(Note: This is a direct quote from Chapter 15 of my book, "Freedom or Serfdom?)
The Parable of the Pie
Polly's Pie Parlor has an unusual business model. You pick the pie
you want, but Polly delivers it to the customer who comes in half an
hour later. You get the pie someone ordered half an hour ago; I hope
you like his taste. And you won't pay for either of those, instead
you pay for the pie somebody ordered two hours ago. No trading of
pies is allowed.
That is obviously a silly example – or is it? It is an instance
of what is called third-party decision making. One person decides,
someone else pays and yet a third person lives with the decision. Yes
that happens, maybe not in pie parlors, but it does happen in
business, and especially in government.
Government and Third-Party Decisions
Government decisions are inevitably third-party decisions, made by
someone far from the scene and who neither pays the cost nor lives
with the results. It is worth looking at the problems this causes.
For any decision we must consider: (1) who decides, (2) who pays,
(3) who lives with the results, and (4) who has the most knowledge of
the situation. The best decisions are made by someone who pays the
price, lives with the results, and is knowledgeable about the issues
to be decided.
A person who pays but does not live with the consequences will
have an incentive to keep costs down. However, he may not even care
about quality or any results that do not affect him.
Someone who lives with the results but does not pay has an
incentive to get a good solution, but not to control costs. He may go
for an expensive solution that is only marginally better than
something much cheaper.
A decision-maker who neither pays nor lives with the solution has
no incentive to either control costs or find a good solution to the
problem. Note that
most government decision makers are in this
category. They neither pay the price nor live with the result.
With government decisions, the decision-makers are usually
insulated from both expense and results. However they do have an
incentive to appear successful, so they tend to be reluctant to
change their decisions. A change would be an admission that they were
wrong, not usually career-enhancing. A bad decision is likely to
remain in effect, much as the fees on climbers of Mt St Helens and Mt
Adams remain in effect.
A person who pays and who lives with the decision, and who gets to
make that decision, will have an incentive to balance cost and
results. That incentive is likely to lead to the best overall
decision, especially if that person is knowledgeable. Third parties
are unlikely to have the first-hand knowledge possessed by the people
directly involved. Those third parties may be 2,000 miles away from
the situation. Furthermore, they may impose a “one size fits all”
solution, ignoring differences between places as diverse as a big
city like Los Angeles and a rural village where a traffic jam might
mean three cars at a stop sign.
Third-party decision makers often think of themselves as smarter
and more knowledgeable than the average person. They may even be
correct, but the third party tends to have a different type of
knowledge than the people at the scene. That third party is likely to
have a theoretical background rather than the knowledge that comes
from hands-on experience. Meanwhile, the people directly involved
draw on personal experience and on information from others who have
such experience. And those who pay and live with the results have an
incentive to get more information if they need it.
For example, a rancher in eastern Oregon may have employees who
drive 50 miles from town each day, then 50 miles back after work.
Employees soon tire of the drive and of the expense of gas and
automobile maintenance. The rancher has a hard time keeping good
people, so he decides to provide housing right on his ranch. Not so
fast! Representatives from urban/suburban areas dominate the state
legislature. They do not make that daily commute, they do not lose
employees who hate the drive, and many probably don't even know the
difference between a bull and a steer. Guess who gets to decide how
to run that ranch? That's right, the legislators from urban
districts, people who want to prohibit such housing. Land use
restrictions require that “Minimum lot sizes in farm and forest
zones range from 80 to 240 acres.”
[1]
That restricts the number of houses a rancher may have for himself
and his employees.
Ironically, many of the people who support those limits also want
to reduce driving, yet their rules force ranch employees to commute
from town. That is an example of not only third-party decision making
but of stage one thinking. The decision makers do not think beyond
the initial objective.
As government acquires more power, we find third-parties making
more and more of our decisions. The results are predictable. Our only
advantage is that we can blame someone else for the mistakes.
[1]
http://www.landwatch.org/pages/perspectives/accomplishments.htm