Seven Principles of Sound Public Policy

By Aaron Rice
April 10, 2003

by Lawrence W. Reed

The Seven Principles of Sound Public Policy was presented by Lawrence (Larry) Reed on February 17, 2003 at the Mississippi Family Council (now Mississippi Center for Public Policy) annual banquet. Permission was granted by Lawrence Reed and the Mackinac Center to publish the speech. Similar permission should be obtained before republishing this document. To limit confusion, any references made to Mississippi Family Council have been changed to Mississippi Center for Public Policy.

Thank you Andy (Taggart) for that great introduction. I have been traveling frequently in the last few weeks, and this morning was looking forward to a relaxing day at my office in Midland, Michigan. I then get a telephone call from Forest (Thigpen) at about 9:00 a.m., and somehow ended up in Jackson, MS to be with you great people this evening. Not exactly a relaxing day at the office, but it is an honor and a joy to be with you tonight.

I would like us all to think about some very critical fundamentals, some bedrock concepts that derive from centuries of experience and economic knowledge. They are, in my view, eternal principles that should form the intellectual backdrop to what we do as policymakers inside and outside of government.

I believe in having an open mind, but an intelligent open mind is not an empty mind. We have learned a few things over the centuries that we do not need to reconsider every time a new issue arises. It's not uninformed bias that prompts us without debate to accept the notion that the sun comes up in the east. It isn't blind ideology that tells us that a representative republic is superior to dictatorship or monarchy. When we study an issue at the Mackinac Center, we begin with the core assumption that private property and free market economies are superior to state ownership and central planning. That's not just one man's superficial opinion; rather, it is now one of the settled truths among people who have their eyes and ears open and for whom reason, logic, facts, evidence, economics and experience mean something.

The "Seven Principles of Sound Public Policy" that I want to share with you tonight are pillars of a free economy. We can differ on exactly how any one of them may apply to a given issue of the day, but the principles themselves, I believe, are settled truths. They are not original with me; I've simply collected them in one place. They are not the only pillars of a free economy or the only settled truths, but they do comprise a pretty powerful package. In my belief, if every cornerstone of every state and federal building were emblazoned with these principles-and more importantly, if every legislator understood and attempted to be faithful to them we'd be a much stronger, much freer, more prosperous, and far better governed people.

Principle 1: Free people are not equal, and equal people are not free.

First, I should clarify the kind of "equalness" to which I refer in this statement. I am not referring to equality before the law, the notion that you should be judged innocent or guilty of an offense based upon whether or not you did it, with your race, sex, wealth, creed, gender or religion having nothing to do with it. That's an important foundation of Western Civilization and though we often fall short of it, I doubt that anyone here would quarrel with the concept.

No, the "equalness" to which I refer is all about income and material wealth, what we earn and acquire in the marketplace of commerce, work, and exchange. I'm speaking of economic equality. Let's take this first principle and break it into its two halves.

Free people are not equal. When people are free to be themselves, to be masters of their own destinies, to apply themselves in an effort to improve their well-being and that of their families, the result in the marketplace will not be an equality of outcomes. People will earn vastly different levels of income; they will accumulate vastly different levels of wealth. While some lament that fact and speak dolefully of "the gap between rich and poor," I think people being themselves in a free society is a wonderful thing. Each of us is a unique being, different in endless ways from any other single being living or dead. Why on earth should we expect our interactions in the marketplace to produce identical results?

We are different in terms of our talents. Some have more than others, or more valuable talents. Some don't discover their highest talents until late in life, or not at all. Magic Johnson is a talented basketball player. Should it surprise anyone that he made infinitely more money at basketball than I ever could? Will Kellogg didn't discover his incredible entrepreneurial and marketing talent until age 46; before he struck out on his own to start the Kellogg Company, he was making about $25 a week doing menial jobs for his older brother in a Battle Creek sanitarium.

We are different in terms of our industriousness, our willingness to work. Some work harder, longer, and smarter than others. That makes for vast differences in how others value what we do and in how much they're willing to pay for it.

We are different also in terms of our savings. I would argue that if the president could somehow snap his fingers and equalize us all in terms of income and wealth tonight, we would be unequal again by this time tomorrow because some of us would save it and some of us would spend it. These are three reasons, but by no means the only three reasons, why free people are simply not going to be equal economically.

Equal people are not free, the second half of my first principle, really gets down to brass tacks. Show me a people anywhere on the planet who are indeed equal economically, and I'll show you a very unfree people. Why?

The only way in which you could have even the remotest chance of equalizing income and wealth across society is to put a gun to everyone's head. You would literally have to employ force to make people equal. You would have to give orders, backed up by the guillotine, the hangman's noose, the bullet, or the electric chair. Orders that would go like this: Don't excel. Don't work harder or smarter than the next guy. Don't save more wisely than anyone else. Don't be there first with a new product. Don't provide a good or service that people might want more than anything your competitor is offering.

Believe me, you wouldn't want a society where these were the orders. Cambodia under the communist Khmer Rouge in the late 1970s came close to it, and the result was that upwards of 2 million out of 8 million people died in less than four years. Except for the elite at the top who wielded power, the people of that sad land who survived that period lived at something not much above the Stone Age.

What's the message of this first principle? Don't get hung up on differences in income when they result from people being themselves. If they result from artificial political barriers, then get rid of those barriers. But don't try to take unequal people and compress them into some homogenous heap. You'll never get there, and you'll wreak a lot of havoc trying.

Confiscatory tax rates, for example, don't make people any more equal; they just drive the industrious and the entrepreneurial to other places or into other endeavors while impoverishing the many who would otherwise benefit from their resourcefulness. Abraham Lincoln is reputed to have said, "You cannot pull a man up by dragging another man down."

Principle 2: What belongs to you, you tend to take care of; what belongs to no one or everyone tends to fall into disrepair.

This essentially illuminates the magic of private property. It explains so much about the failure of socialized economies the world over.

In the old Soviet empire, governments proclaimed the superiority of central planning and state ownership. They wanted to abolish or at least minimize private property because they thought that private ownership was selfish and counterproductive. With the government in charge, they argued, resources would be utilized for the benefit of everybody.

What was once the farmer's food became "the people's food" and the people went hungry. What was once the entrepreneur's factory became "the people's factory" and the people made do with goods so shoddy there was no market for them beyond the borders.

We now know that the old Soviet empire produced one economic basketcase after another, and one ecological nightmare after another. That's the lesson of every experiment with socialism: While socialists are fond of explaining that you have to break some eggs to make an omelet, they never make any omelettes. They only break eggs.

This is not necessarily a principle of ill-willed people. In the early days of the Mackinac Center, we needed a camera to take pictures of our events for newsletters and such. We didn't have much money in those days, so I allowed my personal camera to become the group's camera for everyone to use. It didn't take long for that camera to deteriorate and become useless, because since no one owned the camera, no one took responsibility for its maintence.

If you think you're so good at taking care of property, go live in someone else's house, or drive their car, for a month. I guarantee you neither their house nor their car will look the same as yours after the same period of time.

If you want to take the scarce resources of society and trash them, all you have to do is take them away from the people who created or earned them, and hand them over to some central authority to manage. In one fell swoop, you can ruin everything. Sadly, governments at all levels are promulgating laws all the time that have the effect of eroding private property rights and socializing property through "salami" tactics, one slice at a time.

Principle 3: Sound policy requires that we consider longrun effects and all people, not simply short-run effects and a few people.

It may be true, as British economist John Maynard Keynes once declared, that "in the long run, we're all dead." But that shouldn't be a license to enact policies that make a few people feel good now at the cost of hurting many people tomorrow. I can think of many such policies. When Lyndon Johnson cranked up the Great Society in the 1960s, the thought was that some people would benefit from a welfare check. We now know that over the long haul, the federal entitlement to welfare encouraged idleness, broke up families, produced intergenerational dependency and hopelessness, cost taxpayers a fortune, and yielded harmful cultural pathologies that may take generations to undo. Likewise, policies of deficit spending and government growth "while enriching a few at the start" have eaten at the vitals of the nation's economy and moral fiber for decades.

This principle is actually a call to be thorough in our thinking. It says that we shouldn't be superficial in our judgments. If a thief goes from bank to bank, stealing all the cash he can get his hands on, and then spends it all at the local shopping mall, you wouldn't be thorough in your thinking if all you did was survey the store owners to conclude that this guy stimulated the economy.

We should remember that today is the tomorrow that yesterday's poor policy makers told us we could ignore. If we want to be responsible adults, we can't behave like infants whose concern is overwhelmingly focused on self and on the here-and-now.

Principle 4: If you encourage something, you get more of it; if you discourage something, you get less of it.

You and I as human beings are creatures of incentives and disincentives. We respond to incentives and disincentives. Our behavior is affected by them, sometimes very powerfully. Policy makers who forget this will do dumb things like jack up taxes on some activity and expect that people will do just as much of it as before, as if they are sheep lining up to be sheared.

Remember when George Bush (the first one) reneged under pressure on his 1988 "No New Taxes!" pledge? We got big tax hikes in the summer of 1990. Among other things, Congress dramatically boosted taxes on boats, aircraft and jewelry in that package. They thought that since rich people buy such things, we should let 'em have it with higher taxes. They expected $31 million in new revenue in the first year from the new taxes on those three things. We now know that the higher levies brought in just $16 million. We shelled out $24 million in additional unemployment benefits because of the people thrown out of work in those industries by the higher taxes. Only in Washington, where too often lawmakers forget the importance of incentives, can you aim for $31, get only $16, spend $24 to get it and think that somehow you've done some good.

Want to break up families? Offer a bigger welfare check if the father splits. Want to reduce savings and investment? Double-tax 'em, and pile on a nice, high capital gains tax on top of it. Want to get less work? Impose such high tax penalties on it that people decide it's not worth the effort.

Right now in both state and federal legislatures, much attention is being given to the question of how to deal with deficits due to recession and declining revenues. At the Mackinac Center, we believe government ought to deal with such circumstances the way you and I and families all across the country deal with similar circumstances: curtail spending. That's especially true if we want to stimulate a weak economy so it will produce more jobs and more revenue. When the patient is ill, the doctor doesn't bleed him.

Principle 5: Nobody spends somebody else's money as carefully as he spends his own.

Ever wonder about those stories of $600 hammers and $800 toilet seats that the government sometimes buys? You could walk the length and breadth of this land and not find a soul who would say he'd gladly spend his own money that way. And yet, it often happens in government and occasionally in other walks of life too. Why? Because invariably, the spender is spending somebody else's money.

Economist Milton Friedman elaborated on this sometime ago when he pointed out that there are only four ways to spend money. When you spend your own money on yourself, you make occasional mistakes but they're few and far between. The connection between the one who earned it, the one who is spending it, and the one who is reaping the final benefit is pretty strong, direct and immediate.

When you use your money to buy someone else a gift, you have some incentive to get your money's worth but you might not end up getting something the intended recipient really needs or values.

When you use somebody else's money to buy something for yourself, such as lunch on an expense account, you have some incentive to get the right thing but little reason to economize.

Finally, when you spend other people's money to buy something for someone else, the connection between the earner, the spender and the recipient is the most remote, and the potential for mischief and waste is the greatest. Think about it, somebody spending somebody else's money on yet somebody else. That's what government does all the time.

But this principle is not just a commentary about government. I recall a time, back in 1993-94, when the Mackinac Center took a close look at the Michigan Education Association's self-serving statement that it would oppose any competitive contracting of any school support service (like busing, food or custodial) by any school district anytime, anywhere. We discovered that at the MEA's own posh, sprawling East Lansing headquarters, the union did not have its own full-time, unionized workforce of janitors and food service workers. It was contracting out all of its cafeteria, custodial, security and mailing duties to private companies, and three out of four of them were non-union!

So the MEA, the state's largest union of cooks, janitors, bus drivers and teachers, was doing one thing with its own money and calling for something very different with regard to the public's tax money. Nobody, repeat, nobody, spends someone else's money as carefully and efficiently as he spends his own.

Principle 6: Government has nothing to give anybody except what it first takes from somebody, and a government that's big enough to give you everything you want is big enough to take away everything you've got.

This is not some radical, ideological, antigovernment statement. It's simply the way things are. It speaks volumes about the very nature of government. And it's perfectly in keeping with the philosophy and advice of America's Founders.

George Washington once said, "Government is not reason. It is not eloquence. It is force. Like fire, it can be a dangerous servant or a fearful master." Think about that for a moment. Washington was saying that even if government is no bigger than he wanted it to be and even if it does its work so well that it indeed is a servant to the people, it's still a dangerous one! As Groucho once said of Harpo, "He's honest, but you've got to watch him." You've got to keep your eye on even the best and smallest of governments because, as Jefferson warned, the natural tendency is for government to grow and liberty to retreat. Alexander Hamilton wisely told us that "Control of a man's subsistence is control of his will."

The so-called "welfare state" is really not much more than robbing Peter to pay Paul, after laundering and squandering much of Peter's wealth through an indifferent, costly bureaucracy. The welfare state is like feeding the sparrows through the horses, if you know what I mean. Put yet another way, it's like all of us standing in a big circle, with each of us having one hand in the next guy's pocket. Somebody once said that the welfare state is so named because in it, the politicians get well and the rest of us pay the fare.

A free and independent people do not look to government for their sustenance. They see government not as a fountain of "free" goodies but rather as a protector of their liberties, confined to certain minimal functions that revolve around keeping the peace, maximizing everyone's opportunities, and otherwise leaving us alone. There is a deadly trade-off to reliance upon government, as civilizations at least as far back as ancient Rome have painfully learned. When your congressman comes home and says, "Look what I brought for you!" you should demand that he tell you who's paying for it. If he's honest, he'll tell you that the only reason he was able to get you something was that he had to vote for the goodies that other congressmen wanted to take home" and you're paying for all that too.

Principle 7: Liberty makes all the difference in the world.

Just in case the first six principles didn't make the point clearly enough, I've added this as my seventh and final one.

Liberty isn't just a luxury or a nice idea. It's much more than a happy circumstance or a defensible everyday concept. It's what makes just about everything else happen. Without it, life is a bore at best. At worst, there is no life at all.

Public policy that dismisses liberty or doesn't preserve or strengthen it should be immediately suspect in the minds of a vigilant people. They should be asking, "What are we getting in return if we're being asked to give up some of our freedom?" Hopefully, it's not just some short-term handout or other "mess of pottage." Ben Franklin went so far as to advise us that "He who gives up essential liberty for a little temporary security deserves neither liberty nor security." Too often today, policy makers give no thought whatsoever to the general state of liberty when they craft new policies. If it feels good or sounds good or gets them elected, they just do it. Anyone along the way who might raise liberty-based objections is ridiculed or ignored. Today, government at all levels consumes more than 42 percent of all that we produce, compared to perhaps 6 or 7 percent in 1900. Yet, few people seem interested in asking the advocates of still more government such cogent questions as, "Why isn't 42 percent enough?" "How much more do you want?" or "To what degree do you think a person is entitled to the fruits of his labor?"

We in this country tend to take our freedom for granted. Not so in other parts of the world. I will never forget meeting Zbigniew and Sophia Romaszcewski, a Polish couple who had run an underground radio broadcast for Poland's Solidarity movement during the first six months of martial law, from December of '81 to the middle part of '82. They had run this underground radio, broadcasting a message of liberty for Poland - an anti-Communist, pro-freedom message. However, they had been detected in the middle of '82 and arrested. He was given four years in prison, while she was given three. They served most of that time in solitary confinement apart from each other. He was beaten on many occasions. They had not been out of prison all that long when I was in their apartment in November of 1986.

They were proud of the fact that, once again, in spite of all the obstacles, all the dangers, they were fighting for freedom for Poland. At any moment, the Secret Police could knock down their door and haul them off to jail again, but that did not matter to them, because freedom for them meant absolutely everything.

I asked them many questions that night about what was it like to run underground radio back in those early days of martial law. At one point, I asked, "How did you know if people were listening?" Sophia answered:

"We wondered that too because we could only broadcast eight or ten minutes at a time, and then we had to go off the air to avoid detection. But, one night while we were broadcasting our message of liberty, we asked people, "If you're listening and believe in liberty for Poland and oppressed peoples everywhere, please blink your lights. And, call others whom you know to be of the same view and ask them to do the same." We then went to the window, and for hours, all of Warsaw was blinking.

It's because of the commitment of people like Zbigniew and Sophia Romaszcewski, Ronald Reagan, and the thousands if not millions of other people whose names we'll never know but who made the supreme sacrifice on behalf of liberty, that a continent is free today. Those stories should always resonate with us as Americans and remind us of the beacon of hope and freedom and opportunity that this nation was meant to be.

Freedom is not automatic. It's not guaranteed. It's not something we can be assured our next generation will have simply because we've had it. It's something you have to work to preserve. Jefferson once said that, "The natural tendency of things, it seems, is for government to grow and for liberty to retreat." You have to work at keeping it. You have to educate people. You have to talk to them about the importance of liberty. Being independent. Self reliant. Nurturing and strengthening your families in your communities. Not relying upon distant bureaucracies for your sustenance. These things don't just happen automatically.

So, let me close tonight by saying that because we have groups like the Mississippi Center for Public Policy that I'm very optimistic about the future. I really am. It means that people are motivated. They understand these principles I've talked about tonight. They're working for them - giving of their lives every day of the week on behalf of these principles. This is a full-time thing for people like Forest and his staff and the staff of my organization, and forty or fifty similar organizations around the country. We only had a handful a bare twenty years ago. I've very optimistic about the future in part because of the growth of organizations like this one.

These groups can be sustained only by people who think and believe as they do and who understand that freedom requires sacrifice and commitment. Liberty demands we be vigilant, that we work to preserve it. Otherwise, it will not be here for all time. Ladies and gentleman, you've been a great and attentive audience. I appreciate that very much, and I thank you.

About the Author

Lawrence W. (Larry) Reed is president of the Mackinac Center for Public Policy, a Michigan-based research and educational institute. The Center's mission is to equip citizens and other decision-makers to better evaluate public policy options and to do so from a "free market" perspective. Under his leadership, the Mackinac Center for Public Policy has emerged as the largest and one of the most effective and prolific of more than 40 state-based "free market" think tanks in America.

In the past ten years, he has authored more than 800 newspaper columns and articles, 200 radio commentaries, dozens of articles in magazines and journals in the U.S. and abroad, as well as five books. He has delivered more than 700 speeches in that time, in 40 states and 10 foreign countries.

You can learn more about Larry Reed and the Mackinac Center by visiting


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