Most Americans think that the federal government is incompetent and wasteful. Their negative view is not surprising given the steady stream of scandals emanating from Washington. Scholarly studies support the idea that many federal activities are misguided and harmful. A recent book on federal performance by Yale University law professor Peter Schuck concluded that failure is “endemic.” What causes all the failures?

First, federal policies rely on top-down planning and coercion. That tends to create winners and losers, which is unlike the mutually beneficial relationships of markets. It also means that federal policies are based on guesswork because there is no price system to guide decision making. A further problem is that failed policies are not weeded out because they are funded by taxes, which are compulsory and not contingent on performance.

Second, the government lacks knowledge about our complex society. That ignorance is behind many unintended and harmful side effects of federal policies. While markets gather knowledge from the bottom up and are rooted in individual preferences, the government’s actions destroy knowledge and squelch diversity.

Third, legislators often act counter to the general public interest . . .

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