The Competitive Edge -- Ockham's Razor and Public Policy

2010 is bringing new political winds to Washington. As political leaders seek fresh approaches to the tough problems facing the American economy, the maxim of an obscure 14th century English philosopher provides useful guidance.

William of Ockham is famous for his insight that "the simplest explanation or strategy tends to be the best one," as Wikipedia paraphrases it. This maxim is known as "Ockham's Razor." While business leaders for generations have addressed issues by using lean production techniques and simple, clear management and strategy formation, we have seen a proliferation of increasingly complex solutions to public problems, especially in the nation's capital.

Take, for example, health care. While the U.S. system of delivering and paying for health is in dire need of revamping, it is more likely than not that the 2,600 pages of federal legislation on the table in mid-January would only exacerbate the problem. Few can predict how the reform proposals would work in practice, but few doubt that it would lead to a proliferation of new public and private rules that would expand complexity by several orders of magnitude.

Similarly, recent efforts to stimulate the economy feature a bewildering array of programs that even the most sophisticated econometric models cannot accurately analyze. The huge 2009 stimulus package, spread over scores of federal and state and local agencies, has clearly not had the intended impact. In December 2009, the House of Representatives passed yet another stimulus package. I count 13 separate programs on which it lavishes at least $1 billion in spending, and another eight where new spending is at least in the nine-digit range. Those programs range from new highway spending to child tax credits to law enforcement, and any unifying thread of "stimulus" in the package eludes me.

The cap-and-trade legislation passed by the House also numbered thousands of pages in length and had a confusing mix of new rules, regulations, fees and subsidies to attack the problem of global warming.

There is a ready public choice explanation for this drive for complexity. In each case, a small group of experts is empowered to solve large problems in obscure ways which only they understand, thus empowering a meritocracy of experts -- or what in the 18th century were thought of as philosopher kings -- to increase the reach of their authority, sometimes across national boundaries. At the same time, vast numbers of public servants are required to operate the complex schemes deemed necessary to address the issues. More power is collected in the public sphere to enhance the importance of elected leaders as well.

Each of the three problems outlined above could be addressed with relatively simple solutions. I have argued previously in these pages that, should the American public decide to make a major financial commitment to address global warming, a carbon tax is the most efficient way to do it. Such a tax would require no new industrial planners or regulators. If we need more economic stimulus, tax cuts have worked in the past for our highly successful Presidents Kennedy and Reagan, and tend to shrink rather than expand the rent-seeking public sphere. Simple solutions for our health-care system are more elusive, but one can certainly conceive of more straightforward approaches. Aligning payment with beneficiaries, making health-care results more transparent, providing incentives for healthy behavior and allowing cross-state competition in health insurance are a few of the ideas that ought to be tried.

As we emerge from the toughest economic circumstances since the 1930s, and as the electorate clearly signals the need for new approaches to the huge challenges we still face, we should reflect on the insight of that 14th century Franciscan friar who is still remembered for an elegant maxim relevant to our strategies for solving problems.

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.