Economics and Government

I was recently browsing through "The Strategic Constitution", well-written book of political science theory by Robert Cooter. Few models bearing straightforward welfare implications caught my eye and I decided to elaborate further to expose more details of those models. In this post, I am attempting to present my thoughts in a very linear and structured format. I hope that both my fellow students and people with little to no economic training will find this post easy to understand and interesting.

Pg. 15

Elections ideally transmit the preferences of citizens to politicians who head ministries or agencies…when citizens remain rationally ignorant, politicians need costly campaigns to influence citizens and win votes. To finance campaigns, politicians trade political influence for money from lobbyists.
People typically think about democracy as a system where politicians cater to the will of the majority. It is also a “tyranny of the majority,” is it not? It typically would be if the will of the majority was of prime interest to the politician and if all casted votes had equal weights.
However, when a politician (suppose a future senator) campaigns for a seat in Senate, he trades political influence for money from lobbyists. In plain English, he gives up some of his power with regard to certain legislature/future projects that at some point will appear on the agenda of the legislative body. In other words, a senator predetermines his vote on a future issue. Does he represent the will of the majority? Only if the will of the majority coincides with the lobbyist’s interest. Considering that lobbyists represent special interest groups, the likelihood of such coincidence is purely accidental. Further, if the above cause and effect analysis is correct, any political representation previously funded by special interest groups is not truly indicative of a democratic system. The fact that the majority of votes elected an individual does not indicate his intention to act upon the promises he had made during campaigning, at least not to the fullest extent. Instead, a politician is more likely to engage in balancing the promises to the public and the implicit agreements he had made with the lobbyists. Acting upon the promises he had made to the public would mean fulfilling the promises he had made to his constituents who had voted to get him into the position of power in the first place. Such would make sense because: 1) A politician needs public votes to get reelected. That provides a clear and present incentive to appeal to the public and act upon the previously made promises and ensure the future reelection. 2) To get reelected, a politician also needs money that is more likely to be procured from lobbyists, quite possibly those he already had previous business arrangements with. That is why a politician is constantly in the position of balancing the promises in order to maximize his self-interest: narrowly money + power.
Another issue of lobbyists funding election campaigns of politicians is log rolling. Explicit log rolling (two politicians meeting over lunch and agreeing to vote on each other’s bills) represents a voluntary exchange. Both parties have a double coincidence of wants and will both be better off after completing an exchange. Senator A exchanges his vote for senator B’s proposal and in return receives senator B’s vote to support senator A’s proposal. Log rolling represents a barter of votes and is deemed illegal.
If we think about lobbying it is almost the same. The two parties meet and decide implicitly (without a legal contract) to exchange the future senator’s vote for money that will be used to finance his campaign. Hence, to a lobbyist, funding the campaign of a candidate to legislature represents a prepaid asset but only if that candidate gets the seat in Senate. Is it just me or is there something seriously wrong with such a transaction?
We slap the wrists of those that try to exchange political favor via explicit log rolling. We do that to prevent our representatives from acting in their own self-interest and instead to create the incentives to represent us, their constituents. That’s an entire reason we voted for them instead of other candidates, is it not? So how is log rolling different? A reasonable spectator of politics understands that the money aided in electing a government official. If he desires reelection, he will inevitably need money again. However, the only condition for him to receive the funds now is to fulfill the promises he had previously made to the lobbyists. What if those promises are not in tact with most of the general population’s beliefs? If a public official desires reelection and opts to fulfill his promises to the lobbyists, will he get reelected? Chances are he will. Why? Perhaps because most of us are rationally ignorant voters, people with our own problems and daily lives, who might ignore the senator’s voting record for the past several year for one reason or another. Maybe most of us will simply vote on what we know already and what he promises to do for us in the future. One thing is certain: we can only hope this public figure will choose us and our interests instead of his own urges for money and power that lobbyists and their companies so willingly offer.

Pg. 44

Assume that the three alternatives form an intransitive cycle, where A defeats B, B defeats C, and C defeats A. Assume that the person who sets the agenda wants A to prevail. To assure the final victory of A, set the agenda so that the first vote pits C against B, and the final vote pits the winner of the first vote against A. Given this agenda, B defeats C in the first vote, and A defeats B in the final vote. Thus the person who sets the agenda gets the most preferred outcome.

I find it interesting that living in a democracy, people really believe that the candidates they choose and vote into the office will truly represent them. Obviously, any such representation becomes highly questionable in the light of transitivity avoidance. I’m particularly concerned with the ability of senators to overcome the will of the committee’s chairman. In spite of its legality, I don’t consider transitivity avoidance a democratic process, bar none. The reason I render this unfortunate conclusion can be clearly expressed in two sentences: Generalizing, democracy can avoid intransitive cycles by empowering someone to dictate which majority will prevail. Allowing the chairman to set the agenda achieves this end by one means (46).
Maybe I am wrong, but ‘dictating which majority will prevail’ surely does not seem like a legitimate democratic process because it uses other people’s ambitions (those of senators), prompts them to act in the pursuit of what they deem to be appropriate, yet renders a result that only one person (a chairman who is a minority outnumbered by the majority of senators) has modeled and successfully accomplished solely due to his power, ability, and willingness to do so. In spite of perfectly fulfilling the functions of representative democracy, I cannot help but perceive it as an element of autocracy.
Unless the end result of voting in this arranged and manipulated situation coincides with the result of a hypothetical vote, one where the senators use some sort of majority rule to decide upon the sequence of competing alternatives (choices), the probability of the two voting outcomes coinciding is purely accidental, especially involving cases of multidimensional choices (I imply, more than 3 choices). Curiously, the probability that a chairman-determined voting sequence outcome will coincide the senators-determined sequence outcome (majority rule based) diminishes greatly as the number of choices increases (probability and number of choices are inversely related).

Todd Zywicki ($$):

In fact, for the typical 1970s family, paying 24% of its income in taxes works out to be $9,288. And for the 2000s family, paying 33% of its income is $22,374.

Although income only rose 75%, and expenditures for the mortgage, car and health insurance rose by even less than that, the tax bill increased by $13,086 -- a whopping 140% increase. The percentage of family income dedicated to health insurance, mortgage and automobiles actually declined between the two periods.

During this period, the figures used by Ms. Warren and Ms. Tyagi indicate that annual mortgage obligations increased by $3,690, automobile obligations by $2,860 and health insurance payments by $620 (a total increase of $7,170). Those increases are not trivial -- but they are swamped by the increase in tax obligations. To put this in perspective, the increase in tax obligations is over three times as large as the increase in the mortgage payments and almost double the increase in the mortgage and automobile payments combined. Even the new expenditure on child care is about a quarter less than the increase in taxes.

Overall, the typical family in the 2000s pays substantially more in taxes than the combined expenses of their mortgage, automobile and health insurance. And the change in the tax obligation between the two periods is substantially greater than the change in mortgage, automobile expenses and health-insurance costs combined.

Don Boudreaux:

I suspect that, if the bears really are invading Wall Street, they are drawn there chiefly by the snarling protectionists now in ascendancy in Washington.

I've been thinking the same thing.

From the Wall Street Journal editorial pages:

Texas Congressman Ron Paul -- libertarian gadfly and current Republican Presidential hopeful -- has made a name for himself as a critic of overspending. But it seems even he can't resist the political allure of earmarks.

After reporters started asking questions, the Congressman disclosed his requests this year for about $400 million worth of federal funding for no fewer than 65 earmarks. They include such urgent national wartime priorities as an $8 million request for the marketing of wild American shrimp and $2.3 million to fund shrimp-fishing research.

When we called Mr. Paul's office for an explanation, his spokesperson offered up something worthy of pork legends Tom DeLay or Senator Robert C. Byrd: "Reducing earmarks does not reduce government spending, and it does not prohibit spending upon those things that are earmarked," the spokesman said. "What people who push earmark reform are doing is they are particularly misleading the public -- and I have to presume it's not by accident."

Eric at Classical Values:

"It is one thing to prosecute and punish crime, and when someone has been convicted, I can understand the logic of requiring him to be monitored. But what gives the government the right to step in and require citizens to monitor themselves? What's being discussed here is making it a crime not to use crime prevention devices. Where does it end? Installing monitoring collars and ankle bracelets to keep track of all of us?"

I would rather not talk about government having a "right" to do anything. Government's have power, not rights. In my view, we should not think government is justified is using power (a.k.a. force or coercion) to make it a crime not to use a crime prevention device.

Sometimes these days our political economy seems just to much Alice in Wonderland too understand.

Arnold Kling:

" In my humble opinion, we should only have laws that are:
--simple;
--straightforward;
--clear; and
--necessary

To ensure this, we need a new institution. I propose the Anti-Congress, which would be empowered to instantly repeal any legislation that fails to meet any of these criteria."

An ANTI-CONGRESS? Now, isn't that an interesting idea? But, I wonder if that idea, in general form, isn't already written into our Constitution? Our Constitution is based upon the idea of expressly enumerated powers for Congress, which are written down as Article I Section 8. Of course, who would expect members of Congress to read the Constitution and choose to be bound by it (even though they each take a personal oath asserting they will). So, the Constitution also provides for another branch of government, the judiciary, which is supposed to make sure government follows the Constitution. Can't we think of the judiciary as an ANTI-CONGRESS that steps in and declares Congressional legislation unconstitutional and therefore repealed when the actions of Congress step beyond those expressly authorized by the Constitution? I think maybe we can, and it seems unfortunate that so few members of the judiciary seem to see their role in this way.