Why I would be inclined to replace the FCC and the FDA

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Francis Fukuyama writes,

Institutions are created to meet the demands of specific circumstances, but then circumstances change and institutions fail to adapt. One reason is cognitive: people develop mental models of how the world works and tend to stick to them, even in the face of contradictory evidence. Another reason is group interest: institutions create favored classes of insiders who develop a stake in the status quo and resist pressures to reform.

Pointer from Tyler Cowen.

The same holds true in business. Business organizations develop group-think biases and constituencies that resist change. However, if this gets to the point where the organization becomes dysfunctional, the market weeds out the organization. Government agencies lack such a weeding-out mechanism.

Overall, I found Fukuyama’s views did not correspond well with mine. I am concerned with the fundamental knowledge gaps that plague government policymakers. I think that the difference between market competition and government monopoly is significant. I also think that there are diseconomies of scale and scope in government.

4 thoughts on “Why I would be inclined to replace the FCC and the FDA”

  1. Do you think we are seeing a “weeding out” of governments via international competition for businesses by favorable tax and fiscal policies? It seems like it is at a much longer time scale than markets, but is having some effect. I thought of the Burger King-Tim Horton’s negotiation and possible inversion.

    • The response over that long time period will be to eliminate tax havens. For example- look at what is slowly evolving in the case of sales tax on internet purchases in the US.

      • We see this type of competition because firms and capital can exit, but may still be blunted or thwarted (as Yancey suggests) or corrupted. Even exit is a fairly invasive procedure so that bluntd it. It can be thwarted by things like Obama’s recent accusations of lack of patriotism. And it can be corrupted like how cities screw their taxpayers to bribe sports teams.

  2. “Do you think we are seeing a “weeding out” of governments via international competition for businesses by favorable tax and fiscal policies?”

    I’m a bit embarrassed to say I didn’t think of this immediately because this is exactly what we are seeing in terms of tax jurisdictions.

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