Great Lakes Article:

Milwaukee's Mess
by Christopher Westley
Ludwig Von Mises Institute
Published June 14, 2004

Perhaps you have heard that the bureaucrats running the Milwaukee Metropolitan Sewerage District recently dumped 4.6 billion gallons of raw sewage into Lake Michigan along the Wisconsin coast. What's more, they did it as a matter of policy.

That you probably haven't heard about this scandal says much about the sycophantic relationship between the public sector and the so-called free press in this first decade of the 21st century[1], showing that press coverage is lacking in other areas than simply its coverage of Iraq. It also indicates much about the degree to which the public sector is held to a lower standard than the private sector, a relation which is true, to varying degrees, throughout the United States, but especially in that birthplace of the Progressive Era, the Peoples Republic of Wisconsin.

I know about this scandal because of a recent trip to that state. You can't walk along the lake there without covering your nose and wondering if you are endangering your health. The beaches along the lakefront—always a popular destination during Memorial Day weekend—were closed. From what I could tell, the locals are mad as hell about the situation and are completely unable to do anything about it, so entrenched are the perpetrators of this crime.[2]

How could this happen? The answer is a textbook case that could have fit well as an appendix to Ludwig von Mises's Bureaucracy.

Several years ago, MMSD officials decided to upgrade its sewer system by creating a deep tunnel that would feed raw sewage with rain water to its water treatment facilities. This $3 billion project took several years to complete and was touted as the answer to an existing sewage system that was so old that it had become an environmental and health hazard.

The risk in choosing a single "deep tunnel" system combining both types of wastewater lie in deciding what to do when excessive rainwater stressed the system. Many thought that a dual system of piping that separated rain from waste water was a safer, if more expensive, solution in an area of the country known for heavy spring rains. Instead, the city decided on the deep tunnel with the understanding that whenever the system reached capacity, it would dump the overflow into the lake.

Although this was a policy that would probably have resulted in criminal penalties if ever adopted by a private firm, in hindsight, this was probably a tough call. One had to balance the possibility of overflow with the short-term savings of the deep tunnel (even though both options cost in the billions of dollars). These decisions are much more likely to be made correctly when those who are making them stand to experience benefit or harm as a result. And as should be no surprise to readers of Mises.org, this is much more likely when such decisions are made in the private sector. Mises writes about this phenomenon in Bureaucracy (1983, pp. 50-52):

Bureaucratic management is management bound to comply with detailed rules and regulations fixed by the authority of a superior body. The task of the bureaucrat is to perform what these rules and regulations order him to do. His discretion to act according to his own best conviction is seriously restricted by them.

. . . The objectives of public administration cannot be measured in money terms and cannot be checked by accountancy methods. . . . Within a business concern such things can be left without hesitation to the discretion of the responsible local manager. He will not spend more than necessary because it is, as it were, his money; if he wastes the concern's money, he jeopardizes the branch's profit and thereby indirectly hurts his own interests. But it is another matter with the local chief of a government agency. In spending more money he can, very often at least, improve the result of his conduct of affairs. Thrift must be imposed on him by regimentation.

. . . In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive. . . . Bureaucratic management is management of affairs which cannot be checked by economic calculation.

So, where does this leave the city of Milwaukee? Currently, there is much finger pointing going on.[3] There are plans to appoint a commission to study the scandal and learn whatever is necessary so that it does not happen again. Members of the state legislature are planning hearings. These responses amount to predictable nonsense meant to convey the message to an angry public that the system can still work if only, yet again, it can be tweaked in the right way.

But unfortunately, the system can be tweaked indefinitely, and to no avail, as long as the incentive structure facing decision makers is not changed. The likelihood of anyone being held criminally responsible currently seems quite low. No one has been fired. More tellingly, lawyers have not exactly been lining up at the trial bar to file cases against the perpetrators of this crime like they did shortly after the oil spill of the Exxon Valdez in the 1980s.

Remember that? Back in 1989, a drunken ship captain named Joseph Hazelwood literally fell asleep at the helm of his oil tanker as it ran aground on Bligh Reef in Alaska's Prince William Sound, causing about 11 million gallons of oil to spill into the water. Exxon was found guilty of negligence and a $5 billion verdict was issued against it. Though the area harmed by the oil spill has largely recovered, some adverse effects still linger.

The incident shows how private sector actors are held responsible for their actions. This is as it should be. One of the great benefits of private property is that owners are held liable when property is used to damage others. This promotes more responsible use of property and causes it to be used in ways that are socially optimal.

There are other contrasts as well. Eleven million gallons of oil spilled into a body of water connected to an ocean is small potatoes compared to 4.6 billion gallons of raw sewage dumped into a great lake. This makes the dichotomy between the reactions to the Exxon Valdez and the smelly mess in Milwaukee so glaring. (Do environmentalists only condemn private sector perpetrators of ecological damage?) And while the costs of Exxon's oil spill can easily be assigned to the firm's shareholders, the costs of MMSD's poor stewardship must be socialized among the taxpayers.

Currently, Milwaukee residents are being told that the long term solution to its sewage problem lies in switching to the dual piping system, another multi-billion dollar project on top of the relatively new deep tunnel system. Whether this system is implemented (as seems likely) or not, taxpayers will continue to pay by either enduring disgusting lake breezes or in increased taxes in order to finance the improvements.

But they will pay. As someone with familial roots in the Milwaukee area going back over 150 years, I find the situation scandalous and discouraging, but hardly surprising. The city of Milwaukee has long been dominated by left-liberal political machines that have ruined what was once a great city and have, over the last several decades, caused an exodus to outlying suburbs and other states that pose lesser threats to disposable incomes.

When I visit Milwaukee today, I am struck by the extent to which it is living on the fumes of past accomplishments. Unfortunately, those fumes have long turned sour. Much stinks in Milwaukee, and it isn't just coming from the lakefront.