The recent turmoil at Louisville’s Metropolitan Sewer District (MSD) and Mayor Greg Fischer’s ensuing outside audit of the agency’s management and governance should come as no surprise to Kentuckians, at least to those of us who understand the power of incentives.
And no one understood the power of incentives better than the late Milton Friedman.
As Milton and his wife Rose Friedman wrote in their best-selling work Free to Choose, “Experience shows that once government undertakes an activity, it is seldom terminated. The activity may not live up to its expectation but that is more likely to lead to its expansion, to its being granted a larger budget, than to its curtailment of abolition.”
The governmentally-privileged MSD in Louisville is a textbook example of this lesson.
Why should Kentuckians expect a business that is legally guaranteed a comfortable rate of return to lose much sleep over providing an efficient product through sound management? Barring front page headlines of corruption or political outcry, MSD faces virtually no incentives to lower costs or provide a quality product to consumers. Instead, MSD will soon raise rates by 6.5% per year.
Just think if business worked this way for the little guy… Hey small business owners! As long as you don’t infuriate customers to the point that they’re imploring local officials and rioting in the streets, you’re sure to enjoy a hefty profit!
If only life were this easy for the rest of us.
The Friedmans’ message will be heeded loud and clear at Freidman Day, July 29th, at the University of Louisville.