Topic: Political Philosophy

Pork or Bags of Cash?

I’ve been noodling through a government reform thought experiment, but can’t seem to reach a conclusion. See what you think…

The reform would address that most nefarious dynamic: When the benefits of government spending are concentrated and the costs are dispersed, government will grow and spending will increase.

Mancur Olson described this dynamic more than 40 years ago in The Logic of Collective Action. Steve Slivinski, in his new book Buck Wild, summarizes Olson’s idea as follows:

Olson pointed out that the disparity in incentives between taxpayers and what we now call “special interests” results from an inherent disadvantage of the larger group (i.e., taxpayers) compared to the smaller group (i.e., recipients of public dollars) in its ability to organize to defend its interests. It is this inherent bias in favor of the small special interest groups that provides a very robust explanation of why we still have Big Government, even though many taxpayers would prefer smaller government. “It would be in the best interest of those groups who are organizing to increase their own gains by whatever means possible,” writes Olson. “This would include choosing policies that, though inefficient for the society as a whole, were advantageous for the organized groups because the costs of the policies fell disproportionately on the unorganized.”

To borrow an example from Steve’s book, the National Endowment for the Arts had a 2004 grant budget of $47.4 million — equal to about 0.01% of income taxes. The NEA awarded 1,970 grants that year, so the average grant amount was $24,000. Grant recipients would thus have considerably more financial incentive to lobby for continuing the NEA than individual taxpayers, who on average contribute less than a buck per year to the program, would have to lobby for discontinuing it.

This dynamic is made worse by the common belief that if a government program is cut, its money will be rerouted to some other program instead of returned to taxpayers. Consider, for instance, the lightly-trafficked regional airport in my hometown, which is using a forthcoming, large federal grant to finance a major expansion of its runway. When local residents complained that the expansion was a waste of taxpayers’ money, project defenders responded that the federal government would spend it in some wasteful fashion anyway, so why not do so locally?

The “organized group” that gains the most from Olson’s dynamic is politicians. Because they control the public fisc, they receive the entreaties and gratitude of special interests, and they parlay that gratitude into campaign contributions and electoral support. The result is that politicians and special interests mutually benefit from this dynamic while taxpayers are stuck with the bill.

Nor does the dynamic require bad actors. Special interests can act on the sincere belief that their causes benefit society, and politicians can share that belief or else be brought to embrace it by the quasi-Darwinian forces of elections. In short, Olson’s dynamic appears to be a natural part of the political system.

Unfortunately, it’s a very costly part, as Duke University’s Mike Munger described earlier this summer in an essay on econlib.org. (Will Wilkinson discusses Munger’s essay here, and Munger chats about it on Russ Roberts’ EconTalk here.) Special interests — whether units of government or private entities — will invest resources in lobbying and other efforts to gain the government money. Those investments, in aggregate, may pay off for the special interest (because the government money received offsets the cost of the successful and unsuccessful lobbying efforts), but significant resources are wasted from the perspective of society.

To understand this, suppose a special interest spends L dollars a year on lobbying, and that lobbying yields G dollars in government money. If L < G, the special interest will continue its lobbying, because the cost is offset by the government money received. But the cost to society for the special interest obtaining G is G + L (because society ultimately funds the special interest) + various deadweight losses D from taxation.

 Hopefully, the benefit purchased by the grant will outweigh G + L + D. But there are many cases where that appears not to be the case — consider Ted Stevens’ $231 million “Bridge to Nowhere” for the 50 people of Gravina Island, Alaska. So, society is stuck with paying G + L + D for a benefit that sometimes isn’t even worth G.

Government spending, in theory, is supposed to be for public goods — goods for the benefit of the general public that are not sufficiently provided through private markets because they are neither rivalrous nor exclusive. (There are all sorts of fights over how to understand “sufficiently,” but we need not worry with that here.) However, projects like the Bridge to Nowhere and other instances of pork-barrel spending are better understood as either club goods (goods that are exclusive) or private goods (goods that are rivalrous and exclusive).Neither of those latter two categories of goods seems an appropriate candidate for government provision — or, at least, for federal government provision. Yet it is those two groups of goods for which special interests are willing to spend L in order to gain G.

Can we somehow break up this dynamic, reduce L, and increase the likelihood that public spending goes to true public goods instead of dubious club and private goods?

To do so, we would have to overcome Olson’s dynamic. That would require:

  1. assuring that the money saved from foregone spending is returned to taxpayers (or, at least, to the public),
  2. reshaping the budget system so that politicians are politically rewarded for the money they save, and
  3. aggregating special interest “pork” spending so that taxpayers will have greater incentive to organize.

Hence, my thought experiment: What if individual politicians were given the choice between spending the money allocated to pork barrel spending on actual projects, or handing that money directly to their constituents?

Think about this on the federal level. In essence, each congressional district has its own pork fund (funded in accordance with the congressman seniority, party affiliation, political favors, etc.) that it divvies up among local and national special interests. What would happen if each congressman were given the choice of, instead of simply funding pork, handing out some or all of the money to his constituents?

Public choice analysis asserts that the congressman would follow whichever course of action is most likely to get him reelected. If the politician’s laundry list includes some meritorious public goods that would benefit his community (and thus earn his constituents’ gratitude), he would direct some of the money to those goods. He may also continue to fund some of the club and private goods, if he believes enough voters have a strong-enough preference for them.

But, I suspect, the congressman would detect a strong voter preference for receiving bags of cash instead of dubious-value government goods and services. And that intense preference, I think, would reduce pork barrel spending. That, in turn, would reduce special interests’ incentives to pursue that money, which would reduce L.

But is my suspicion wrong? Would politicians prefer to hand out cash to large numbers of constituents or cut the ribbon for Bridges to Nowhere (after handing out cash to construction companies)?

Moreover, if I am right that handing out cash to constituents is more appealing, would the unintended consequences of this reform (e.g., politicians using the handouts to redistribute wealth to the median voter) be worse than its benefits?

Thoughts?

Welcome to the Blackout Period! NOT

Today McCain-Feingold’s 60-day window on electioneering communications opens. Perhaps a better metaphor would be that the window slams shut.

An electioneering communication is a broadcast ad that mentions a candidate for federal office. Until election day you cannot sponsor an electioneering communication unless you meet certain conditions specified by federal election law.

Practically, this part of McCain-Feingold means business corporations, labor unions, many interest groups (which are incorporated), and groups that receive money from corporations or unions may not fund ads mentioning candidates for federal office. The same groups also may not sponsor ads urging citizens to contact their member of Congress about an issue if that member is running for re-election.

Defenders of McCain-Feingold (and a majority of the U.S. Supreme Court) have argued that the electioneering communication rules do not prohibit political speech. After all, these groups can simply form a political action committee or use other available alternatives to sponsor the advertising.

Maybe, maybe not. In 2000, a donor gave the NAACP a multi-million dollar gift that was used to fund ads criticizing a candidate for federal office, George W. Bush. Under McCain-Feingold, the NAACP would have had to raise that multi-million dollar donation under federal law including disclosure requirements and contribution limits. Raising money under those constraints is much harder than receiving a single gift from one donor. Given those difficulties, the NAACP might well have not raised as much money with a PAC as they did in 2000 from that one contributor. Of course, funds that are not raised cannot be spent on political speech.

Jim Bopp, Jr., a leading First Amendment lawyer, has recently noted other ways McCain-Feingold discourages speech:

 “As one who represents advocacy groups, I have seen first hand that the burdens and undesirability of each available alternative [for example, PACs]  is such that the vast majority of advocacy groups have abandoned issue advertising during the blackout periods… One of the key considerations is that to avail oneself of one of these alternatives requires (1) hiring expert legal assistance to design and implement such strategies and (2) exposing your organization to heightened scrutiny by the FEC, press, and offended public officials.  As a result, only the wealthiest, most sophisticated, and most insistent have assumed these burdens and risks.  The vast majority of advocacy groups have just dropped out – to the everlasting joy of incumbent politicians who face less scrutiny from the general public for what they do to us and for us in office.  A prohibition indeed!”

I am reminded of Frederic Bastiat’s essay on “The Seen and the Unseen.” Americans see the political world after McCain-Feingold. Electoral ads continue to run, and no one has been sentenced to a re-education camp. They conclude that nothing all that bad has happened to free speech.

Americans do not see the political speech that would have existed if McCain-Feingold had not been enacted. They thus discount the possibility that the speech that may not exist in the future may be their own and that blackout periods now may portend a longer night to come.

Make Way, Peasant!

Remember Bill Clinton’s $200 haircut?  In 1993 the new president, who had run as a populist, kept LAX travellers waiting as stylist-for-the-stars Cristophe sculpted the presidential ‘do aboard Air Force One.  Of course, the real outrage wasn’t how much Clinton spent on the cut (who cares?) but that he and his staff thought the president getting a haircut was reason enough to keep hundreds of ordinary Americans waiting on the tarmac so AF1 could take off first.  Who do these people think they are?

But for the protests of Virginia transportation officials, Washington-area commuters might have found themselves asking a similar question last week.  Unlike the Cristophe kerfuffle, in this case the plan to inconvenience thousands of Americans came from Secret Service, not the president himself.  The Washington Post reports that on Tuesday “the Secret Service asked Virginia officials if they would be kind enough to shut down all of the HOV lanes on I-395 from 1 to 7 p.m. the next day so President Bush could get where he needed to be.”  Which was a fundraiser for Sen. George Allen.  State traffic experts described the likely results of acceding to the Secret Service request:

“There will be approximately 8,600 cars using the HOV lanes over a three hour period (4 to 7 pm). This equates to approximately 20,000 to 22,000 people. If the HOV lanes are closed, according to the District’s estimate the back up of traffic in the general purpose lanes will not be cleared until 10 p.m.” 

Even so, it apparently took them quite a while to talk the Secret Service down from the plan. 

As Melanie Scarborough discussed in a 2005 Cato Briefing Paper [.pdf], the idea of establishing a permanent corps of federal agents dedicated to protecting the president proved surprisingly controversial, even after the assassination of President McKinley in 1901:

Sen. Stephen Mallory (R. FL) said, “I would object on general principles that it is antagonistic to our traditions, to our habits of thought, and to our customs that the president should surround himself with a body of Janizarries or a sort of Praetorian guard and never go anywhere unless he is accompanied by men in uniform and men with sabers as is done by the monarchs in the continent of Europe.” The House Judiciary Committee objected to the proposal that a cabinet secretary send presidential protectors “among the people to act under secret orders. When such laws begin to operate in the Republic, the liberties of the people will take wings and fly away.”

That sort of rhetoric may seem a little anachronistic today.  Clearly, the 21st century president needs a professional personal security detail.   But when that security detail makes clear that it couldn’t care less how much it inconveniences 20,000 commuters, so long as the president gets to his fundraiser on time–and that it cares still less about Americans’ free speech rights–you might begin to think that Mallory et al. had a point.   

Against Forcing Voters to be Free

Around election time pundits begin to fret about low voter turnout in the United States. Norman Ornstein has even called for mandatory voting, complete with sanctions. The voters should be, as it were, forced to be free.

Ilya Somin at the Volokh Conspiracy shows why such concerns are misplaced. We should be worrying, Ilya says, about the rational ignorance of voters who do go to the polls. His longer argument about voter ignorance may be found here.

Political Governance vs. Corporate Governance

A New York Times columnist says it may be a mistake to try “to make government run more like a business.” Citing research by Matthias Benz and Bruno S. Frey, summarized by Larry Yu, the Times says that government works better than the private sector:

The authority over government is split among the branches of government. In business, Mr. Yu writes, “even if directors have stepped up their governance in recent years, institutional norms still stack the deck in favor of C.E.O.’s.”

And while chief executives and directors can serve forever, politicians need to face re-election regularly.

When it comes to corporate governance, maybe there is something to be learned from governments.

Well, let’s see. According to a Booz Allen study, dismissals of corporate CEOs have risen sharply in the past decade. Among the world’s 2,500 largest public companies, “CEOs are as likely to leave prematurely as to retire normally. Continuing a pattern from 2004, in 2005 nearly half of all CEO departures were due to poor performance or mergers.”

Meanwhile, almost no members of Congress are removed from office involuntarily. As this chart shows, House reelection rates are approaching 100 percent.

Does that mean that the U.S. government is performing so much better than the average company that there’s no need for change? It seems unlikely that even the Times columnist would make that claim. No, if you read the links above from Booz Allen and the Washington Monthly, you can see some of the differences between politics and business: Business is competitive, to begin with. There are 2,500 large companies in the survey, all competing with one another and with millions of upstart challengers. If Sears and K-Mart don’t stay on their toes, Target and Wal-Mart will take their business. Wikipedia lists pages and pages of defunct companies, all of which failed to satisfy customers. Executives lost their jobs, and shareholders lost their money, and those realities are a powerful incentive to executives and shareholders of other companies. Corporate boards are getting more aggressive, and different companies are testing different rules for governance – outsider CEOs, separating the jobs of CEO and chairman, acquisitions, divestitures, going public, going private – in an attempt to find the rules that will produce the greatest customer satisfaction and thus the greatest profits.

Contrast that with government. Failed bureaucrats are almost never fired; indeed, the standard response to bureaucratic failure is to appropriate more money for the agency. Gerrymandering, campaign finance restrictions, and taxpayer-funded constituent service and propaganda make it almost impossible for a member of Congress to be turned out of office. People spend other people’s money far less efficiently than their own.

I think the Times got it backwards. It would be more appropriate to say, “When it comes to government, maybe there is something to be learned from corporate governance” – such as the value of decentralization and competition, retirement ages or term limits, and real penalties for poor performance. Since those factors are unlikely to occur in political systems, the best lesson is to keep as much of life as possible in the private sector.

Michael Gerson Thinks You Are “Morally Empty”

If you like the work of the Cato Institute, that is.  “Morally empty” is how Bush’s former head speechwriter described the “small-government” aspect of small-government conservatism in this interview with Foreign Policy magazine:

It is superficially attractive. But in the long run, it’s politically self-destructive because [candidates] end up talking about the size of government while others are talking about education, healthcare, and serious public concerns. It’s morally empty because, from my tradition and political philosophy, any political movement has to have a vision of social justice and the common good in order to appeal [to people]. And government can play a part in that. I’ve seen over the last five years that it clearly can.

And in case you had caught your breath after almost six years of Bush’s foreign policy, here he is on the question “Which of the president’s speeches do you think best expresses his worldview?”

Probably the second inaugural, which he wanted to be the democracy speech—the culmination of a series of doctrines and approaches that we had defined in the previous two to three years. It talks very frankly about the necessity of democratic transformation for the future of American security. Particularly in the Middle East, the cycle of tyranny and radicalism has produced an unsustainable situation. That dynamic has to be changed, and democracy is the only way to do it. Some of it is working with authoritarian governments that may go down the path of reform, some of it is standing up for dissidents and taking the side of the oppressed, and some of it is confronting outlaw regimes that threaten the international order. This is, in many ways, the clearest crystallization of his foreign policy.

It’d be comforting to think they’ve learned their lesson, but they clearly haven’t.  In case your outrage quotient isn’t yet filled, you can read this interview at Christianity Today.  Gerson on the Democratic Party:

I would love to see the Democratic Party return to a tradition of social justice that was found in people like William Jennings Bryan. During that period, many if not most politically engaged evangelicals were in the Democratic Party, because it was a party oriented toward justice.

I don’t see much of that now in the Democratic Party. Instead of an emphasis on the weak and suffering, there’s so much emphasis on autonomy and choice. And so the party of William Jennings Bryan, the party of Franklin Roosevelt, I’m not sure it exists any more. But it would be good if it did.

Gerson on Republicans:

There are some members of the Republican Party who…have a much more narrow view of government’s role. It would be a shame if conservatism were to return to a much more narrow and libertarian and nativist approach.

Your Republican Party, ladies and gentlemen.  Bomb-slash-democratize the Arabs, accomplish “social justice,” cure AIDS in Africa, and ban gay marriage.  There’s going to be a lot of work left for the federal government, apparently, even after Bush leaves office.

Exit Against Predation

Those who have strong feelings about how wealth ought to be distributed, and who think that government policy ought to be more redistributive, often fall victim to the fantasy that their golden geese will not just wander off into another jurisdiction.

No doubt the members of the Chicago City Council are nonplussed that their attempt to squeeze large retailers has led Wal-Mart, Lowes, and Target to put their plans for new Chicago stores (and new Chicago jobs) on hold. I bet a million billion dollars that at least a few council members have lamented that they can’t legally force the big boxes to open stores within Chicago city limits. They’re learning the bitter lesson that the right of exit is a powerful check on politicians who can’t keep their hands out of other people’s pockets.

Worried about inequality? Why not really sock it to the rich? Because the rich — or their money at any rate — will just leave town. Even champions of the poor, like Bono, head for the greenest pastures:

Irish rock band U2 has transferred part of its multi-million-euro business empire out of Ireland due to changes in tax laws there, a British newspaper has said.

In a report from Dublin, the Daily Telegraph said Tuesday the band had moved part of its publishing company, U2 Limited, to the same Dutch finance house used by the Rolling Stones because royalties are virtually tax-free in the Netherlands.

[…]
According to the Daily Telegraph, the band — whose frontman Bono campaigns against global poverty — made the move in response to Ireland imposing a 250,000-euro (170,000-pound, 321,000-dollar) cap on tax-free incomes.

I bet Bono thinks he knows better than politicians in Dublin how to use his money. And I bet Bono’s right.

A recent Washington Post article details how France is bleeding millionaires thanks to outrageously punitive tax rates:

[High-tech millionaire Denis] Payre, who moved his family to neighboring Belgium eight years ago, is today part of a sizable community of rich expatriate French driven out by the world’s highest tax bills on wealthy citizens. The exodus continues: On average, at least one millionaire leaves France every day to take up residence in more wealth-friendly nations, according to a government study.

Now, I bet that more than a few of those fleet-footed millionaires were in favor of those high tax rates, illustrating that the gap between ideology and actual consequences can open up even within a single soul.