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When government cannot be eliminated, structures should be established that make resource allocation and regulation as automatic as possible, so that politics and lobbying can play little role.
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One could imagine a system, technically democratic, that worked somewhat like the Catholic Church, in which only the President/Pope was elected, for a life term, and election was by a College of Cardinals appointed (or in a democracy elected) continuously or annually, with no high-profile and expensive periodic elections. The “College of Cardinals” would have no other function than conducting elections of the Chief Magistrate. This was the system proposed by the more conservative Founding Fathers, which is why the Electoral College exists – it has also served the Papacy quite well for two millennia. Such a system would provide democracy but almost no politics and would thus hugely reduce the costs that politicians impose."
The cost of politiciansBy Martin Hutchinson
November 19, 2007
SourceMartin Hutchinson is the author of "Great Conservatives" (Academica Press, 2005) -- details can be found on the Web site www.greatconservatives.comAs the US political season moves into high gear, a full year before it will blessedly end, the thought inevitably occurs to an economy-minded person: how much do all these politicians cost? Not simply the cost of their endless and annoying campaigns, but the money diverted to economically inferior uses by political pressure, the mistakes made through their ignorance of subject matters in which they have no competence but only political authority and the economically damaging decisions made in pursuit of non-economic and often anti-economic goals. When added up, the total is mind-boggling.
The cost of politicians must be distinguished from the cost of government itself. Anarchy doesn’t work very well, and once that option is ruled out you have to have government and that government is going to cost money. Nevertheless, examples such as Britain before 1832 have demonstrated that in societies where political considerations and electoral success play only minor roles and war is avoided, government can be managed at far less cost than is now deemed necessary. One of the great ironies of the American Revolution is that the colonists, who rebelled against British-imposed taxes lower than those of the mother country, were in reality living in the lowest tax polity in the history of civilized mankind. Needless to say, once the United States had achieved independence, the taxation on its people was never as low again, even though for the country’s first century and a half most US governments pursued admirably frugal policies.
In the category of money devoted to economically inferior uses, agriculture subsidies must surely hold pride of place. Initiated in order to protect the living standards of impoverished Dustbowl farmers and French peasant landholders, they have become entrenched as a subsidy to agribusiness and a huge blockage to freer trade. Their cost is not only the direct out of pocket expense of the US, EU and Japanese subsidies, but the economic cost of the trade foregone by the death of the Doha round of trade talks. As such, the annual global cost of these excrescences must be in the trillions.
A second area in which politicians divert scarce resources to economically inferior uses is that of construction. Local governments build excessively large public facilities that the market does not demand. National governments build ugly modern prestige public buildings (France) or unnecessary motorways deep in the countryside (Japan). Both local and national governments combine to subsidize ludicrously wasteful bids for major sporting events such as the Olympics or the football World Cup, or unnecessary sports stadia such as the new baseball stadiums in Washington and New York, both subsidies to sports teams that, being in large wealthy media markets, emphatically do not need them. The Third Reich was famous for the quality of its public buildings and ceremonies; other polities are equally economically profligate, without the saving grace of Leni Riefenstahl to film the events or Albert Speer to design the buildings.
Ethanol subsidies are a combination of government devoting money to economically inferior causes and politicians meddling in matters they don’t understand. Ethanol from corn, the production methodology subsidized by the George W. Bush administration, is a thoroughly inferior way of producing ethanol, itself a somewhat inferior automobile fuel whose benefit to the environment is indeterminate at best. Ethanol produced from sugar cane, the Brazilian method, was itself hopelessly uneconomic for two decades after Brazil began to subsidize it in 1979, but is at least an economically and environmentally sound means of producing ethanol at current market prices of petroleum.
Global warming is an area in which politicians don’t understand the science, but give Nobel prizes and gigantic subsidies to the most alarmist scientists. Having “proved” to its own satisfaction that global warming is real the political process is now attempting to close off debate in order that it can perpetrate an entire new range of controls, boondoggles and subsidies that will reward favored groups. The irrelevance of the actual science is demonstrated by the universal politicians’ preference for “cap and trade” control, which requires politicians to set emission targets based on extensive lobbying, over “carbon tax” methodology, which would require politicians to impose an unpopular tax on the electorate, thus bringing the true cost of global warming boondoggles out into the open.
The biotech sector and in particular cloning and genetic manipulation represent another area where politicians destroy economic value though their amateurism. Laughably incapable of understanding the science, they restrict advances on the basis of media scare campaigns and religious dogma. This is a potentially huge industry, the demand for which and the benefits to humanity from which are literally unimaginable; at present it seems most unlikely to grow to maturity within the United States.
Finally, politicians act without due competence in the area of finance, a sector vital to the health of an economy, yet the workings of which are governed by well understood if often counterintuitive economic laws. The Federal Reserve made insufficient allowance for bank failures after 1929 and thereby brought about a monetary collapse that greatly worsened the Great Depression. The Securities Act of 1933, splitting commercial and investment banking, was passed in a fit of populist rage and de-capitalized the investment banking sector, causing new issue volumes in the middle and late 1930s to fall far below those of the 1920-21 recession and remain at those low levels throughout the decade – again worsening and prolonging the Great Depression. The excessive monetary creation of 1965-73, and still more that of 1995-2007, created economic problems far more intense than any short term benefits of stock market and housing euphoria that they brought. All were decisions motivated by political factors, that had huge adverse economic consequences (of course we haven’t yet seen the great bulk of those consequences from the 1995-2007 episode.)
Finally the third area, economically counterproductive decisions made in pursuit of non-economic goals. Try World War I for a start, on the parts of both Britain and the United States. Neither had anything to gain economically or even politically from participation in the war, yet in both cases political blundering in pursuit of no well established principle caused untold economic as well as personal harm. Similarly, the 2003 invasion of Iraq had no clear economic justification – if it was undertaken to keep oil prices down, then why are they running at four times their level when the operation was undertaken? Both Venezuela and Canada have in tar sands oil resources greater than those of the entire Middle East; both countries are a lot closer to the United States culturally and even politically. Getting intervention in the Middle East (and in general the Wilsonian pursuit of global democracy) off the agenda is the greatest service the next President could perform for the US economy.
Finally there is the design of the tax system, whether it is the high marginal income tax rates in Britain of the 1970s (over 90% at the peak) or the huge subsidy for the housing sector implicit in the home mortgage interest deduction, or the barrier to corporate investment inherent in the double taxation of dividends. All these excrescences on the tax code were imposed by politicians pursuing economically damaging value agendas; all could usefully be removed from a tax system that was anywhere close to economically optimal.
So how could this problem be addressed? There are two possible approaches. One is to shrink the area of political decision-making as much as possible, returning the nation’s problems to the private sector and eliminating controlling and rent-seeking government agencies. That was the approach followed by most U.S. Presidents up to Calvin Coolidge (1923-29) – in Coolidge’s view “the business of America is business” and government should keep out of the way. If politicians don’t control an economic activity, they can only tax it, imposing highly visible costs that are more or less unpopular; their ability to impose costs by stealth through regulation is eliminated.
When government cannot be eliminated, structures should be established that make resource allocation and regulation as automatic as possible, so that politics and lobbying can play little role. In monetary policy for example, a fixed rule such as the Gold Standard eliminates the highly political Federal Reserve from monetary policy and makes monetary tightening automatic when a bubble forms. Even without a Gold Standard (which may be too deflationary in a world with substantial growth of population and economic activity) a fixed statutory limit on money creation would be a highly valuable control. This can be done; New Zealand did it in its Reserve Bank of New Zealand Act of 1989, and extended the freedom from political manipulation directly into the political realm by the Fiscal Responsibility Act of 1994. In the United States, the line-item veto, passed in 1996 and invalidated through bizarre reasoning by a 6-3 Supreme Court vote in 1998, would have provided under a competent President (not always available, alas) at least some protection from the worst excesses of lobbying and Congressional log-rolling.
The other approach to reducing the costs of politicians would be to eliminate politics as far as possible from the process of government by limiting the number and frequency of elections. Autocracy doesn’t work, because it fails to solve the succession problem and frequently leads to abuse. Hereditary monarchy doesn’t work, because of the likelihood that only about a quarter of monarchs will be competent – as Turkey and China showed, the odds can be improved by selective assassination, but that’s probably not a route one wants to pursue. Nevertheless, the democracy in the United States, in which elections are held for even the minutest office, almost all senior officials are politically appointed (thus greatly reducing the quality of the civil service) and politicians spend the great majority of their energy on fund-raising for re-election is a governmental system so likely to abuse that it would never have been designed that way (and indeed wasn’t.)
One could imagine a system, technically democratic, that worked somewhat like the Catholic Church, in which only the President/Pope was elected, for a life term, and election was by a College of Cardinals appointed (or in a democracy elected) continuously or annually, with no high-profile and expensive periodic elections. The “College of Cardinals” would have no other function than conducting elections of the Chief Magistrate. This was the system proposed by the more conservative Founding Fathers, which is why the Electoral College exists – it has also served the Papacy quite well for two millennia. Such a system would provide democracy but almost no politics and would thus hugely reduce the costs that politicians impose.
The solutions are difficult, but the problem is there and appears to be getting worse. The number of lobbyists in Washington has doubled since 2000 and the annual number of Congressional spending earmarks has multiplied by 10 since 1994. As we turn our jaded attention once again to the political process and the selection of a government for 2009-13, it is worth remembering: there must be a better way.