The State of Michigan offers three fine examples of government failure. These were featured on the Rachel Maddow Show on 4 March 2016.

  1. Flint’s dirty water. The city of Flint, Michigan, became ruled by an emergency manager appointed by the state. To reduce costs, the manager switched the water supply to a contaminated river, and failed to inject treatments that would prevent corrosion in lead pipes. Now the city has to provide bottled drinking water at great expense, while children are ill from the lead.
  2. Detroit’s dangerous schools. The schools were put under direct rule by governor, via an emergency manager. The buildings are deteriorating, while mice and rats run amok. Children are in danger attending moldy schools.
  3. Veterans mistreated. The governor replaced the caretakers with cheap contract workers. The result is understaffed hospitals and improper medications. The Detroit Free Press reported on 2 March 2016 that a state audit identified glaring deficiencies, including inadequate staffing levels, shoddy response to falls, a failure to respond properly to abuse claims, inadequate controls for prescription medication.  
Bad policy bankrupted a once thriving city and industry. Michigan has the worst tax of all, a gross receipts tax, which cuts into the profits of small business which cannot pass on all the tax, and makes them shut down, or not even start.

The City of Detroit and its once dominant automobile industry are also prime examples of Michigan’s government failure. Bad policy bankrupted a once thriving city and industry. Michigan has the worst tax of all, a gross receipts tax, which cuts into the profits of small business which cannot pass on all the tax, and makes them shut down, or not even start.

Economist Mason Gaffney has written on the collapse of Detroit. Governor George Romney (1962-1968) put in an income tax to provide “property tax relief.” In 1975 Michigan adopted the “Single Business Tax,” a tax on gross receipts. In 1995 Governor John Engler took its public schools off the property tax. Gaffney and other economists warned that Michigan’s bad tax system would yield economic trouble, but they didn’t listen.

Economist Mason Gaffney has written on the collapse of Detroit. Governor George Romney (1962-1968) put in an income tax to provide “property tax relief.” In 1975 Michigan adopted the “Single Business Tax,” a tax on gross receipts. In 1995 Governor John Engler took its public schools off the property tax. Gaffney and other economists warned that Michigan’s bad tax system would yield economic trouble, but they didn’t listen.

Michigan has emergency managers because of government failure, and then the managers themselves fail. It is the “fatal conceit” that economist Hayek warned about. The local dictator thinks he knows best, but, as also pointed out by Hayek, these central planners lack the knowledge about the circumstances of time and place. They think they can save a bit of money by replacing familiar caretakers, switching to cheaper water, and skipping school maintenance.

Michigan should decentralize. Let the people govern themselves with local public finance. That requires the replacement of state taxes with property taxes that exempt buildings. That would make enterprise, labor, and consumption tax-free. And after the transition, even landowners would have no tax burden, as the community rent payment would, by bringing down the price of land, replace the mortgage payment.

According to the Mercatus Center, “Michigan is a fairly centralized state, and local governments depend heavily on state grants, especially for schools.”  Instead of installing czars, Michigan should decentralize. Let the people govern themselves with local public finance. That requires the replacement of state taxes with property taxes that exempt buildings. That would make enterprise, labor, and consumption tax-free. And after the transition, even landowners would have no tax burden, as the community rent payment would, by bringing down the price of land, replace the mortgage payment.

As for the veterans, contracting out is often a good policy, but this is not privatization. A truly private firm gets revenue from sales, not from government. When government pays for the veterans’ medical care, it is still government provision when the service is contracted out. Moreover, government is still responsible for the quality of the service, and should specify standards in the contract.

A Washington Post headline in 25 January 2016 exclaimed, “The water crisis in Flint, and the strategy of government failure.” Reason.com on 22 January 2016 declared, “Flint Lead Poisoning: The Anatomy of Government Failure.” The Week on 22 January 2016 headlined, “Flint's water crisis isn't a failure of austerity. It's a failure of government.”

We need to understand why government fails. The deeper problem is not some particular governor or law, but the way we elect government, and the failure of scholars, religious leaders, and rebels to understand the principles of ethics, governance, and economics.

Government failure is ever more commonly called what it is. But we need to understand why government fails. The deeper problem is not some particular governor or law, but the way we elect government, and the failure of scholars, religious leaders, and rebels to understand the principles of ethics, governance, and economics. These principles are:

  1. the ethical principle of not harming others.
  2. the governance principle of voting in small groups.
  3. the economic principle that the profit of the earth is for all.
© Text Copyright Fred Foldvary, Ph.D. rights reserved.
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