds lost under a fiscal diet program that is killing us. 

Private corporations have highly sensitive feedback mechanisms.  They must remain in business, a goal that requires balancing many short-term objectives and long-term strategy.  They cannot afford to pursue inefficient programs indefinitely.  They can’t survive forever under incompetent leadership.  They can’t spend $23,500 apiece to issue $4500 rebates, and behave as if the program was a success.  If they do these things, they perish.

Government’s feedback loop is hopelessly corrupted.  The over-riding objective of politicians is to remain in office… and they become even more dangerous when they’ve been in office for so long that their primary objective becomes securing their “legacy.”  The cost of their mistakes is passed along to taxpayers, numbing the government’s ability to assess its own performance.  They have extensive control over the public’s ability to assess their performance… especially when the media favors the party in power.

If defenders of the Cash for Clunkers program were compelled to speak with complete honesty, they would probably maintain the true purpose of the program was to get those “clunkers” off the road, according to environmentalist dogma, so the staggering cost and inefficiency of the program are beside the point.  It is very, very difficult to compel them to speak with that kind of honesty.  The best way I can think of is to turn all of them - including the President - into private citizens, as quickly as possible.

Blowback