Seven Principles of Sound Public Policy

By Lawrence W. Reed

The following contains excerpts from a speech given by Larry Reed, an adjunct scholar with the Georgia Public Policy Foundation and president of the Midland, Michigan-based Mackinac Center for Public Policy, to the Economic Club of Detroit in 2001.The speech outlines key principles that should provide valuable guidance to all current and future policymakers.

…I know that this Club has heard many policy addresses by many leaders in government, business and academia-policy addresses that dealt in some detail with specific pressing issues of the day, from transportation to education to health care and countless other important topics. At the Mackinac Center for Public Policy, our specialty is researching and recommending detailed prescriptions for today’s policy questions, and I thought about doing that very thing here today. But upon reflection, I decided instead to step back from the minutiae of any particular issue and offer you something a little different: a broad brush approach that is applicable to every issue. I’d like us all to think about some very critical fundamentals, some bedrock concepts that derive from centuries of experience and economic knowledge. They are, in my view, eternal principles that should form the intellectual backdrop to what we do as policymakers inside and outside of government.

It’s fashionable for a person in my profession to tell audiences that he approaches all questions with an open mind. Whatever that may mean to you, to me it does not equate with an empty mind. We have learned a few things over the centuries. It’s not uninformed bias that prompts us without debate to accept the notion that the sun comes up in the east. It isn’t blind ideology that tells us that a representative republic is superior to dictatorship or monarchy. When we study an issue at the Mackinac Center, we begin with the core assumption that private property and free market economies are superior to state ownership and central planning. That’s not just one man’s superficial opinion; rather, it is now one of the settled truths among people who have their eyes and ears open and for whom reason, logic, facts, evidence, economics and experience mean something.

The “Seven Principles of Sound Public Policy” that I want to share with you today are pillars of a free economy. We can differ on exactly how any one of them may apply to a given issue of the day, but the principles themselves, I believe, are settled truths. They are not original with me; I’ve simply collected them in one place. They are not the only pillars of a free economy or the only settled truths, but they do comprise a pretty powerful package. In my belief, if every cornerstone of every state and federal building were emblazoned with these principles-and more importantly, if every legislator understood and attempted to be faithful to them-we’d be a much stronger, much freer, more prosperous, and far better governed people.

PRINCIPLE #1: Free people are not equal, and equal people are not free.

First, I should clarify the kind of “equalness” to which I refer in this statement. I am not referring to equality before the law-the notion that you should be judged innocent or guilty of an offense based upon whether or not you did it, and your race, sex, wealth, creed, gender or religion should have nothing to do with it. That’s an important foundation of Western Civilization and though we often fall somewhat short of it, I doubt that anyone here would quarrel with the concept.

No, the “equalness” to which I refer is all about income and material wealth-what we earn and acquire in the marketplace of commerce, work, and exchange. I’m speaking of economic equality. Let’s take this first principle and break it into its two halves.

Free people are not equal. When people are free to be themselves, to be masters of their own destinies, to apply themselves in an effort to improve their well-being and that of their families, the result in the marketplace will not be an equality of outcomes. People will earn vastly different levels of income; they will accumulate vastly different levels of wealth. While some lament that fact and speak dolefully of “the gap between rich and poor,” I think people being themselves in a free society is a wonderful thing. Each of us is a unique being, different in endless ways from any other single being living or dead. Why on earth should we expect our interactions in the marketplace to produce the same results?

We are different in terms of our talents. Some have more than others, or more valuable talents. Some don’t discover their highest talents until late in life, or not at all. Magic Johnson is a talented basketball player. Should it surprise anyone that he makes infinitely more money at basketball than I ever could?

We are different in terms of our industriousness, our willingness to work. Some work harder, longer, and smarter than others. That makes for vast differences in how others value what we do and in how much they’re willing to pay for it.

We are different also in terms of our savings. I would argue that if the President could somehow snap his fingers and equalize us all in terms of income and wealth tonight, we would be unequal again by this time tomorrow because some of us would save it and some of us would spend it. These are three, but by no means the only three, reasons why free people are simply not going to be equal economically.

Equal people are not free, the second half of my first principle, really gets down to brass tacks. Show me a people anywhere on the planet who are indeed equal economically, and I’ll show you a very unfree people. Why?

The only way in which you could have even the remotest chance of equalizing income and wealth across society is to put a gun to everyone’s head. You would literally have to employ force to make people equal. You would have to give orders, backed up by the guillotine, the hangman’s noose, the bullet, or the electric chair, that would go like this: Don’t excel. Don’t work harder or smarter than the next guy. Don’t save more wisely than anyone else. Don’t be there first with a new product. Don’t provide a good or service that people might want more than anything your competitor is offering.

Believe me, you wouldn’t want a society where these were the orders. Khmer Rouge Cambodia in the late 1970s came close to it, and the result was that upwards of 2 million out of 8 million people died in less than four years. Except for the elite at the top who wielded power, the people of that sad land who survived that period lived at something not much above the Stone Age.

What’s the message of this first principle? Don’t get hung up on differences in income when they result from people being themselves. If they result from artificial political barriers, then get rid of those barriers. But don’t try to take unequal people and compress them into some homogenous heap. You’ll never get there, and you’ll wreak a lot of havoc trying.

Confiscatory tax rates, for example, don’t make people any more equal; they just drive the industrious and the entrepreneurial to other places or into other endeavors while impoverishing the many who would otherwise benefit from their resourcefulness. Abraham Lincoln is reputed to have said, “You cannot pull a man up by dragging another man down.”

PRINCIPLE #2: What belongs to you, you tend to take care of; what belongs to no one or everyone tends to fall into disrepair.

This essentially illuminates the magic of private property. It explains so much about the failure of socialized economies the world over.

In the old Soviet Empire, governments proclaimed the superiority of central planning and state ownership. They wanted to abolish or at least minimize private property because they thought that private ownership was selfish and counterproductive. With the government in charge, they argued, resources would be utilized for the benefit of everybody.

What was once the farmer’s food became “the people’s food” and the people went hungry. What was once the entrepreneur’s factory became “the people’s factory” and the people made do with goods so shoddy there was no market for them beyond the borders.

We now know that the old Soviet Empire produced one economic basketcase after another, and one ecological nightmare after another. That’s the lesson of every experiment with socialism: while socialists are fond of explaining that you have to break some eggs to make an omelet, they never make any omelettes. They only break eggs.

If you think you’re so good at taking care of property, go live in someone else’s house, or drive their car, for a month. I guarantee you neither their house nor their car will look the same as yours after the same period of time.

If you want to take the scarce resources of society and trash them, all you have to do is take them away from the people who created or earned them, and hand them over to some central authority to manage. In one fell swoop, you can ruin everything.

PRINCIPLE #3: Sound policy requires that we consider long-run effects and all people, not simply short-run effects and a few people.

It may be true, as Keynes once declared, that “in the long run, we’re all dead.” But that shouldn’t be a license to enact policies that make a few people feel good now at the cost of hurting many people tomorrow.

I can think of many such policies. When Lyndon Johnson cranked up the Great Society, the thought was that some people would benefit today from a welfare check. We now know that over the long haul, the federal entitlement to welfare encouraged idleness, broke up families, produced intergenerational dependency and hopelessness, cost taxpayers a fortune, and yielded harmful cultural pathologies that may take generations to undo. Likewise, policies of deficit spending and government growth-while enriching a few at the start-have eaten at the vitals of the nation’s economy and moral fiber for decades.

This principle is actually a call to be thorough in our thinking. It says that we shouldn’t be superficial in our judgments. If a thief goes from bank to bank, stealing all the cash he can get his hands on, and then spends it all at the local shopping mall, you wouldn’t be thorough in your thinking if all you did was survey the store owners to conclude that this guy stimulated the economy.

We should remember that today is the tomorrow that yesterday’s poor policy makers told us we could ignore. If we want to be responsible adults, we can’t behave like infants whose concern is overwhelmingly focused on self and on the here-and-now.

PRINCIPLE #4: If you encourage something, you get more of it; if you discourage something, you get less of it.

You and I as human beings are creatures of incentives and disincentives. We respond to incentives and disincentives. Our behavior is affected by them, sometimes very powerfully. Policy makers who forget this will do dumb things like jack up taxes on some activity and expect that people will do just as much of it as before, as if they are sheep lining up to be sheared.

Remember when George Bush (the first one) reneged under pressure on his 1988 “No New Taxes!” pledge? We got big tax hikes in the summer of 1990. Among other things, Congress dramatically boosted taxes on boats, aircraft and jewelry in that package. They thought that since rich people buy such things, we should let `em have it with higher taxes. They expected $31 million in new revenue in the first year from the new taxes on those three things. We now know that the higher levies brought in just $16 million and we laid out $24 million in additional unemployment benefits because of the people thrown out of work in those industries by the higher taxes. Only in Washington, where too often lawmakers forget the importance of incentives, can you aim for 31, get only 16, spend 24 to get it and think that somehow you’ve done some good.

Want to break up families? Offer a bigger welfare check if the father splits. Want to reduce savings and investment? Double-tax `em, and pile on a nice, high capital gains tax on top of it. Want to get less work? Impose such high tax penalties on it that people decide it’s not worth the effort.

PRINCIPLE #5: Nobody spends somebody else’s money as carefully as he spends his own.

Ever wonder about those stories of $600 hammers and $800 toilet seats that government sometimes buys? You could walk the length and breadth of this land and not find a soul who would say he’d gladly spend his own money that way. And yet, it often happens in government and sometimes in other walks of life too. Why? Because invariably, the spender is spending somebody else’s money.

Economist Milton Friedman elaborated on this sometime ago when he pointed out that there are only four ways to spend money. When you spend your own money on yourself, you make occasional mistakes but they’re few and far between. The connection between the one who earned it, the one who is spending it, and the one who is reaping the final benefit is pretty strong. When you use your money to buy someone else a gift, you have some incentive to get your money’s worth but you might not end up getting something the intended recipient really needs or values. When you use somebody else’s money to buy something for yourself, such as lunch on an expense account, you have some incentive to get the right thing but little reason to economize. Finally, when you spend other people’s money to buy something for someone else, the connection between the earner, the spender and the recipient is the most remote-and the potential for mischief and waste is the greatest. Think about it-somebody spending somebody else’s money on yet somebody else-that’s what government does all the time.

PRINCIPLE #6: Government has nothing to give anybody except what it first takes from somebody, and a government that’s big enough to give you everything you want is big enough to take away everything you’ve got.

This is not some radical, ideological, anti-government statement. It’s simply the way things are. It speaks volumes about the very nature of government. And it’s perfectly in keeping with the philosophy and advice of America’s Founders.

George Washington once said, “Government is not reason. It is not eloquence. It is force. Like fire, it can be a dangerous servant or a fearful master.” Think about that for a moment. Washington was saying that even if government is no bigger than he wanted it to be and even if it does its work so well that it indeed is a servant to the people, it’s still a dangerous one! As Groucho once said of Harpo, “He’s honest, but you’ve got to watch him.” You’ve got to keep your eye on even the best and smallest of governments because, as Jefferson warned, the natural tendency is for government to grow and liberty to retreat. At the risk of adding yet another quote to this paragraph, it was Alexander Hamilton who wisely told us that “Control of a man’s subsistence is control of his will.”

The so-called “welfare state” is really not much more than robbing Peter to pay Paul, after laundering and squandering much of Peter’s wealth through an indifferent, costly bureaucracy. The welfare state is like feeding the sparrows through the horses, if you know what I mean. Put another way, it’s like all of us standing in a big circle, with each of us having one hand in the next guy’s pocket. Somebody once said that the welfare state is so named because in it, the politicians get well and the rest of us pay the fare.

A free and independent people do not look to government for their sustenance. They see government not as a fountain of “free” goodies but rather as a protector of their liberties, confined to certain minimal functions that revolve around keeping the peace, maximizing everyone’s opportunities, and otherwise leaving us alone. There is a deadly trade-off to reliance upon government, as civilizations at least as far back as ancient Rome have painfully learned.

When your congressman comes home and says, “Look what I brought for you!” you should demand that he tell you who’s paying for it. If he’s honest, he’ll tell you that the only reason he was able to get you something was that he had to vote for the goodies that other congressmen wanted to take home-and you’re paying for all that too.

PRINCIPLE #7: Liberty makes all the difference in the world.

Just in case the first six principles didn’t make the point clearly enough, I’ve added this as my seventh and final one.

Liberty isn’t just a luxury or a nice idea. It’s much more than a happy circumstance or a defensible concept. It’s what makes just about everything else happen. Without it, life is a bore at best. At worst, there is no life at all.

Public policy that dismisses liberty or doesn’t preserve or strengthen it should be immediately suspect in the minds of a vigilant people. They should be asking, “What are we getting in return if we’re being asked to give up some of our freedom?” Hopefully, it’s not just some short-term handout or other “mess of pottage.” Ben Franklin went so far as to advise us that “He who gives up essential liberty for a little temporary security deserves neither liberty nor security.”

Too often today, policy makers give no thought whatsoever to the general state of liberty when they craft new policies. It if feels good or sounds good or gets them elected, they just do it. Anyone along the way who might raise liberty-based objections is ridiculed or ignored. Today, government at all levels consumes more than 42 percent of all that we produce-compared to perhaps 6 or 7 percent in 1900. Yet, few people seem interested in asking the advocates of still more government such cogent questions as “Why isn’t 42 percent enough?,” “How much more do you want?,” or “To what degree do you think a person is entitled to the fruits of his labor?”

I yearn for the day when Michiganians and all Americans practice these seven principles. I think they are profoundly important. Our past devotion to them, in one form or another, explains how and why Americans fed, clothed, and housed more people at higher levels than any other people in the history of the planet. And they are key to preserving that crucial element of life we call liberty. Thanks for the opportunity to share them with you today and thanks for whatever you may do from this day forward to put them into common practice.

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