Thursday, August 18, 2011

A Theory of Government – A Response

Our friend Colin at To Get Rich Is Glorious posted a two-part blog (one and two) over the weekend encapsulating his theory of governance. It is remarkable both for its scope and for its relative brevity, coming in at just about 2,600 words it addresses everything from democracy (the least bad option of governance) to politicians (which come in two varieties: malevolent or incompetent) to legislation (sausage) to bureaucracy (in gross, worse than politicians; in detail, victims of their own occupation). It is worth a read. It is also worthy of response. Because my own theory of government is not as fully developed as Colin’s, I will try only to respond to a few points.

Voters are Irrational. Colin adheres to this well worn trope of wisdom and subscribes to its insipid logic: voters are irrational ergo democracy is fatally flawed. He then points to all sorts of phenomena as evidence that voters are irrational—for instance, Barack Obama was endorsed by celebrities, therefore voters are irrational; Kennedy looked better than Nixon on TV and that influenced the election, therefore voters are irrational; and concludes that Obama’s victory over Sec. Clinton in the 2007–08 Democratic Primaries is attributable to youth, good looks, race, or oration (and, therefore, voters are irrational).

As someone who has spent a rather large amount of time interacting with voters and attempting to persuade them—and worked against the Sen. Obama in those very same primaries—I am sympathetic to the notion that voters are sometimes influenced by what we more policy-oriented folks view as insubstantial factors. But this being true for some voters does not render it so for other voters. In fact, a Project Vote analysis of the 2008 electorate found that the electorate that pushed Sen. Obama into the White House was more strongly progressive than the normal electorate, explaining both the gains of Democrats in 2008 and the retrenchment in 2010 when this electorate stayed home. In fact, these voters, by casting a ballot for the most progressive candidate in the race, acted rationally. (Notably, the same survey reveals that Tea Party adherents represent an extraordinarily small portion of the electorate—a true outlier community: lily white, well educated and fully employed or retired, upper middle-class to upper class, generally older and possessed of the notion that the poor or unemployed should be left to fend for themselves).

Nor is it true that a voter who votes based on a single issue is irrational—Colin may disagree with that particular voter’s calculus but the voter has surveyed the field of issues, weighted those issues, and accorded an overwhelming weight to the single issue that moves him or her to the polls. If one selects as the baseline of rationality doing something that garners to you the outcome you desire, then single-issue voting is not assailable as irrational.

Putting aside whether voters are or are not rational, and whether their relative rationality is uniform or even a fair characterization in gross, let us assume that they are all irrational. In this respect, Colin’s theory of government is the most curious. He argues (generally) that the market is the salve for all problems. Yet the free market is premised on the idea that economic actors (let us call them consumers) are rational. Who are these consumers? Well, by and large, they are the same as the voters. Why then would an individual behave rationally when making consumer decisions but not rationally when making electoral decisions? Is it any accident that political campaigns and products manufacturers both use advertising firms—sometimes the very same advertising firms—to win over consumers (voters) to their products (candidates)? Does this then suggest that consumer are not rational actors because they purchase Crest (Kennedy) over Arm & Hammer (Nixon)?

Worse, the market is premised on the notion that there is no information disparity between economic actors. This is of course ridiculous—it is, after all, an ideal; I will leave to another day the discussion of whether this particular ideal is more ridiculous than ideals in general. Democracy requires no such premise to function but, of course, prefers well-informed (although not fully-informed) voters.

Bureaucracy and Legislation. I will lump these two topics together because it is worth noting that the bureaucracy developed to fill the very gaps in the efficacy of legislation that Colin highlights. However, rather than acknowledging this, he unironically trots out progressive critiques of legislatures from the late 19th and early 20th centuries, used to argue for the administrative state. He then attacks bureaucracy with stereotypes that mostly ignore how the administrative state functions or how administrative law operates.

Bureaucracy may indeed connote those adjectives Colin ascribes it, however it denotes the specialization of government. It is intended to rectify the very problems Colin points out by alleviating the legislature’s burden of grappling with complex, technical questions beyond the ken of most if not all legislators. Is it perfect? No, of course not. No human construct is perfect, not even the market. But does it do a good job? By and large, the answer to that question is yes, it does do a good job. You may disagree—Colin certainly does—with the policy choices made by various administrations and the administrative state they have managed but is water and air cleaner today than it was 40 years ago? Yes. Are our cars safer to drive? Yes. Has malaria been effectively driven out of the United States? Yes. Do thousands of farmers rely on—and appreciate—the USDA’s Extension Service? Is our military the most advanced in the world? Yes. Have we explored more of the cosmos than the any other state—or collection of states—on the planet? Yes. What about land-grant universities, like Nebraska? Or a university established for the education of civil servants, like George Washington? These are all products of the administrative state. In fact, your ability to read this blog post right now is a product of the administrative state.

Now, because I’m a fair minded person, and because I’m committed to using this space not merely to advance progressive ideas but to actually engage in debate, I must acknowledge that there have been failures of the administrative state. Indeed, the failure of the enforcement side of the administrative state has played a significant role in the most egregious domestic crises we have witnessed over the last 10 years. But of these, several—Deepwater Horizon, Katrina, the Upper Big Branch Mine disaster—are not the product of the administrative state per se but a product of an administration committed to the destruction of bureaucracy. Unable to achieve that de jure it set about to do so in a de facto manner. And in so doing it was quite successful. And in its success we have had terrible results.

Quibbles. Finally, I must quibble with a few characterizations. First, the government to Apple analogy—though it never gets tired despite its patent baselessness—is flawed. The various departments of Apple are not akin to Congress. Rather, they are like the administrative agencies within the Executive Branch. Instead, the Board of Directors plays a more Congress-like roll (though this is still imperfect). And while Jobs need not get the buy-in of every department in Apple to pursue a new product, neither does the President need to get the buy-in of all the agencies. But as surely as the President needs the support of Congress to carryout those things that are not accorded to him, so does Jobs need the support of the Board of Directors to do those thing for which he is not solely empowered. Let us not forget, however, that ultimately both the Directors and Jobs are accountable to the shareholders. Who vote. Like in a democracy.

Second, the incentives argument, though persuasive on its face, ignores how the FDA (or most bureaucracies) actually function. There are numerous good lay and casebooks on this subject.

Third, the empire building critique can be leveled at anything. At literally any entity. Should we expect administrative agencies or corporation to commit suicide? Should this be valued? Or should we instead leave it to voters (and their agents) and shareholders (and their agents) to render these decisions. Ah, the very essence of democracy.

Finally, the critique of politicians—and the broader critiques leveled in the “Theory of Government”—is generally directed at the federal government but seems to cherry pick bad examples from local government, leaving the reader with the impression that 1) the federal government shutdown a lemonade stand; and 2) that bureaucracy across levels of government is somehow monolithic. More worrisome, though, is that the critique seems to conflate flawed politicians with flawed elections. The two certainly exist. But it is overbroad to say that all politicians are bad or incompetent—but, if you truly believe that, then perhaps you should run for office or at least find and go work for a candidate in whom you believe. As for elections, one solution to the problem of competitive elections would be to institute national election standards rather than allowing each state to parochially tweak its election code to suit established interests.


Colin said...

Well, you knew this was coming. Some points:

* "Obama was endorsed by celebrities, therefore voters are irrational." That's a strawman and not at all what I said. I noted that he was endorsed by celebrities and argued that some voters were likely influenced by this, which is a silly means of decision-making.

* "Obama’s victory over Sec. Clinton in the 2007–08 Democratic Primaries is attributable to youth, good looks, race, or oration (and, therefore, voters are irrational)." I never said that these were the only reasons -- I instead argued that a non-trivial number of people were swayed by such factors. Does anyone really disagree?

* It is unsurprising that progressives played a key role in Obama's victory, motivated largely by his policy beliefs. But how many voters cast their ballots following an exhaustive study of the issues? I have my doubts it was a majority.

* Single issue voters: I suppose it is possible that someone could be happy that, say, abortion is outlawed, and not really care that -- because of their preferred candidate's other stances -- we're all living on dog food, in a constant state of war, and basic freedoms have been eroded (an extreme scenario meant to illustrate a point). But I doubt it is very many. At the very least we can say that single issue voting, even if rational, can produce suboptimal outcomes (politicians only being held to account on one issue and being given free reign everywhere else).

Colin said...

* Regarding the government and market, and why someone would be rational in the marketplace but irrational in the voting booth, that's pretty simple. First off, I said that *voters*, not people, are irrational (or rationally ignorant). Someone can be a completely irrational voter but a perfectly rational consumer. As I said before, voters are rationally ignorant (why spend time researching a plethora of public policy issue when the election is virtually 100% guaranteed not to hinge on your vote), but consumers are much less so. Indeed, consumers have an incredible incentive to become informed, as failure to do so can produce some big direct costs to them. Is it not plausible that a voter can be ignorant as to even the capital of Iraq (while nonetheless voting) but devote substantial energy to researching the purchase of a television?

Second, this is not to say that irrational consumers and market actors do not exist. Sure they do -- people make dumb choices all the time, perhaps purchasing a product because it was endorsed by a particular celebrity. But unlike voting, where we all suffer from their poor decision-making, in the private sector these actors bear the burden alone. This suggests moving more power from the public realm to the private.

In fact, the curious stance is not from those of us on the right, but from the political left. Why does the left believe that people are too stupid, irrational or greedy to be left to their own devices -- thus making the case for expansive government -- but can be trusted in the voting booth? That makes absolutely no sense to me. If people are smart enough to run the country, shouldn't they be trusted to run their own lives with minimal government interference?

Colin said...
This comment has been removed by the author.
Colin said...

* It is false that markets are premised on the absence of information asymmetries. Now, markets work better when such asymmetries have been eliminated, but that doesn't mean they don't work at all when they exist. Take the purchase of a television for example. 20 years ago this would have required driving around to a number of different stores to compare prices (and that's if you didnt live out in the country and had several such stores nearby to visit) and talking to numerous people and/or consulting publications to find out how well they work. Information asymmetries were significant -- good luck to the person who only had access to one store and limited access to reviews. Today with the internet such asymmetries are near zero, with access not only to prices but reviews and an explanation of features as well. Does that mean that the television market didn't work 20 years ago? No, obviously it did, but it certainly didn't work as well as it does today.

I would submit that the information asymmetries between politicians and voters are massively greater than those found between consumers and sellers in the marketplace, with poorer results as an outcome.

Colin said...

* You state that by and large bureaucracies do a good job, but compared to what? How do you arrive at this conclusion? After all, "good" is a relative statement. I can show that government functions are almost invariably inferior to their private sector counterparts where such counterparts exists (e.g. housing, schools, railroads). You can say that our military is the best -- and for the amount of money we spend on it, it better damn well be -- but compared to what? Other government-run militaries? I don't see how any of your points dispprove my contention that the private sector outperforms government, and therefore we should leave as much of our lives to the private sector as possible.

Now, obviously many government functions have no private sector equivalent (e.g malaria control) and thus should be kept in the public domain (even Friedrich von Hayek advocated a government role in public health in the context of halting the spread of disease). On those we have no argument. But if something is not an obvious public good and can be run by the private sector (e.g. education) then why shouldn't it?

* I think your attribution of bureaucratic failures to the personnel that were in place rather than something systemic is wishful thinking (I can understand the argument that Bush ordered the Minerals and Mines Service to take a three martini lunch under his reign to please his oil buddies, but I fail to see the incentive to wreck FEMA and botch the response to Katrina. Further, was Ray Nagin part of the right-wing conspriracy to turn Katrina into a cluster?). But for the sake of argument let us assume this is correct -- so what? If the bureaucracy only works when true believers win the election and turns into a mess whenever Team Red wins, well that suggests some pretty profound flaws. If your political theory only works provided the other guys never win any elections -- and the GOP can be counted on to win roughly half of all presidential elections -- that's not very workable at all.

Colin said...

* The Apple to government analogy does work -- just not very well in your favor. Both are entities charged with carrying out certain tasks. If the president wants to roll out a new product -- let's call it Obamacare -- he certainly needs buy-in from Congress. Jobs does not need any such permission from his board -- he just has to keep the profits flowing. Any resemblance between democracy and the shareholder/board votes are purely superficial. While both vote, the former has rationally ignorant voters while the latter have very, very informed voters (money has a way of focusing the mind).

* I acknowledge that the empire-building critique can be levelled at anything and noted that the private sector "may suffer from many of the same flaws" as government. But, as I also noted, the key difference is that unlike government, private sector entities can be killed off in the marketplace, while government faces nothing of the kind (indeed, a budget increase will probably be the result, with the argument that just a bit more money will turn the organization around).

* Politicians, even when not personally flawed, operate within a flawed system with poor incentives. Telling someone that, hey, if they don't like the choices that they should quit their job and go traipse around New Hampshire trying to get someone better elected isn't much of an alternative. Thankfully we can still donate money to those we prefer, and I am encouraged that the internet is empowering the grassroots to make more of a difference.

Jason said...

Colin, a thorough rebuttal. Just a couple points in response:

- "As I said before, voters are rationally ignorant (why spend time researching a plethora of public policy issue when the election is virtually 100% guaranteed not to hinge on your vote),"

This is a flawed analogy. Most shareholders are rationally ignorant, turning over their voting rights to other, larger share holders who serve as their proxy. The average individual shareholder, if he or she retains her voting rights, is as likely to influence the outcome of a board meeting as the average individual voter.

- And to further question the Apple analogy. In the analogy, Jobs = Obama, so Apple's departments = executive departments, and shareholders = Congress. Obama could, much like Jobs, instruct the EPA to enforce regulations (launch a new ipod), if Congress objects they could pass legislation contrary to that directive. If shareholders object to Jobs launching a new ipod, they can remove him as CEO. It's incredibly naive to posit Jobs "just has to keep profits flowing."

In light of the scandal of the News of the World, Rupert Murdoch's leadership of News Corp was questioned by his shareholders, not because of lowered profit margins, but rather a decision contrary to the interests of the company as perceived by said shareholders.

- In so far as your posts are a theory of governance, they are a pitch for a plutocracy at best and a tyranny of an entrenched, wealthy minority as worst. As you say, democracy is the least worst form of governance. By definition then there is not a better form, whether that governance is based on a corporate governance structure designed to engage with the market or otherwise.

Colin said...


Regarding shareholders, you are correct that many small shareholders remain rationally ignorant and turn over their voting rights to others (typically fund managers) to vote them. The point, at the end of the day those casting ballots are informed, or at least much more so than the average voter casting ballots for a politician. They are informed because they have an incentive to be -- they have a financial interest in the well being of the company.

Regarding Rupert Murdoch, while bad publicity may have been the proximate concern for the ouster, ultimately it is because that publicity would have harmed profits. Profits are why companies exist. As for Steve Jobs, suffice to say he has far more leeway at his organization than Barack Obama does in the US government. I'd be surprised if even Obama would disagree with that.

I don't understand how my posts are a pitch for a plutocracy or anything of the kind. They are rather a warning against the flaws inherent in government and the dangers in entrusting such a system with too much power.

Jason said...

Regarding shareholders you're saying some are rationally ignorant, but those that vote are not? Don't all share holders have a financial interest in the company? Sure, some people have a larger interest, but that's where your corporate governance structure begins to breakdown if applied to civic governance. Who decides how has a larger interest? or who is an informed voter? Is education the determining factor? Wealth?

Were profits down at News Corp? I didn't realize shareholders (many you say are rationally ignorant) are omnipotent and can see next quarter's earnings. Now they may have suspected profit would be down because of the scandal, but given the number of quarters that Murdoch had led them to profitability, it could be seen as irrational to throw out such a leader based on the premonition of profit decline.

Colin said...

I don't know what you are trying to get at here: "Who decides how has a larger interest? or who is an informed voter? Is education the determining factor? Wealth?"

If you could clarify I'd be more than happy to answer.

As for News Corp shareholders, yes I imagine that they were concerned Murdoch's lack of oversight has placed the company -- and its profits -- in danger (remember, News of the World was shut down). That seems rational to me. But let's say it was completely irrational. Well, again, that's another virtue of the private sector -- they bear the burden of their own irrationality alone, not the rest of us.

Majid Ali said...

Please for Christ sake help this poor boy from Haiti.

Jason said...

Your posts were an attack on democratic governance. You feel it's wasteful and inefficient. I wouldn't argue that democratic governance is the most efficient, but it can be the most equitable.

You espouse tearing away pieces of the government, which are accountable to voters through democracy, and replacing what was once a government function, say education, and turning it over to a private entity. That private entity would, itself, have a governance structure like a board of directors or established shareholders. My contention is that such a system would likely remove the equitability inherent in a representative democracy. Private entities based around the common rules of corporate governance are inherently inequitable. My question is who determines who gets what power?

As to your second comment about News Corp and a wrong guess by shareholders only effecting those shareholders is naive on its face. In all probability millions of those currently unemployed did not own stock in AIG or Citigroup, yet the actions of AIG & Citigroup management and shareholders impacted the livelihood of people not a part of those companies during the Great Recession.

Colin said...

My question is who determines who gets what power?

Not trying to be obtuse here, but I still don't see what you are getting at. What do you mean by this?

As for education and equitability, it seems to me that the system we have *right now* is the most inequitable one, with the kids who have parents of means attending private schools and those of lesser means being stuck in the public system. Given that private schools routinely outperform public schools, it seems to me that leaving this area to the private sector -- and thus exposing students to a higher quality education -- would reduce, not increase inequalities.

As for Newscorp, I think you are the one being naive. The fact is, companies fail all the time with minimal impact on the economy. If News Corp were to implode tomorrow the impact would be very, very small with other media companies rushing to fill the vacuum.

Jason said...

In a democracy, an individual is granted a stake or share in the government by virtue of being a citizen and of a certain age.

In a corporation, an individual is granted a stake or share in the corporate governance by virtue of buying a share.

You clearly don't believe democracy is the ideal system and suggest that more functions that have been performed by the federal government should be handled by private organizations, which would have governance structures based largely around corporate organization structures.

However, how will stakes in these organizations be apportioned? Will people need to buy shares to have a voice? Could someone establish a controlling interest in an organization and thus dictate where a road went or what would be in a school curriculum? That is how corporations function in markets, but markets are inherently inequitable.

If a private entity decides to build a road, would they have eminent domain? If not, what would the do if someone held out? How does that improve on public infrastructure investment?

As to public vs. private schools, let's assume education was entirely privatized. As my question above states, what happens if one company acquires all the school outlets and decides to teach Christian superiority in their classes, but your family is atheist. Is there a market for a new school? Potentially, but your kids don't stop growing up while the market sorts that out. Could you move? Maybe, but there's no guarantee of a job in a different locale.

Also, let's assume all schools are private. How would people pay for these schools? Most school districts are funded by property taxes so let's say in a private school world there are no property taxes and households retain that money. But property taxes aren't uniform and so the money that has been freed up to all households to pay for private schools won't be uniform. And so in areas where property values are low, individuals will send their kids to cheaper schools. In areas where property values are high people will send their kids to more expensive school. What's more in areas with high property values people had the disposable income to send their kids to private school AND pay property taxes so that gap would be even greater. The elimination of that property tax and its re-distributive mechanism harms poor students.

Colin said...

I think you misunderstand me. It's not that I think democracy isn't the ideal system, it's that I think *government* isn't the ideal system. For those things that must be run by government, such as the police, military, courts, etc. -- I have no problem with using democracy. But let's not pretend that everything produced by democratic government is sweetness and light either.

I have no idea how those private organizations should structure themselves. That's their business and not mine. They should do whatever they think is most effective.

I don't see why a private company would be given, or should be given, eminent domain. If they want to build a road then they need to purchase land from the existing owners.

Colin said...

As for your school scenario, I first off have to say I find it incredibly implausible. How many communities face monopolies of anything? How many communities have monopolies on fast food? Clothing? Dry cleaning? Or pretty much any other product out there?

But let's assume this actually occurs. One option is home schooling, which million of people do with some success from what I gather. Another is distance learning via the internet. Or hiring a tutor. I think that in a fully privatized marketplace that education options would only multiply as people try to capture these potential unserved markets for people such as in the scenario you outlined.

As for how people would pay for schools, I assume they would do so like they do everything else -- with money. In any case I don't buy the logic that the amount of money parents can spend is equivalent to their property tax. That only makes sense if you assume they spend every dollar of every paycheck or are unable to shift consumption patters. It's perfectly reasonable to think that, if say, property taxes were refunds equaled $1200 that parents could contribute another $300 and make it $1500.

Regardless, I am sure that inequities would result, just as we find with most things. But I don't see why that is the big concern. To me it should only matter whether their quality of education has improved or not.

If you and I both live in huts, we have housing equality. But if you then move into a mansion while I move into a 3BR apartment our inequality has greatly increased while we are still better off. This concern seems rather misplaced.

Anyway, I'd be willing to settle for a system in which the government ceases the operation of schools and instead provides vouchers to use at the school of the student's choice.