Cut the Budget: Apply Reynolds’ Law!

David French reflects on Reynolds’ Law (which I have discussed, and which Glenn Reynolds discussed on Tuesday) and its application to higher education:

When you believe, simplistically, that college somehow equals success, then vacuuming more people into college just makes sense. Yet you’re vacuuming in real people, not stimulus-response lab rats. And many of these real people are quite unprepared for traditional workloads, unused to academic discipline, and — worst of all — almost completely uninterested in the pursuit of knowledge. So you dumb down standards to keep them in, ramp up their free time, and voila, you end up with testimonials like a parent told me about her child in a freshman dorm at a certain unnamed SEC school (hint: Roll Tide!): “She sometimes dodges puddles of vomit on her way to the bathroom and about half the nights can’t even stay in her own room because her roommate is entertaining any one of her various hook-ups.”

My own daughters have not experienced this at their universities. But they attend (or attended—one just graduated in December!) relatively elite universities, and major(ed) in demanding subjects. Students in computer engineering, mathematics, and music are generally serious about what they’re doing. In schools a little lower on the food chain, however, and in less demanding subjects, things are different. I wrote in a comment to my earlier post:

The sad truth is that it’s possible to get a BA or BS without ever reading a book. Professors realize that students can’t or won’t do the reading, so we teach what we want the students to know and then test them only on what’s taken place in class. If I write an exam question that requires them to have done the reading by including something not covered in class, almost no one gets it right, and, worse, the few correct answers are randomly distributed, meaning even the students who got it right were guessing.

Many of the students we turn out are excellent. But many know very little. It’s not just the people in the liberal arts, either. Science, math, and engineering courses are geared to identifying the geniuses. If you’re not one, your success, or lack thereof, is fairly random. So, a lot of talented sub-geniuses drop out of those majors and a lot of semi-competent people get through.

The upshot is that degrees and even GPAs mean less and less, and an ability to discern real talent is worth more and more.

My only caveat is that “an ability to discern real talent” gets rewarded only to the extent that superiors have an ability to discern an ability to discern real talent. In fields where there are few objective measures, that’s too often lacking.

The applicability of Reynolds’ Law is, however, much broader than education. Bart Hall comments on French’s post:

I farm for a living — as in I have no off-farm job, and I refuse crop subsidies — and I can attest that the same phenomenon prevails in the agricultural world.

There are several states in which USDA subsidies constitute more than 100% of net farm income, which is to say that the average farm in those states is in a loss situation without the subsidies. The classic creativity and adaptability of independent farmers has been greatly undermined by subsidies, to the extent that many farmers are little more than welfare dependents.

There are plenty of additional examples, but the above ought to illustrate my point reasonably well.

I say, end all subsidies to everyone. Corporations, farms, NGO grants, the arts, sports, and all the like. The USDA spends $203,000 every year subsidising the Alabama Peanut Queen Festival. Why?

It’s a great point. Reynolds’ Law applies to almost everything that government subsidizes. I say almost everything, because subsidies are sometimes just graft. (The Alabama Peanut Queen Festival?) Let’s think through some of the applications of the general point that subsidizing markers undermines the traits that underlie them:

  1. Education. I’ve already talked about this, but it’s worth noting that subsidizing education doesn’t just undermine traits among students; it undermines the people (the faculty) and the institutions that depend on those traits and seek to instill and develop them. It changes the nature of schools, colleges, and universities, for it redirects their attention from students to satisfying government regulators and obtaining government support. It also undermines the value of the marker, the college degree, making the traits harder to recognize and reward.
  2. Housing. Subsidizing home ownership undermines saving, delaying gratification, investing in the future, and other traits associated with long-term achievement. It also undermines the institutions that depend on them and seek to instill and develop them. The same is true of rent subsidies and other housing and community development programs.
  3. Jobs Programs. Successful people tend to have good jobs. So, why not give people jobs to make them successful? Once again, that doesn’t develop the traits needed to keep a job and succeed at it; it undermines them. Many jobs programs actually have negative consequences, making it harder for people who have gone through them to hold a job subsequently. Why? In the program, there are limited consequences to bad behavior. A similar point, but with many more qualifications, might be made about affirmative action programs.
  4. Agriculture. Successful farms make money. So, let’s give farmers money. Then they’ll be successful, right? Well, no; their talents will be redirected away from farming toward obtaining subsidies.
  5. Welfare. Successful people have incomes. Why not give people incomes? That doesn’t make them successful; in fact it undermines incentives they would have to delay gratification, develop skills, hold a dull job for the sake of future advancement, etc. Subsidizing a lack of productivity, as a variety of thinkers have pointed out, discourages productivity.
  6. Social Security. Giving people subsidized retirement income doesn’t promote behaviors such as saving, investing, thrift, and self-restraint that in fact promote a comfortable retirement; it undermines them. It’s no surprise that the percentage of retirement income people draw from Social Security has been rising, while savings rates have been plummeting.
  7. Corporate Subsidies. Successful firms make money; why not subsidize small companies to help them become successful? In fact, why restrict this to small companies? Why not “make investments” to help corporations succeed, create jobs, and develop new technology? Doing that doesn’t encourage the traits that make companies successful; it undermines them by redirecting efforts from business to politics and lessening the consequences of both good and bad business decisions.
  8. The Arts. Nancy Pelosi told San Francisco artists that she wanted to subsidize the arts so that artists wouldn’t have to have day jobs. That plainly undermines useful traits in several ways. From the point of view of the arts alone, it redirects artists’ attention from their potential audience to the government and the grant panels that consist of fellow artists. It’s no surprise that the result is to drive artists away from producing what non-artists would be able to understand and appreciate.
  9. Science. Sciences and universities have become increasingly dependent on government grants. That redirects scientists’ attention from science to grant-getting, which itself undermines the traits needed for purely scientific success. I received several grants from the NSF early in my career, but stopped pursuing them precisely because of the distortions it introduced into my research and pattern of work.
  10. Energy. Subsidizing various forms of energy over others, and subsidizing conservation, undermines the traits that make utilities and their customers successful. Utilities used to devote themselves to providing the most reliable service at the lowest cost. Now, they are rewarded for making the grid less reliable and less adaptable by using technologies that increase costs.
  11. Trade Barriers. Protection from competition, in any form, insulates businesses from the pressures that develop successful strategies for competition and thus undermines the traits needed for long-term success.
  12. Health Care. Middle-class people tend to have adequate health care. But subsidizing health care insulates them from the pressures that would encourage them to make sensible decisions about health—everything from developing healthy habits to providing for their own health care and insurance to seeing a doctor when and only when it’s likely to do some good. Subsidies within the health care field, moreover, redirect attention away from helping the most people most effectively toward other goals, undermining the traits we have associated with success in doctors, nurses, and other health care providers.
  13. Transportation. Subsidizing the markers of success at individual (Cash for Clunkers?), community (light rail?), and regional (high-speed rail?) levels is not only wasteful, but directs planners, engineers, and ultimately travelers to less effective ways of moving from one place to another. Traits of seeking to maximize efficiency, minimize travel times, maximize safety, and minimize costs are undermined while traits of seeking other social “goods” and seeking government grants are encouraged.
  14. Unions. The preferential treatment given to unions under the Wagner Act and subsequent legislation at city, state, and federal levels (e.g., Davis-Bacon, as well as laws authorizing public sector unions) amounts to a subsidy for unionized workers that undermines the traits that make people successful employees and make organizations employing them successful. See the steel industry, the automotive industry—oh yes, and Wisconsin.

I could go on. But the point, I hope, is clear. Reynolds’ Law provides the basis for an argument against a very wide range of subsidies.

As the Cato Institute demonstrates, much of the current federal budget consists in just the kinds of subsidies that, according to Reynolds’ Law, are counterproductive. Eliminating such subsidies, even leaving Social Security, Medicare, and Medicaid off the table, would go a long way toward eliminating the deficit. Look at their recommendations for cuts. In many departments, it’s 90-100% of the department’s budget.

PS. Here’s a slideshow on free enterprise that features Reynolds’ Law alongside Friedrich von Hayek, Charles Murray, Marvin Olasky, and Thomas Sowell. What really hits the students are the pairs of photographs near the end, which show the same spot in 1990, after years of socialism, and in 2010, after years of free enterprise.

3 thoughts on “Cut the Budget: Apply Reynolds’ Law!

  1. You could go ON? Pretty exhaustive list, I’d say.

    But and however, I would like to mention a type of subsidy that is the direct cause of our current financial crisis. OK, it’s one of the direct causes, the other being the fiscal incontinence of Congress. That would be Money Subsidies.

    Money subsidies are the guarantees that are explicit or implicit in a lending transaction that makes it very attractive to borrowers to borrow money that would otherwise be terribly imprudent, and induces lenders not to care about the fundamental imprudence because they will get their money back no matter what. You know where I’m going with this.

    Yes, my old bugaboo, student loans. Long before it was trendy– heck, it may still not be trendy!– I was decrying the evils of suckering people into taking out tens of thousands of dollars of student loans that were, from an economic standpoint, stupid. This had two effects: it made sending Sally So-So Student and Neddy Not-Ready seem affordable. But the easy money caused higher ed inflation and, even before the downturn, it was obvious that a sizable percentage of college grads would not get jobs that really justified the expense of the education. And who got saddled with the debt? Either middle-aged parents who should be saving for retirement or young people just starting out.

    I think that a policy that promotes saddling people with outrageous amounts of debt is unethical, but that’s just me. Oh, and George W. Bush signed into law a loan forgiveness plan that will wipe out your student loan debt if you “serve your country” by becoming a federal bureaucrat for 10 years. After that, of course, you’ll be good for nothing else, kinda like the prisoners who can’t hack it outside.

    And the same principle can be applied to HOUSING LOANS. No need to belabor that, right?

    Oh, and one more thing: my daughter says that her hall in her dorm is the most vomited-on in the whole school. And someone even took a dump in their student lounge last semester. Nice. She could have gone to Providence, but nooooooo…..

  2. Barbara, Good point. Subsidizing debt, in general, doesn’t encourage the character traits that lead to whatever individual or social good the subsidies are trying to promote; it undermines them. That applies across a wide variety of possible government purposes.

    I find it interesting that the GI Bill, for example, which subsidized education for veterans and enabled my father and his brothers to go to college, seems to have been an exception to Reynolds’ Law. Military service might have developed enough of the desired traits that further subsidies actually worked. Or maybe the economy was growing and changing enough that the traits were being encouraged by enough other things.

  3. Well, when you think about it, GI’s did something for their “subsidy.” They did a big thing, and many GI’s didn’t survive to get the benefit. Of all the “entitlements,” I think the GI bill is the only one that is contingent on prior sacrifice, and only those who are discharged with non-dishonorables qualify. All the others are contingent on circumstance that have nothing to do with effort or character. In that sense, it is more of a payment for services rendered rather than an “entitlement.”

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