Lessons We Are Learning

The upside of a very down time is that the grifters, clowns and neo-Nazis currently laying waste to American government and our international reputation are (accidentally, to be sure) illuminating longstanding structural weaknesses that have facilitated the damage they’re now doing.

One of those weaknesses is a result of the so-called “privatization” movement–especially as that movement co-opted organizations in the nonprofit sector. When I was still on the university faculty, that co-option was the subject of several of my academic publications.

The privatization movement overall was a response to the belief that government agencies don’t do anything well. (The people who criticise “bureaucratic waste” somehow never notice that similar problems with redundancies and “red tape” are present in any large organization, public or private…) The results of that anti-government bias have been profound–vouchers that send tax dollars to private, mostly religious schools that demonstrably don’t perform any better than the public schools, and the delivery of a wide variety of social services through not-for-profit organizations.

There are several problems with “contracting out,” the practice of paying businesses and nonprofits to provide government services.

With respect to nonprofits, one problem is “mission creep.” Mission creep occurs when a nonprofit organization has become dependent on government dollars, and the government program that they’ve been delivering ends. If the government is launching a different program–one that isn’t really consistent with the nonprofit’s mission–the organization will often contract to provide that service, despite the mismatch with its mission, in order to keep the dollars flowing.

When government benefits are delivered through nonprofit organizations, there is also a significant lack of transparency. Citizens are typically unaware that they are benefitting from a government program. (Remember the guy who shouted “keep your government hands off my Medicare at a Congressman? That was a rather extreme example…)

More troubling is the substantial research showing that the practice of contracting with for-profit and nonprofit organizations to deliver government services “hollows out”–erodes–important government capacities. In addition, managing and monitoring a contract with an outside provider requires skills that differ from those needed in most government work. Those  skills are frequently lacking, increasing the potential for waste (and worse).

The practice of contracting out also masks the growth of government. Delivering services through private or nonprofit entities doesn’t shrink the public sector–it governmentalizes the private sector. Private contractors are a significant portion of the “true” federal workforce, with some studies suggesting that their number exceeds the number of direct federal employees.

Then there’s the state action problem.

In the American legal system, the difference between public and private action matters.  Public or state action is action taken by a unit of government.   The Bill of Rights restrains only government, so it is important to know whether a particular act was public (i.e. governmental) or private.  Government cannot insist upon random drug testing of its employees, for example, although a private employer may legally do so. Public schools cannot insist that students pray, but private schools can. Government cannot ban books, discriminate against women or Wiccans, or deny citizens due process of law. Under certain circumstances, private organizations can do all of those things. The distinction between public and private is absolutely central to American constitutional law and the idea of limited government.

Contracting out can make it difficult to distinguish private from public activity. On the one hand, if a city buys computers or pencils from a private company, that vendor shouldn’t suddenly be considered part of the public sector. But what happens when the city or state engages a private company or nonprofit organization to deliver services that had previously been delivered by government employees? Can the private company engage in practices that would be unconstitutional if the government did them?

All of these issues preceded Trump. But his administration’s efforts to stamp out anything our mad would-be king considers “woke” or “DEI” or critical of him has uncovered a previously unrecognized threat. When nonprofits are dependent on government dollars, they either bend the knee or lose critical funding.

In addition to threats to revoke the tax exemptions of disfavored organizations, the administration has paused distribution of federal grants and loans. Though courts stepped in to block some actions, those initial freezes caused fear and planning uncertainty. Other administration actions have included halting previously-appropriated funding for environmental, health, and community programs, which indirectly hurt nonprofits dependent on those grants.

We need to put “rethinking government contracting” on our list of items to address once we eject the Keystone Kops who are running amok in Washington.

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Fascism Versus Market Capitalism

Thomas Edsall’s columns in the New York Times share a consistent pattern: Edsall poses a question or initiates an inquiry, then contacts several experts, posing the relevant questions, and sharing their responses. Most recently, he explored the mechanisms that have characterized the Trumpian replacement of market capitalism with a “bend the knee in order to earn government’s blessing” approach that–like so much of Trump’s administration–is reminiscent of bygone fascist regimes.

It has become common to label Trump’s administration fascist, but usually that accusation arises in the context of ICE thuggery, the attacks on minorities and the evisceration of constitutional rights–actions echoing the Fascist regimes that focused on whitewashed pasts, and claimed traditional class structures and gender roles were essential to the “social order.”

These comparisons are accurate but incomplete; fascism also–and importantly–engaged in a thoroughgoing and intentional subversion of market economics.

Fascism is sometimes called “national Socialism,” but its approach to the economy differs significantly from socialism. The most striking aspect of fascist systems, of course, is the elevation of the nation—a fervent nationalism is central to fascist philosophy. That nationalism accompanies a union between business and the state; although there is nominally private property, fascist governments control business decisions.

In one of his recent columns, Edsall explored the current echoes of that approach, and how dramatically it differs from former Republican agendas and beliefs. As he notes, Trump and his administration regularly apply a “financial and regulatory chokehold” on businesses, corporations and nonprofits that he believes are antagonistic to him, from electric cars and wind energy projects to service-providing nonprofits and television networks.

“The administration has terminated, to use one of Trump’s favorite words, wind energy projects and ended tax and other incentives for electric-powered vehicles, two industries he believes are the creation of Democratic policies.”

As Edsall notes, the Trump administration’s extensive intrusions into the private sector are in direct conflict with traditional Republican and conservative beliefs, which held that government interference with the free market should be limited. Trump, of course, is  neither conservative nor Republican–for that matter, he appears incapable of developing anything remotely like a coherent agenda, economic or otherwise. For him, government regulation is not ideologically an anathema; it is a tool to exercise power and control in his constant pursuit of self-aggrandizement.

Trump is often referred to as “transactional,” but a more accurate description of his corrupt dealings would be “quid pro quo.” Private sector businesses needing government approvals (or needing government authorities to ignore improper activities)  “bend the knee” in exchange for those desired outcomes. In effect, they have acquiesced to the government’s control of business decisions–the sort of control that characterized fascist regimes.

The administration’s growing chokehold on the private sector are also tools allowing Trump and MAGA to pursue their culture-war aspirations. According to an email to Edsall from a political historian at George Washington University,

The president’s use of the government’s power to approve corporate mergers, the fear — and the actuality — of lost research funding and government contracts have enabled Trump to shift the culture in his ideological direction. Social media companies have lifted bans on far-right hatemongers and made X and Facebook more hospitable to pro-MAGA content. Universities such as Columbia; law firms like Skadden, Arps, Slate, Meagher and Flom; and media institutions like ABC News have reached settlements with the Trump administration to stave off existential threats, including canceled licenses, loss of research funding and revoked security clearances.

CBS, once a key source of critical reporting on the Trump administration, has, for example, been taken over by Larry and David Ellison, Trump allies, who put Bari Weiss, the anti-woke publisher of The Free Press (and a former writer and editor for Times Opinion), in charge of the news division.

The takeover of information sources may be Trump’s most politically consequential victory. As Edsall reports, “key platforms and hubs in the social media complex — TikTok, Meta, X — have been taken over by Trump allies or have shifted right to accommodate Trump,” shielding low-information voters from vital information, and spreading bigotry and propaganda.

These incursions haven’t been limited to the private sector; as noted sociologist Kim Lane Scheppele wrote:

The entire nongovernment community (or — as we might say in tax parlance — the 501(c)(3) sector) has been threatened with a combination of loss of tax exemptions, cuts to federal funding and potential investigations.

Some statistics indicate that fully one-third of NGOS incorporated in the U.S. lost funding in the first half of 2025.

As a professor of public policy noted in his email, every part of Trump’s government is intent upon bringing private institutions to heel.

The old GOP is long gone.

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Competition And Corruption

I’ve posted before about Independent Indiana, a new organization working to make it easier for independent candidates to run for office in Indiana. Currently, those candidates face obstacles to getting on the ballot–obstacles that don’t face Republican or Democratic (or even Libertarian) candidates– and the organization wants to level that playing field.

Those changes would be in support of Independent Indiana’s major mission: making Indiana elections competitive.

Thanks to gerrymandering, it has been a long time since voters in Indiana have been able to choose between viable competing candidates. In far too many districts thought to be “safe for the GOP,” Democrats haven’t even bothered to run anyone. (In the few districts into which redistricting has crammed Democrats, the situation is the same, only reversed.)  That  situation might explain why, despite the formidable odds, over 230 people ran as independents during the past two election cycles–to offer citizens an actual choice.

And guess what? When voters have a choice, turnout and enthusiasm improve. Fifty-two percent of those independent candidates won.

There are several lessons here, but perhaps the most important is the critical importance of competitive elections. When the candidates of any party are essentially assured of winning–when the only meaningful competition occurs in the primaries–we experience two major negative consequences.

One of those consequences is broadly understood. Since primary voters are more ideological, primary contests pull candidates to the extremes. Democrats protect their left flanks, Republicans move to the right. In Red Indiana, that has given us a legislature dominated by culture warriors.

The second consequence is less well recognized, although it should be predictable. Safe seats suppress all votes, especially those of the minority party; in Indiana, that’s Democrats. The resulting apathy and embarrassingly low turnout confirm the conviction that Republicans have a continuing lock on public office in the state, and that conviction fosters corruption and self-dealing by elected officials.

Recently, Governor Mike Braun appointed State Senator Andy Zay to chair the Indiana Utility Regulatory Commission. Zay has close ties to the energy industry, and according to Vox, consumer groups have questioned Braun’s choice of Zay to lead the body that regulates that industry. There have been other allegations of questionable behavior by the Governor; a former Indiana State Police Superintendent has publicly claimed that a state police investigation into a political ally of Braun’s was dropped after Braun took office, despite the fact that the case seemed “strong.” 

Allegations are not proof, and Braun’s problems may stem more from cluelessness and ham-handedness rather than outright wrongdoing, but he certainly isn’t the only Hoosier Republican to be accused of self-dealing. Over the past few years, we’ve seen former State Rep. Sean Eberhart, a longtime GOP member of the Indiana House of Representatives, plead guilty to a federal corruption charge (he accepted the promise of a high-paying job from a gaming company in exchange for legislative support of a bill favorable to that company) and former State Senator Brent Waltz pled guilty to federal campaign finance violations and making false statements to the FBI. 

Local officials have also been in the news for corrupt behaviors. Former Clark County Sheriff Jamey Noel pled guilty in 2024 to 27 felony charges including theft, tax evasion, official misconduct, obstruction of justice, and money laundering. Noel used millions of dollars of taxpayer and emergency service funds for personal expenses like planes, cars, flights, clothing, and other luxury items. 

These are the people who got caught. We have no way of knowing whether other public officials who feel insulated from competition and thus accountability have engaged–or are currently engaging–in unethical or criminal behaviors. Not only do these revelations undermine public confidence in Indiana’s government, the cynicism they produce is manifestly unfair to the many public servants in both parties who are discharging their duties ethically and honorably.

And that brings me back to the importance of competition, the importance of giving voters a genuine choice–the importance of returning to a system where those voters choose their representatives from a slate of legitimate, competing candidates rather than going to the polls (or, increasingly not going to the polls) to discharge what is seen as a performative exercise.

If the success of independent candidates over the past couple of cycles demonstrates anything, it demonstrates that voters will turn out to participate in genuinely competitive elections, and that those voters aren’t necessarily happy with the anointed partisans who currently fill state and local positions.

If Independent Indiana can make the Hoosier state more competitive, the organization will have done us all a great service.

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What Is Government For?

Right now, the United States is being “governed” by a dangerous fool–a madman entirely ignorant of governance, cause and effect, or anything other than his own self-importance. Perilous as the current situation is–and it is–he will be gone, and given his obvious and accelerating decline, probably sooner than later, making it imperative that Americans engage in an important–an essential–debate: what is government for? What are the core responsibilities that markets and individuals and voluntary organizations cannot provide?

In my last few posts, I’ve emphasized that there are two questions pertinent to the operation of governing institutions: what and how–and I’ve explained the importance of the “how.” Today, I want to talk about the “what.”

I think most reasonable people look to government to provide essential infrastructure. There’s broad agreement about its responsibility to build and maintain physical infrastructure. There is far less understanding or agreement about social infrastructure–what is sometimes called the “social safety net.” Ideologues of the Right dismiss efforts to strengthen that social infrastructure by labeling it “socialism” (a label that is supposed to justify a hysterical repudiation of whatever the proposal may be). That response ignores the reality that all first world countries have mixed economies. The issue isn’t whether we should “socialize” certain activities, it is the much harder questions of which ones and why.

Resistance to expansion of America’s social infrastructure– our inadequate social safety net– keeps millions from accessing medical care. It keeps working people impoverished and mothers out of the workforce. It reduces economic mobility and amplifies historic inequities.  Ironically, it costs considerably more and delivers much less than is the case in other first-world countries. As researchers have amply documented, the inadequacies of our social infrastructure push numerous problems downstream: Jails and prisons become de facto mental-health providers; emergency rooms substitute for primary care; Police and courts manage crises unrelated to public safety. Our insistence upon limiting “help” via means-testing adds millions in bureaucratic costs.

Despite the claims of “fiscal conservatives,” keeping safety nets inadequate doesn’t save money or eliminate costs—it adds many and reallocates others inefficiently.

And what about the argument that “big” government (i.e. government administering a more capacious safety net) erodes individual liberty?

The new mayor of New York begs to differ. And I agree with him. As Heather Cox Richardson recently reported,

The policies [Mamdani] promised are not simply about lowering costs, he said, but about “the lives we fill with freedom.” For too long, he said, “freedom has belonged only to those who can afford to buy it.” “Here,” he said, “where the language of the New Deal was born, we will return the vast resources of this city to the workers who call it home.”

Mamdani’s speech was a declaration of a new kind of modern politics that focuses on “freedom to” rather than “freedom from.” For decades, the Republican Party has called for dismantling the government, arguing that regulations and taxes were destroying Americans’ freedom from constraints. But for most Americans, government regulation and investments in social welfare like education and infrastructure guarantee freedom to build a life that is not cramped by preventable obstacles, including those imposed by the wealthy and powerful.

The idea of government regulation and a basic social safety net to permit Americans to live their lives to their fullest potential was a key principle of the New Deal launched by Democratic president Franklin Delano Roosevelt in 1933, and Mamdani was right to note that the New Deal was born in New York City.

A number of political philosophers have argued that liberty is, indeed, “freedom to” rather than “freedom from.” When every day is a struggle for survival, the promise of “freedom” to follow one’s dreams rings pretty hollow.

For a long time, proponents of a minimal state have argued that the absence of social supports results in a system where “merit” allows talented individuals to prosper. If our current government demonstrates anything, it is the idiocy of that assumption. The “captains of industry” who have clawed their way to power are anything but the best and brightest–they are beneficiaries of a social system that elevates some at the expense of others, and they are busy dismantling another important part of our social infrastructure: the rule of law.

When we rid ourselves of the current kakistocracy, we need a national discussion about the nature of liberty and the dimensions–and costs–of our social infrastructure, and what we expect government to do (not to mention what we expect a legitimate government to refrain from doing….)

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Markets And The Rule Of Law

I talk a lot about the rule of law–mostly in the context of ensuring fair play and civil peace. But as a recent essay by Catherine Rampell reminds us, the rule of law is also essential to the operation of a market economy.

A country that protects property rights; that has free capital markets; that has a stable and predictable regulatory regime; where all citizens are equal before the law; where individuals don’t fear being expropriated by the state without cause; and where private contracts can be enforced regardless of political connections is generally a better place to do business. All these features are among the reasons the United States has long been the richest country on earth. It’s also why we have attracted so much foreign capital.

When property rights aren’t protected and the justice system operates to reward friends and punish enemies, doing business is harder. People don’t have the certainty they need to invest here, or study here, or start businesses here.

Rampell is absolutely correct. Economic experts have long emphasized the importance of the rule of law to market performance. Predictability is particularly significant–it allows businesses to plan, invest and price goods with reasonable certainty that everything won’t go south without warning.

Even more important is the enforcement function. A reliable and impartial legal structure allows confidence that contracts will be enforced in accordance with their terms. When a business owner cannot rely on the courts to enforce agreements and laws mandating fair economic play, like anti-trust, companies end up depending on personal relationships– family networks, political influence, or bribery-based “arrangements”– which are both far less predictable and far less fair. (Can we spell Russia?)

Then there’s the protection that rule of law regimes provide for property rights. Critics of capitalism tend to dismiss the importance of that protection, but it is critical to the operation of the economy. Investment only occurs when ownership is secure–when clear legal title allows business-people to buy, sell, collateralize and insure property. When any property can be arbitrarily seized (either by the state or by powerful actors), capital investment gives way to defensive hoarding.

Numerous economists will also point out that the ability to rely on a fair and impartial legal system lowers transaction costs and makes markets more efficient. Rule of law systems with standardized rules reduce the need for expensive private enforcement, constant renegotiation, or the excessive premiums necessitated by increased risk. As an economist friend once told me, the rule of law obviates the need for private militias, political patrons, or corrupt intermediaries. 

 Bottom line: the rule of law makes markets cheaper to operate, and it should go without saying that lower transaction costs benefit consumers–a lesson we’re re-learning as Trump’s tariffs increase those transaction costs.

One of the most worrisome aspects of the kakistocracy we increasingly inhabit is the steady erosion of genuine market capitalism and its replacement by what is sometimes called corporatism, or crony capitalism. When power replaces the rule of law, markets devolve into corruption, uncertainty, capital flight, and monopoly power.

What defenders of capitalism often misunderstand is that markets can’t operate properly in the absence of regulation. Antitrust law, bankruptcy law, and anti-corruption laws prevent powerful folks and insiders from rigging the marketplace. Sound laws and regulations ensure that investments will flow to firms that are seen as productive, rather than to firms that are politically connected. Crony capitalism suppresses productivity and innovation.

A market economy is not self-sustaining without an adequate rule of law.

I consider myself a capitalist. I’m a fan of market economics, and accordingly, I recognize the importance of the rule of law to the proper operation of those markets. But I also understand that there are functions that markets cannot perform. Economists talk about “market failures” that require government intervention, but the simpler explanation is that, in any society, there are functions that require collective rather than competitive action. 

Government is our mechanism for those collective activities, for providing the physical and social infrastructure within which markets can operate and people can pursue their individual life goals. The rule of law is an essential part of that infrastructure.

The thorny issue that underlies our most important policy debates is identifying which goods should be provided collectively by government and which should be left to the market. (If we’ve learned anything from the failures of “privatization ideology,” it is that things like education and health care are not consumer goods.)

Tomorrow, I’ll consider that fundamental question…

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