Friday, July 27, 2012

Non-Ideologues and Anti-Tax Sentiment

-- Posted by Neil H. Buchanan

Imagine that you live in a country that has decided democratically that it wants to have a national soccer team that is competitive at World Cup levels. Currently, the country's soccer teams are pathetically bad, and have been for years. You and your fellow citizens have decided that there will be a public/private partnership, in which the government and businesses will fund a full-scale national soccer development program. Strategists are assigned to develop a plan to fund youth soccer camps, developmental leagues, and so forth. Soccer is now so important that even your country's anti-government/anti-spending crowd initially agrees that this is a good idea.

The program is a success. After several years, there are young players from your country who are as good as any who grew up in the world's soccer powerhouses. Your country's national team is winning championships, pushing the likes of Germany, Brazil, and Italy around the field. What could be better?

Then, someone starts to notice that a lot of money was spent on developing players, and most of those players are not playing on the national team. Some were actually quite promising, but they ended up getting cut from the team when it turned out that their style of play was not right for the current competitive environment. Beyond those close calls, moreover, there are dozens, hundreds, thousands more kids who really turned out not to be very good. They tried, and the coaches tried, but not everyone is world class. In fact, some of them were not even good enough to make the first cut (by definition).

Now, as the country's success in soccer is increasingly taken for granted, people go back and start to think about all the money that was spent on developing and maintaining the soccer program. Some begin to do the simple arithmetic, and they figure out that the country spent an average of 10,000 local currency units on each player who entered the program, a sum of money that is a large fraction of the average person's salary.

The anti-government crowd springs into action: Waste! Fraud!! Abuse!!! Clearly, the politicians have wasted our money -- again! The skeptics are able to find files regarding one player named -- in the tradition of one-named soccer stars like Rodinho and Pele -- Solyndra. Solyndra was actually in the almost-but-not-quite category, and could have been a star if a few breaks had gone his way. He ran out of luck, however, and after years of government money being poured into his development, he is now a nobody. A perfect example of government waste, in the eyes of the anti-government public relations juggernaut.

The point of this (perhaps heavy-handed) parable is not to defend the real-world company known as Solyndra. That is a job that others have done well (for example, Joe Nocera last Fall). I used the parable form in this post because I want to begin by assuming that there was, in fact, no corruption or fraud in the national soccer program. It is, by assumption, a clean program that did what it was supposed to do, with money spent in ways that maximized the chances of success for the lowest expenditure possible.

Even so, my fictional Solyndra (and his much less talented fellow washouts from the soccer program) usefully show just how easy it is to describe even the most successful government spending program as "waste." All one need do is change the frame, usually by focusing on some sub-part of a spending program, and ask, "What did this spending really produce?"

Not every word in the early drafts of the Declaration of Independence was a gem, either. If one wanted, it would be possible to decry how much time Jefferson wasted on a final product that was not even fourteen hundred words long. People are now starting to do this to public school teachers, asking just what the ultimate payoff is from any randomly-picked moment in a day or item on a curriculum. Wasteful government spending!

Earlier this month, in honor of Independence Day, I wrote a Dorf on Law post describing how the anti-tax/anti-government crowd in this country has become increasingly cynical in its misuse of our founding era for their current political ends. In particular, they have built an entirely fictional history around the idea that the founders were anti-tax zealots. "Taxation without representation is tyranny" has somehow morphed into a Trojan Horse for trickle-down economics.

On the comment board for that post, a reader posed an important related question: "But how do you respond to those in the middle-class that reject taxes because they simply distrust government? For that population, it's not that 'taxation is theft,' but that tax revenue will be wasted. That argument doesn't seem crazy to me. What can you tell me?"

My basic response is that these sincerely held beliefs of middle-class American voters were not formed in a vacuum. Their increasingly extreme distrust of government is the flowering of a political strategy that is explicitly designed to make people distrust government.

Of course, there are real-world examples of real corruption, and real waste, fraud, and abuse. Even as a supposedly "big spending liberal" -- in fact, precisely because I believe in the importance of government spending to deal with many important issues -- I and people like me have long been proponents of "good government," in the sense that we understand the double importance of ferreting out real waste: It not only squanders economic resources, but it erodes the even more important resource of trust in the ability of government to help mitigate or solve some problems. Whistle-blower laws, sunshine laws, transparency initiatives, and all such things are important aspects of clean government.

The larger point here, however, is that even if there were no corruption or waste of any kind in any government program, it is possible to confuse matters sufficiently to make it superficially appear that there is a lot of waste in government. Of course, it is also possible to apply that logic to businesses' decisions, "proving" that many dollars spent by businesses -- even on ultimately profitable investments -- were wasted in the same sense. Yet there is no group of people who view it as their job to make that case consistently and loudly, which allows the "business is efficient" mantra to hold sway.

(In an ironic twist, one could even apply this perverse logic to the money spent by the anti-government crowd itself. How many of the Koch Brothers' dollars were really necessary to make people hate government? How do we know that they could not have achieved the same effect with only 90% as many dollars spent? Or only half? Or less?)

Distrust of government, therefore, is a good idea run wild. All powerful institutions -- public and private -- must be monitored carefully. In that sense, middle-class Americans are right to worry that tax dollars might be wasted, and they should demand action when waste is uncovered. Yet we now find ourselves in a situation where all sense of perspective has been lost.

The average American might or might not buy into the idea that all of the founders were anti-tax ideologues, but they have been conditioned to believe that even completely legitimate spending is, by definition, wasteful and unnecessary. It is not. Until we regain our perspective, we will continue to allow important social initiatives to be dismantled, piece by piece, in a futile attempt to eliminate the slightest suspicion that it is all a waste of the people's money.

10 comments:

Charles said...

"The larger point here, however, is that even if there were no corruption or waste of any kind in any government program, it is possible to confuse matters sufficiently to make it superficially appear that there is a lot of waste in government. Of course, it is also possible to apply that logic to businesses' decisions, "proving" that many dollars spent by businesses -- even on ultimately profitable investments -- were wasted in the same sense. Yet there is no group of people who view it as their job to make that case consistently and loudly, which allows the "business is efficient" mantra to hold sway."

How can profits be considered "waste" in the same sense as government waste? Examples like Solyndra are wasteful because taxpayers foot the bill. Waste in the private context is actually a positive element since that is what propels the profit and loss system forward by rewarding productive companies and punishing inefficient ones.

"(In an ironic twist, one could even apply this perverse logic to the money spent by the anti-government crowd itself. How many of the Koch Brothers' dollars were really necessary to make people hate government? How do we know that they could not have achieved the same effect with only 90% as many dollars spent? Or only half? Or less?)"

Here's the moral difference and I feel comfortable speaking on behalf of libertarians here. Suppose your hobby is getting palm readings once a week. What is the relevance if I consider it stupid and wasteful if you are spending your own money on this? Explain how you measure the "necessity" of your actions in this case? Now switch the funding source to one of a subsidy that doesn't involve your own money. Do you not see the moral difference? If you don't buy the moral argument and consider Solyndra a public good, then there is the Public Choice inefficiencies/sunk costs that go along with logrolling, rent seeking, regulatory capture, etc.

The Dismal Political Economist said...

The analogy that Mr. Buchanan uses, comparing a national soccer team with the government investment in Solyndra, is, I believe a false one. Let’s go back to basics.

In an economy characterized as regulated capitalism, the decision on investment in private companies is made by private capital markets. The role of government is to set the rules and to enforce transparency (disclosure) and integrity (information to attract capital must be accurate and correct and the process free of fraud) and then let private investors make the decision of whether or not to invest. Maybe not a great system, but about the best one available at this time.

Government is ill equipped to make investments in private companies. It does not do it well, and politics frequently distorts the process. The goal of the investment in Solyndra was laudable, and justified. But instead of investing directly in the company the role of government should have been to fund the necessary research, research which is highly risky and may not provide a payoff into alternative energy, and so not research funded by the private sector.

Government should then make that data and information and technology known to the general public, with free and complete access to anyone. At that point private capital can determine if funding an enterprise is appropriate. Yes, some enterprises that should be funded will not be, and some that are funded should not be, but there is no better method of selecting which companies should be funded then the private decision.

By absorbing the cost of highly speculative research, government (really the public) bears that cost as well it should, since the benefits of solar energy flow to the public. Furthermore by making the technology available to everyone government insures that no one company can make excess profits by a technology monopoly, and that the higher return goes to the most efficient producer. This is the way the system should work.

A national soccer team on the other hand is not something the private sector can produce, at least not in the United States. So if a country does want a competitive national team government must be directly involved. This is not the same as an energy company, where the profit motive will provide incentives for investment if the technological risk is reduced or eliminated by public funding of the research.

When government gets involved in direct business decisions, the result can be a disaster. Just look at the ethanol program as Exhibit A, followed closely by Solyndra as Exhibit B.

Patrick S. O'Donnell said...

I tried to address the distrust (and blaming government or politicians for most if not all that ails us) of government here: http://www.religiousleftlaw.com/2012/07/the-contingency-of-dirty-hands-the-necessity-of-virtuous-politics-or-.html

I recommend a book I cited in that post: Matthew Flinders, Defending Politics: Why Democracy Matters in the Twenty-First Century (Oxford University Press, 2012).

jet said...

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