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January 10, 2006

Tilting at Windmills

In the wake (or more properly, the middle) of the Abramoff scandal involving the buying and selling of influence on Capitol Hill, proposals to fix the problem are a popular subject throughout Washington. The problem, as neatly explained by George Will, is that of rent-seeking.

For those unfamiliar with the term, rent-seeking refers to attempts by citizens to use the power of government to accrue advantage for themselves. For example, if I am a businessman threatened by competition from overseas, it may be far cheaper for me to convince Congress to ban the importation of my competitor's goods than for me to improve my product. One of the more egregious examples of rent-seeking is the U.S. policy of farm subsidies. The federal government doles out billions of dollars every year to subsidize the production of certain foods and to keep the price of those foods artificially high. The beneficiaries of these subsidies comprise a small minority of Americans, while all Americans must pay the price for the subsidies not only through direct taxation, but through higher prices for food every day.

So why does rent-seeking work? All rent-seeking involves benefits for a small group at the cost of a far larger group. Given the democratic tendencies, it would seem logical that anyone looking to rent-seek would be voted down by the majority that would end up subsidizing that person's rent. Instead, rent-seeking normally passes through legislation quickly and easily. Even when particularly egregious examples such as the infamous 'bridge to nowhere' are identified and become relatively well-known in the public sphere, they still don't go away. (The money that was devoted to that bridge is no longer specifically designated for the bridge, but the state of Alaska will still receive the money to spend as they see fit.) This stems from several systemic flaws in how the federal government works.

Because Congress normally votes on large bills all at once, it is easy to hide earmarks inside larger (and politically popular) bills. Once the earmark is attached to a bill, Congress cannot kill it without voting down the larger bill. Therefore, it slips through easily, excused by politicians who say that they couldn't justify voting against the larger bill despite some unfortunate earmarks.

Because the benefits of earmarks accrue to a small populace while the costs are borne by the majority, the marginal cost to most voters is minimal and they are therefore far less motivated to fight earmarks. In the case of the transportation bill, while the earmarks ran to an impressive $24 billion in spending, that only works out to about $80 per American (although it will not be distributed evenly). So on one side we have an individual who stands to win millions of dollars in government contracts and on the other we have taxpayers who stand to save perhaps a few hundred dollars. While the taxpayers numbers are far greater than the beneficiaries, the beneficiaries have far more motivation to spend time and money promoting the earmark.

Which brings us to the problem of career politicians. As more and more politicians view holding office as their most important duty, their thoughts turn more to how to maintain their own power than how to use it wisely. Gaining and holding office in America costs lots of money. Rent seekers are willing to spend money to influence politicians. This gives politicians a powerful incentive to trade earmarks for campaign contributions. Many Americans also consider the purpose of government to be to provide things to its citizens. Earmarks create jobs in congressional districts, creating things for officeholders to point to as reasons to be reelected. Earmarks therefore provide twin motivations for support by politicians.

Fixing this problem is simple, but the solution is not going to be implemented. As I observed more than two years ago, money cannot be kept out of politics as long as politics is so deeply involved in money. Trying to bring more attention to earmarks may reduce their impact for a time, but they will return because they have significant upside for politicians and offer a very limited down side. Term limits is another option, but an amendment enacting term limits is only slightly more plausible than the government voluntarily downsizing, and I'm not convinced such an amendment would do more than slow the flow of rent-seeking. Congress will do what it has always done: they will pass some legislation that promises to resolve the problem, they'll wait until the furor dies down, and they'll go back to business as usual. Until and unless the incentive structure of the federal government is changed, real solutions will remain impossible to implement.