The segment "Your Money -Your Choice " is a recurring
feature on ABC's nightly world news program hosted by Peter Jennings. It
focuses on "pork barrel" spending such as the honey price-support
program or military purchases that even the Pentagon doesn't want.
This feature of the news has a laudable objective - to
focus public attention on wasteful government spending. Unfortunately,
"Your Money - Your Choice" is marred by two flaws in contributing to the
debate over public policy issues. First, it fails to acknowledge
problems inherent in the political process or why the public's desire
for political reform is likely to be thwarted. Second, the approach
taken by ABC News, which considers only alternative government spending,
is implicitly statist.
Is It Really Our Choice?
Ideas have consequences in economic policy, and public
awareness of an existing problem is a necessary first step in bringing
about improvements. However, mere public awareness and desire for
political action often are not translated into effective political
reform. This is no less the case for piecemeal than for comprehensive
planning. Indeed, the idea that smart planners in Washington can
coercively structure social arrangements to optimize our well-being was
characterized by Nobel Laureate economist F.A. Hayek as the "fatal
conceit." Such attempts are doomed to failure because of information and
incentive problems that cannot be overcome in the political process.
Information Problems
Information was the focus of the "economic calculation
debate" that occurred more than fifty years ago. This debate pitted
Hayek and fellow Austrian economist Ludwig von Mises against Oskar Lange
and other economic theorists who advocated socialism and central
planning. Mises and Hayek demonstrated that the structure of production
cannot adapt efficiently to consumer demand in the absence of
competitive markets and the information and incentives conveyed through
market prices. They emphasized that there is no effective substitute for
market prices in discovering, coordinating, and transmitting information
throughout the production and marketing system. Much of the relevant
information is specialized to time and place and cannot be obtained by
government officials. This finding, long denied by mainstream
economists, is now widely conceded following the breakup of Communism in
Eastern Europe and the former Soviet Union.
Incentive Problems
Even if appointed and elected political decision-makers
were omniscient, however, they would be unlikely to act to promote the
public weal because they face perverse incentives. Government officials
do not have the incentives to economize that profit-seeking private
entrepreneurs do. Instead, they tend to act to protect their jobs and to
expand their power, which is heavily influenced by budget size. As a
result, public budgets tend to be treated as "common pool" resources in
which there is a disincentive to economize. A "Golden Rule" for the
bureaucrat is to have no money left in the budget at the end of the
fiscal year!
The incentive problem confronting elected government
officials is even more perverse. Government programs may not represent
the broad interests of the electorate because of a short-run bias in the
political process. The long run for elected officials is the next
election. Consequently, they prefer government programs in which the
benefits occur in the short run and the costs come due in the long
run-after the next election. Thus, it is common to find incumbent
politicians voting to increase farm subsidies, Social Security payments,
and other government-financed "goodies" before an upcoming election.
There is also slack in the political process because
those who benefit from government programs have incentives to be better
represented in Washington. Most government programs are such that a
small group benefits at the expense of the public at large. Consider the
sugar price-support program, which raises prices of sugar (and, sugar
substitutes) to consumers by limiting sugar imports. The program confers
huge benefits, averaging more than $200,000 per year, on each of the
10,000 or so producers of sugar and sugar substitutes. However, a
doubling of retail sugar prices amounts to no more than $100 per year to
the typical family. Thus, when Congress debates sugar policy, it isn't
surprising that sugar interests carry the day.
Sugar policy fundamentally is no different from that
affecting other farm products, textiles, steel, and automobiles - or
public education. While each special interest might recognize that these
programs that "rob Peter to pay Paul" are unwise, there is a "you first"
problem. Each group has an incentive to desist in such efforts only if
other groups also agree to do so. In reality, each group benefiting by a
special dispensation from the state may favor a reduction in such
efforts by others while fighting to retain its own special advantage.
What Can Be Done?
The preceding analysis suggests that the problem is
rooted in the incentives people confront within the current political
system. Hayek and fellow Nobel Laureate James Buchanan have shown that
the public bidding may fail in an unlimited or majoritarian democracy in
which the ability of groups to benefit through state power is not
constrained by constitutional rules.
In short, the public's desire for political reform may
be thwarted because of the information and incentive problems described
above that are endemic in the political process. There is no way to
avoid these problems, but the magnitude of the waste resulting from
efforts by individuals and groups to use the state to increase wealth
can be reduced. The challenge is to develop an institutional framework
that will channel the self-serving behavior of political participants
toward the common good in a manner similar to that described by Adam
Smith with respect to the economic arena.
The problem of "faction," emphasized by James Madison,
is rooted in the incentives that ordinary people confront within the
prevailing rules of an unconstrained majoritarian democracy. The best
hope lies in the Founding Fathers' attempt to develop institutions that,
to the extent possible, bring personal self-interest into harmony with
political liberty and economic prosperity.
Moreover, the importance of the ideological climate
should be recognized. Indeed, it is unlikely that the framework
necessary to restrain leviathan can be devised and instituted in the
absence of a change in attitude of voters concerning the proper role of
government in a free society.
In short, the exposé by ABC News about a particular
government boondoggle implies that we the listeners have a choice to
make in terms of the activity in question. However, no emphasis is given
to the problems of the political process that must be overcome to effect
change. That is, the program focuses on an undesirable result of the
political process, with no attention given to the fact that the process
itself may be a major part of the problem. In public policy analysis,
ignoring problems that are inherent in the political process is
tantamount to a pro-government bias.
"It's Your Money"
ABC's uncritical view of the political process also is
reflected in the program's suggested alternatives to the government
activity under scrutiny. "Your Money - Your Choice" properly emphasizes
the amount of taxpayer money spent on the activity in question and gives
examples of various sacrificed alternatives. However, there is yet
another statist bias in the approach taken by ABC News.
The sacrificed alternatives always are shown in terms
of numbers of other government activities - number of public schools,
number of schoolteachers, number of government loans to college
students, number of tanks for the Pentagon, and so on. It is noteworthy
that the sacrificed activities are always assumed to be other government
goods and services. There is no awareness that citizens may prefer to
reduce government spending by the indicated amount rather than merely
increase spending on some other government project.
The implication of "Your Money - Your Choice" is that
there is no problem concerning the overall level of government spending
- the only problem is with how the public money is spent. That is, this
ABC News approach implicitly defends the present level of government.
What is the proper approach? In considering the
opportunity cost of a current government program, private sector
alternatives also must be taken into account. Consider, for example, the
$10 billion annual expenditure by the federal government on farm price
supports. A valid opportunity-cost approach in evaluating farm price
supports would consider not just other public programs but the number of
private autos, number of private houses, number of college tuitions, and
so on, that are sacrificed. An analysis of any government program which
omits consideration of the forgone private sector alternatives has
implicitly assumed without justification that public sector goods and
services, at the margin, are more valuable.
Conclusions
Many people today contend that government institutions
are unresponsive. Indeed, public opinion polls show that people feel
that they are overtaxed and that they do not agree with the spending
priorities of government, especially at the federal level. The "Your
Money - Your Choice" ABC News approach fails on two counts to adequately
enlighten the public about government spending.
On the one hand, no attention is given to the problems
that are inherent in the political process - or to the implications for
restraining the power of special interests. There is a total lack of
constitutional perspective in considering economic issues with little or
no consideration given as to why the system is unresponsive.
Second, it focuses only on how the pattern of
government spending should be reallocated, implicitly assuming that the
size of the public sector is beyond the pale. In failing to consider the
sacrificed private opportunities when evaluating government boondoggles,
ABC ignores the most important public policy problem in a free society
the appropriate role of government.
At the time of the original publication, E. C. Pasour,
Jr., was Professor of Agricultural and Resource Economics at North
Carolina State University.
Reprinted with permission from The
Freeman, a publication of the Foundation for Economic Education, Inc.,
October 1993, Vol. 43, No. 10.
Yourname@libertyhaven.com
