At this point, there’s fairly broad bipartisan agreement that the United States government has stagnated. Our politicians are too old, our government institutions less effective, our spending less efficient than in the halcyon days of Big Government dating back to the 1940-1970 period of US history. But why has the government ossified? To answer that question, let’s start by looking at one system that has managed to continually renew itself and improve since its widespread appearance roughly 200 years ago — the free market economy.
Renewal and Markets
For most of recorded human history, progress was nearly too small to measure along nearly all relevant axes: life expectancy, infant mortality, GDP per capita, etc. Progress along each of these vectors was measured on the order of centuries or millennia, and any hard-won progress was extremely fragile, with events such as the fall of the Western Roman Empire taking centuries to recover from in areas such as Britain. However, beginning in the late 1700s, a confluence of technological, sociological, and ideological innovations led to capital P “Progress” — the sort of rapid, hockey stick growth that we’ve come to expect as a natural part of our world. One of these key innovations, perhaps the most important of them all, was the introduction of capitalism and the free market economy.
Capitalism and free markets together unleashed several key forces that ignited global growth: competition, distributed information processing, and incentive alignment. I’ll outline briefly the importance of each of these below:
Competition. Competition is the driving force behind innovation and efficiency in capitalist economies. When companies vie for market share, they are compelled to improve their products, lower prices, and increase efficiency to attract consumers. This constant pressure to outperform rivals fosters an environment where only the most efficient and innovative businesses thrive. Competition not only benefits consumers with better and more affordable products but also pushes companies to continually innovate, ensuring that progress never stagnates.
Distributed Information Processing. Information about consumer preferences, resource availability, and technological possibilities is widely distributed among individuals and businesses. This decentralized information processing allows markets to quickly adapt to changes. Entrepreneurs and businesses can respond to signals from the market, such as shifts in consumer demand or new technological advancements, enabling a dynamic and responsive economic system.
Incentive Alignment. Capitalism aligns incentives by tying the success of individuals to the success of the companies they own or work for. When management and workers have a stake in the ownership of their companies, their incentives align closely with the economic growth and dynamism of the broader economy. Managers and employees who hold equity in their firms are directly rewarded for the company’s performance, encouraging them to work harder, innovate, and make decisions that enhance the company’s value. This ownership structure creates a powerful alignment of interests that drives productivity and fosters a culture of continuous improvement.
These three factors have endowed capitalist free market economies with a remarkable capacity to enrich society through a built-in mechanism for rejuvenation. While individual companies may not endure indefinitely, the market system itself thrives and evolves, welcoming new entrants and jettisoning outdated competitors.
The cycle of rejuvenation in free markets follows these steps:
Innovation Emergence: A new technology, methodology, or market becomes available, often driven by advancements in science and technology or shifts in consumer behavior.
Entrepreneurial Entry: Entrepreneurs and new companies seize the opportunity to exploit this new angle, creating products or services that meet emerging demands.
Incumbent Inertia: Established companies, often characterized by bureaucratic inertia and resistance to change, struggle to adapt to the new paradigm.
Competitive Displacement: The new entrants, leveraging their innovative approaches and exploiting the incumbents' weaknesses, begin to outcompete and displace these established firms.
Decline of the Old Guard: Incumbent companies shrink or exit the market, unable to maintain their previous dominance.
Cycle Continuation: The high-growth new companies eventually become the new incumbents, setting the stage for the next wave of innovation and disruption.
This cycle ensures that, while no single company survives for eternity, the system itself survives and grows more efficient and prosperous. And, crucially, virtually everything about the companies within the system can change. They can have different governance structures, different incentive structures, leverage different technologies, target different market segments, and more. While the system itself remains in place, its constituent parts can change to the point of being unrecognizable. This allows our economy to respond dynamically to rapidly changing technological and environmental factors and to leverage these changes for continuous improvement — that is, in the parlance of Nassim Nicholas Taleb, to be Antifragile.
The Ossified Nation-State
In stark contrast to the above, there is no equivalent process for rejuvenation and change in nation-states. Governments are often enshrined in constitutions that either remain largely unchanged (as in the United States) or undergo only superficial modifications while retaining the same overarching structure (as seen in many Latin American countries). The only mechanism for large-scale governmental change appears to be a total collapse of the existing order, which can come through:
Violent Revolution: Internal uprisings that overthrow the existing order.
External Conquest: Invasions and conquests that impose new governmental structures.
Post-War Reorganization: Major wars resulting in governments' dissolution and reformation, such as Germany after World War I.
Historically, the structure of democratic republics was able to partially fill the role of free market economies in the context of nation-states. Democratic Republics such as the United States allowed voters to periodically replace presidents, cabinets, and policy agendas through regularly scheduled elections, avoiding the violent regime changes mentioned above. The combination of these regularly scheduled elections with de facto term limits on the executive branch of government created a system where new leaders, new ideas, and new policy structures were continually brought in to renew the government. However, several contemporary factors are undermining the Democratic Republic as a rejuvenating system:
Aging Politicians: Politicians are getting older and staying in office longer. Increased lifespans, coupled with the absence of term limits for Congress, contribute to this trend. Additionally, mass media and a larger, less informed voting populace make name recognition a crucial determinant of electoral success, favoring long-term incumbents.
Influence of the Supreme Court: The Supreme Court plays a more significant role than in the past as partisan interest groups frequently come to a gridlock. By elevating many decisions to the Supreme Court, the nation’s decision-making power becomes more and more centralized in a group of justices that receive lifetime appointments, limiting the capacity for new views to be brought in.
Persistent Bureaucracy: The bureaucratic apparatus surrounding the government has increased in size and does not change with each administration, so the personnel and ideologies making up the government are more constant from administration to administration.
All of these factors together make the US government increasingly brittle — it is less able to change in response to rapidly changing environments, and so is likely to break. Think of the difference between a wood plank and water. Water changes in response to even tiny perturbations, but the benefit is that will not "break" from a large impact. By contrast, a wood plank will resist most changes, until one change that is large enough to overcome its resistance snaps the plank in half. Similarly, the increased rigidity of the US government has now made it harder to bend, making it more likely to break in response to extreme stress and environmental, economic, or sociological change.
How do we move forward?
To improve the situation, we need to ensure a much higher turnover in the government. This includes personnel, policies, legislation, and ideologies. We need to ensure that the government can respond rapidly to changing conditions, which can only occur by allowing the governance structure in place to shift without the strong status quo bias we see today. There are a few factors that I think need to change to allow this to happen:
Radically reducing the size and scope of government agencies with unelected officials. Bureaucratic agencies since WW2 have been able to run roughshod over the country, interpreting and enforcing laws as they see fit and being largely impervious to public scrutiny. The opacity of the organizations and the inability of voters to remove officials from them through elections has allowed them to ossify, making the government apparatus significantly more stagnant from administration to administration. The Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce is a step in the right direction in this case, limiting the ability of agencies to actively interpret the law without much oversight (which can lead to ambiguous and shape-shifting regulatory implementations, creating huge strains on businesses).
Setting expiry dates on all government legislation. Laws existing in perpetuity create strong inertia in the government — laws that already exist will likely continue to exist because keeping them requires no action, whereas repealing them requires some action. This results in ever-increasing regulations, tax codes, and legal codes which sap dynamism from the economy and provide significant market opportunities to purely extractive companies and institutions. Both individuals and corporations would benefit from simpler tax codes and reduced regulatory burdens.
Imposing term limits on Congress and the Supreme Court. Term limits would ensure a regular influx of new ideas and reduce the likelihood of long-term incumbency leading to stagnation. In particular, poor choices for appointments to the Supreme Court are disastrous, as lifetime appointments can last for several decades before the spot is turned over to a new justice. By making appointments temporary, we can limit the negative impact of bad appointments while also ensuring that new generations of justices regularly filter into the court.
Implementing cognitive testing for all elected officials. This one is self-explanatory. We should not have to repeat the embarrassments of this national election cycle, where each party has competed to prove that the other’s candidate is the more geriatric and clueless. We as a nation should have the confidence (and frankly, the dignity) to be able to assume that our leaders are cognitively capable of handling the job.
The goal of the above measures is to create a system that fosters innovation and dynamism in the government by allowing the government to change. Each measure aims to remove bloat from the current system, increase competition for positions among elected officials, and reduce the status quo bias that is so prevalent in politics today. There is certainly substantially more that needs to be done above and beyond these suggestions, but it does present a starting point for a government that isn’t stuck doing a cheap parody of FDR’s administration.