Breakout: Pioneers of the Future, Prison Guards of the Past, and the Epic Battle That Will Decide America's Fate

by Newt Gingrich

  The waste is more than an accumulation of small-ticket items, each one amounting to tens or hundreds of millions of dollars. The bureaucracy is often wasteful on a grand scale. The Government Accountability Office identified nearly $108 billion in improper payments in 2012—more than a trillion taxpayer dollars in ten years that never should have been spent.26 Yet under the current system, there is no hope of a remedy.

  The massive federal bureaucracy that presides over this waste is utterly incapable of containing it, and yet the bureaucrats spend their time creating and enforcing tens of thousands of regulations that touch every aspect of our lives. Congress has passed increasingly vague laws in recent decades, ceding the responsibility to write rules to the bureaucracy and giving these unelected federal employees more power.

  Of course, a certain amount of regulation is necessary. Somebody has to apportion the wireless spectrum, reserving frequencies for emergency services and making sure your home Wi-Fi doesn’t interfere with your neighbors’ broadcast TV. The government properly sets the rules of the road for motorists. The regulatory state we have today, however, surpasses these public purposes by many orders of magnitude. The vast majority of regulations on the books are just as absurd as the wasteful spending programs in Senator Coburn’s reports. Indeed, the costs of unnecessary regulation far exceed those of the worst-managed government programs.

  The Code of Federal Regulations exploded from 19,000 pages in 1949 to almost 170,000 pages in 2011, an eightfold increase.27 Do Americans really need eight times more controlling today than when I was a child? In the past decade alone, the CFR grew by more than 20 percent.28 Between 1993 and 2012, the government added eighty-one thousand pages of new rules to the Federal Register.29 The regulations that came from the Dodd-Frank Act would fill twenty-eight copies of War and Peace, and rules issued by bureaucrats took “13,789 pages and over 15 million words,…which is equal to 42 words of regulations for every single word of the already-hefty law, spanning 848 pages itself,” according to one analysis.30 It’s completely out of control.

  The ridiculous rules are enormously costly. The Competitive Enterprise Institute estimates the cost of compliance at more than $1.8 trillion a year, or over half the dollar value of the federal budget.31 That number exceeds the entire GDP of Canada or Mexico.32 For a family making $49,705 a year, the annual cost of regulations embedded in their daily life is $14,768, or 30 percent of their household budget.33 Businesses, too, pay a high price. The Small Business Administration estimated in 2010 that a company with twenty employees or fewer paid $10,585 per person in regulatory compliance alone.34 In 2012 the federal government added 854 new rules affecting small businesses.35 All of that regulation is a hidden tax on American families.

  Even worse, the stacks of unnecessary rules strangle innovation. Over and over in this book, we’ve seen examples of pioneers struggling to overcome the law just to have the chance to compete. Incredible innovations—Khan Academy and Udacity, Dr. Atala’s regenerated kidneys, Uber’s car service and Google’s self-driving cars, George Mitchell’s and Harold Hamm’s fracking boom—are all under assault by prison guards who use the regulatory state to protect the past. And these are just the pioneers who are still succeeding. The unbearable burden nips untold thousands of innovations in the bud. Obviously, this enormous headwind of regulation—about four thousand pages of new rules every year—slows economic growth substantially.

  What if all the accumulated government regulations shaved just a couple of percentage points off of economic growth each year? It’s not hard to believe. Kill a few Microsofts or Amazons (or, for that matter, Fords or FedExes) while they’re still operating out of garages, and it’s a much poorer country.

  It turns out this is exactly what overregulation has done. A study published in 2013 in the Journal of Economic Growth finds that the sixfold increase in total regulation from 1949 through 2005 cut growth by an average of two percentage points a year. Over time, those two percentage points add up to a lot that we’re missing out on. By the end of that period, the researchers concluded, annual GDP in the United States was just “28 percent of what it would have been had regulation remained at its 1949 level.”36

  What does that mean for average Americans? As Reason magazine translated the findings, “Federal regulations have made you 75 percent poorer.… The average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations—a median household income of $330,000 instead of the $53,000 we get now.”37 If the real cost of overregulation is even half that number, we would be talking about a typical American family’s earning $115,000 a year.

  The economist Alex Tabarrok has another way to think about this. “In terms of innovation,” he says, “if productivity had continued to grow along the 1947-1973 trend then we would be living today in the world of 2076 instead of the world of 2011.”38

  This is the real cost of overregulation: the unseen breakout that should have been.

  Of course, this is not to say we should get rid of all regulation. But a median household income of $115,000 would certainly solve a lot of problems. The American people cannot allow the prison guards of the past, the forces behind most of the 80-percent increase in regulation since 1949, to continue dragging us—their prisoners—further and further behind.

  Breakdowns in the States

  It’s not just the federal government that’s breaking down. Many state and local governments, too, are falling apart in places where they have been disastrously mismanaged. Government at all levels is failing us. Meredith Whitney, a financial analyst, offers a startling example of the problem in her book Fate of the States. In the early 2000s, she recounts, the head of the Contra Costa County, California, firefighters’ union “negotiated a sweet new contract for his members.” The contract provided that “veteran firefighters could now retire at age fifty with an annual pension equivalent to 90 percent of their salary.” This deal was a great boon for the firefighters but not for the taxpayers.

  Predictably, the weight of the pensions proved too much for the county to sustain. By 2012, in the wake of the recession, Contra Costa County could no longer afford to keep all its firehouses open and meet its pension obligations at the same time. When the director of the local taxpayers association looked into the matter, she found that there were 665 retired county employees with an annual pension of $100,000 or more and twenty-four who earned over $200,000, even in retirement. As Whitney puts it, “Everybody might still love firefighters, but what they did not like was retired fifty-five-year-olds taking home $100K a year at a time when many taxpayers were out of work and could not afford to put any money aside for their own retirements.”39

  The newspapers these days overflow with similar examples of excess. Whitney describes a California prison guard (the literal kind) who “with a base salary of $81,683 collected $114,334 in overtime and $8,648 in bonuses.” This man “was eligible for an annual $1,560 ‘fitness’ bonus for getting a checkup,” and he “could retire at fifty-five with 85 percent of his salary and medical care for life.”40

  Such reckless management and outright corruption has left states broke. Illinois has roughly $100 billion in pension obligations, the vast majority of which is unfunded, and another $55 billion in unfunded obligations for retiree healthcare.41 In California, the debt story is even more alarming. State and local governments in the Golden State carry a $1.1 trillion debt.42 Yet California continues to spend big on goodies like a hundred-billion-dollar high-speed rail line from San Diego to Sacramento.43 Many of the major states—California, New York, and Illinois among them—behave just as recklessly as the federal government.

  A Broken-Down Machine

  Regardless of their political ideology, Americans see with increasing clarity that they cannot rely on government to fix our country’s biggest problems. In fact, it would be hard to look at the current government and think that it is capable of doing anything big at all. It’s failing
before our eyes.

  I first encountered the idea that the machine of government is simply breaking down during a research trip in 2000 for the Hart-Rudman Commission on National Security. We were visiting at the Harvard Kennedy School of Government with a former senior leader in the Pentagon. Like most of these commissions, we were focused on strategy and policy.

  Suddenly this experienced official said, “You know, the real problem is that the machine doesn’t work.” We paid close attention as he went on: “Everyone in Washington wants to debate policy. No one wants to explore implementation. We get into huge fights over the right policy, but then nothing happens. It is as though the steering wheel is disconnected from the car. All the politicians fight over turning the steering wheel right or left, but in the end it doesn’t change the direction of the car, because it isn’t connected to the wheels.”

  In the years since that conversation, it has become even clearer that the machinery of government isn’t responding. The system is coming apart.

  Whatever we decide we want the government to do, we want it to be able to do it. Yet today our bureaucracies and our systems are so ineffective, incompetent, and obsolete that—other than on the battlefield—we can’t get anything done.

  This problem afflicts every level of government—from cities, counties, and school boards to state capitals and on to Washington. In some respects the problem is nonpartisan. We saw it with the federal response to Hurricane Katrina. We have seen it more recently in Detroit.

  Indeed, the bankruptcy of the city of Detroit is a symbol of the steady decay of government competence in America. It’s horrifying that the city that had the highest per capita income in the country in 1950 could collapse economically, culturally, and socially in just a few decades.

  Detroit’s population has been cut in half—from 1.8 million in 1950 to 700,000 today.44 The collapse in population has left seventy-eight thousand empty houses. Some are available for one dollar (yes, it’s true), but no one will buy them.45

  The number of manufacturing jobs in Detroit dropped from 296,000 to 27,000 over the same period.46 No one will create new jobs in the city because it has become a public safety and public services wasteland. In some ways it resembles the devastated world of Mad Max.

  Bill Nojay, who served as chief operating officer of the Detroit Department of Transportation in 2012, described his experience in the Wall Street Journal:

  I was hired as a contractor for the position, and in my eight months on the job I got a vivid sense of the city’s dysfunction. Almost every day, a problem would arise, a solution would be found—but implementing the fix would prove impossible.

  We began staff meetings each morning by learning which vendors had cut us off for lack of payment, including suppliers of essential items like motor oil or brake pads.…

  The obvious solution for a cash-tight operation is to triage vendor payments to ensure that absolutely essential items are always there. But in Detroit, no one inside the transportation department could direct payments to the most important vendors. A bureaucrat working miles away in City Hall, not responsible to the transportation department (and, frankly, not responsible to anyone we could identify), decided who got paid and who didn’t. That meant vendors supplying noncritical items were often paid even as public buses were sidelined.47

  Imagine a world in which 40 percent of the streetlights don’t work. Almost one-third of the ambulances don’t work, and many of those that do have over 250,000 miles on them. Some neighborhoods are so dangerous that ambulances won’t enter them without a police escort. The average response time for the police is nearly an hour.48 In the face of this public-safety crisis, the politicians cut the police force by 40 percent and closed most police stations to the public sixteen hours a day.49

  Crime has soared as a result of these cuts. You are eleven times more likely to be killed in Detroit than you are in New York. The rate of violent crime in Motown is five times the national average, and the police solve fewer than 10 percent of the crimes committed there.50 (You thought the comparison to Mad Max was an exaggeration?)

  Detroit’s greatest challenge today isn’t structural; it’s human. As Mark Steyn reported in National Review, “Forty-seven percent of adults are functionally illiterate, which is about the same rate as the Central African Republic, which at least has the excuse that it was ruled throughout the Seventies by a cannibal emperor.… The illiterates include a recent president of the school board, Otis Mathis, which doesn’t bode well for the potential work force a decade hence.”51

  Detroit is not unique. Its tragic collapse is a warning of what will happen in the rest of the country if we continue to tolerate the massive, systemic breakdown of government. For two generations our political system has been dedicated to protecting the government class and growing a dependency class. Government employee unions, with their formidable electoral power, extracted more and more unsustainable deals from compliant politicians. And more and more citizens were told they didn’t have to learn or work or be productive, because someone else would take care of it all for them.

  The very complexity of this problem has paralyzed Congress. It is becoming more obvious to the American people with each passing year that the government is simply incapable of doing all the tasks it has assumed to itself. The result is a threefold breakdown of government.

  There is a breakdown in simple competence. There is a breakdown in common sense and defined purpose. And there is a breakdown in the rule of law.

  Let’s look at each one in turn.

  The Breakdown of Competence

  Large elements of the government simply do not work anymore. Sometimes the cause is the personal incompetence of people protected by a civil service system in which firing the incompetent is very, very hard. (USA Today found that in many federal agencies, “death—rather than poor performance, misconduct or layoffs—is the primary threat to job security.”)52 Sometimes it is the attitude of people who have gotten used to their jobs and wonder why you are bothering them. Sometimes it is the complexity of bureaucratic systems that inhibit competence. Sometimes it is arcane regulations that, individually, might have been adopted for good reasons but collectively make it almost impossible to act.

  The Washington Post’s David Ignatius captured the systemic incompetence in a column on the Obama administration’s disingenuous public statements about the Benghazi attacks of September 11, 2012. When you look through the record of emails, “what you find is a 100-page novella of turf-battling and backside-covering,” he wrote. “By the end, the original product is so shredded and pre-chewed that it has lost most of its meaning. All the relevant agencies have had their say, and there’s little left for the public.… [T]he cascade of bureaucratic logrolling and pettifoggery begins, as each new agency is called to the trough.”53

  Ignatius describes a system in which the whole is substantially less than the sum of its parts. It is an anti-team. Instead of each person’s working with the others to accomplish more than he could have done alone, each individual works against the others, and they all accomplish less than they would have done alone. This malady afflicts most parts of the government.

  I once advised a successful entrepreneur who had proposed establishing a new office for modernizing the federal government. He was then asked by the president to come into the government to bring the entrepreneurial spirit to that new office. On his first day, the general counsel for the department visited him, explaining for hours what he could not do and what the penalties would be if he violated the various rules and laws. By the end of his first day in the federal bureaucracy, my friend knew he had been immersed in an anti-innovation system that would make it difficult to get anything done.

  This man’s experience was not uncommon. It is the norm.

  We have had decades of reports on incompetence of this sort. Inspector general after inspector general has warned about the tens of billions lost annually to waste and fraud. Nothing happens. Jim Frogue, my former colleague
at the Center for Health Transformation, wrote a book called Stop Paying the Crooks, identifying between $70 billion and $110 billion every year of Medicare and Medicaid fraud (enough to meet the goal President Obama proposed a few years ago of cutting $1 trillion over ten years, without touching a single honest person). Nothing has happened. An IRS inspector general report found that more than 20 percent of the agency’s earned income tax credit payments in 2012 were improper.54 That is an estimated $11 billion to $13 billion last year in just one program. This problem has gone on for years.

  The only striking improvement in simple competence of government that I have found in recent decades was the adoption of CompStat (computer statistics) by the New York City police force under Mayor Rudy Giuliani and Chief William Bratton in 1993. Their methodical, systematic insistence on competence led to a dramatic decline in crime and a new spirit of safety and enthusiasm in our largest city. In the process, three out of every four precinct captains either retired or were reassigned.

  Until we are prepared to define expected outcomes, measure results, and either retrain or replace people who are currently incompetent or unwilling to do their jobs, government will never achieve even the minimum standard of simple competence.

  The Breakdown of Common Sense and Defined Purpose

  In 2013 the Washington Post told the story of Marty Hahne, a magician from Missouri. As part of his act, Marty pulls a rabbit out of a hat. “To do that,” the Post reported, “Hahne has an official U.S. government license. Not for the magic. For the rabbit.” In the summer of 2013, Marty got a letter from the U.S. Department of Agriculture (“Dear Members of Our Regulated Community”) about that rabbit license. Pursuant to a forty-year-old law intended to regulate zoos and circuses, the feds demanded to see his “disaster plan” for the animal. They told him that if he didn’t submit a written plan for protecting the rabbit in a fire, a flood, a tornado, a power outage or air conditioning failure, a dam break, or an ice storm (among other imaginable threats to leporine well-being), he could lose his rabbit license.55 The Post published Marty’s rabbit disaster plan online and highlighted the absurdities, including its promise to fulfill the rabbit’s right to “exercise” in the event of an evacuation.