Comparative Institutional Failure

The common element to our twin crises is that many of the government agencies we thought were keeping us safe and secure—the CDC, the FDA, the Police–have either failed or, worse, have been revealed to be active creators of danger and insecurity. Alex Tabarrok.

Derek Thompson writing at The Atlantic uses my quote as a jumping off point for a good piece on the failure of American institutions. He does a good job of covering the failures of the CDC, the FDA and the police but most interestingly asks why the FED has acted very differently.

While too many American police are escalating encounters like it’s 1990, and the FDA is slow-playing regulatory approval as if these are normal times, and the CDC is somehow still using fax machines, the Federal Reserve has junked old shibboleths about inflation and deficit spending and embraced a policy that might have scandalized mainstream economists in the 1990s. Rejecting the status-quo bias that plagues so many institutions, this 106-year-old is still changing with the world.

Why haven’t other American institutions done the same? Perhaps America’s dependency on old leadership makes our institutions exquisitely responsive to the anxieties and illusions of old Americans. Perhaps the nature of large bureaucracies is to become lost in the labyrinth of mission-creeping path dependency. Perhaps years of political polarization and right-wing anti-science, anti-expertise sentiments have wrung all of the fast-twitch smarts out of the government. Or perhaps we should just blame Trump, that sub-institutional creature summoned from the bilious id of an electorate that lost faith in elites when elites lost their grip on reality.

Whatever the true cause for our failure, when I look at the twin catastrophes of this annus horribilis, the plague and the police protests, what strikes me is that America’s safekeeping institutions have forgotten how to properly see the threats of the 21st century and move quickly to respond to them. Those who deny history may be doomed to repeat it. But those who deny the present are just doomed.

I see three reasons why the FED may have been different. First, the FED is one of the most independent agencies which may help to explain its faster and more adaptive behavior ala Garett Jones’s 10% Less Democracy. Second, and relatedly, the FED pulls a lot of leadership and staff from academia. That gives FED staff an affiliation goal and clique outside of politics which creates mental independence as well as political independence. Third, the FED was also tested in the last crisis and experience with crises helps as we have also seen in Asia tested by H1N1, SARS and MERS more than the US was.

I am not sure which, if any, of these explanations is the most important but I do think that we have a lot more to learn from comparative institutional analysis not just within the US but across countries as well.