Monday, January 31, 2005
No, no, no, no, no
It's time to point out a dangerous delusion. One of my favorite economists, and favorite bloggers, Brad DeLong, has one annoying intellectual habit. Like many economists, he occasionally speculates on the optimal policy, assuming politics is no barrier to that policy (e.g., the assumption that a benevolent dictator exists, who always implements the optimal known policy, so the only policy problem consists of finding it). This is a useful exercise, within limits. But it is not an adequate route to policy prescription, because public policy is a political economic equilibrium, depending not only on what is feasible and rational for strategic actors in the economy, but also what is feasible and rational for strategic actors in the government. Moreover, it is an institutional equilibrium: institutions, as, for instance, Douglass North often argues, shape the resources of actors; hence control of institutions contributes to the long-run equilibrium in policy.*
Upshot: a policy that might be optimal under a benevolent dictator (who may be governing a pack of wily, selfish economic actors) may not---in fact, usually is not---optimal or sustainable when the government itself is run by and contested by wily, selfish political actors (who may, of course, overlap with the economic actors). It may sound good in "theory" (that is, a naive theory), but in practice, may be quickly subverted, exploited, or trashed.
Example: Brad notes a possible compromise on Social Security involving granting the Social Security Administration some latitude to govern a tentative private accounts scheme, and also giving the SSA the power to expand that scheme at a later date. The virtue of the plan is putting that date off, so that current arguments about the course of privatization that seem false can be proven so before irrevocable changes are made.
But supposing this plan were implemented, how would the governing party react? The same way they always do---they'd try to staff SSA with sycophants, profiteers, and liars; they'd build a long term campaign convince the public that the Democrats had in fact conceded that SS is collapsing; they'd try to manipulate the calendar for further privatization; and in general use the new institutional power of the SSA to achieve their own (nefarious) ends. I'd like to say the Democrats would fight tooth and nail, and develop strategies to undermine the Republicans', but they haven't done that over the last 20 years, and they show little sign of strategic thinking even now. Instead, they are struggling even to unite in short-term opposition to the destruction of their party's grand achievement.
If the world were run by powerful, smart technocrats, who cared equally about the fate of all citizens, then Brad's idea might be the way to go. But *nothing* is run that way. In a shameless plug of my dissertation, I should note that not even central banks, the supposed paragons of modern economic technocracy, are free of subjectivity, disagreement, and indirect government manipulation. To the extent DeLong's proposal to give the SSA independence is a conscious or unconscious imitation of the granting of legal independence to central banks, it would be wise to note that laws alone do not create autonomy.
Instead of offering compromises that might, under a wise government, offer marginal improvements over status quo, we should recognize that we can do no better than to "buy insurance" against truly catastrophic policy choices made by the morons, monsters, and madmen in charge of our government. That means fighting like hell to preserve the good-but-imperfect system we have. On every major policy initiative---tax cuts, Medicare, Iraq, Social Security---the Bush administration has lied about the effects of that policy to Congress. Lied, as in "told Congress things it knew to be untrue", like the size of the tax cut, the cost of prescription drug benefits, the cost and necessity of war, the current fiscal state of Social Security... There can be no relationship of trust with political actors who have repeatedly shown a willingness to lie for short-run gain. We can never compromise or work with them; we can only defend what is good about the status quo, and hold out until they are at last sent home to Texas.
Lesson: We can't expect a rescue by wise men or those missing Republican "adults" Brad and other keep hoping will ride to the rescue. Throughout history, many political economies have found themselves under the power of fools with grand schemes, or under the thrall of petty thieves bent on extracting rents at the expense of national wellbeing. We in the US have largely escaped that fate, through wisdom and luck. We've pressed our luck by (re?-)electing a snake-oil salesman. Without wisdom, even our luck will eventually run out.
*I call this a habit, because I am sure DeLong is as aware as anyone of the need to consider the politics of equilibrium policies, and the role of institutions. I have my own lazy intellectual habits; a good friend often complains about my tendency to confidently assume "the grass is greener" in Western Europe on many issues. Perhaps you've noticed others...
Upshot: a policy that might be optimal under a benevolent dictator (who may be governing a pack of wily, selfish economic actors) may not---in fact, usually is not---optimal or sustainable when the government itself is run by and contested by wily, selfish political actors (who may, of course, overlap with the economic actors). It may sound good in "theory" (that is, a naive theory), but in practice, may be quickly subverted, exploited, or trashed.
Example: Brad notes a possible compromise on Social Security involving granting the Social Security Administration some latitude to govern a tentative private accounts scheme, and also giving the SSA the power to expand that scheme at a later date. The virtue of the plan is putting that date off, so that current arguments about the course of privatization that seem false can be proven so before irrevocable changes are made.
But supposing this plan were implemented, how would the governing party react? The same way they always do---they'd try to staff SSA with sycophants, profiteers, and liars; they'd build a long term campaign convince the public that the Democrats had in fact conceded that SS is collapsing; they'd try to manipulate the calendar for further privatization; and in general use the new institutional power of the SSA to achieve their own (nefarious) ends. I'd like to say the Democrats would fight tooth and nail, and develop strategies to undermine the Republicans', but they haven't done that over the last 20 years, and they show little sign of strategic thinking even now. Instead, they are struggling even to unite in short-term opposition to the destruction of their party's grand achievement.
If the world were run by powerful, smart technocrats, who cared equally about the fate of all citizens, then Brad's idea might be the way to go. But *nothing* is run that way. In a shameless plug of my dissertation, I should note that not even central banks, the supposed paragons of modern economic technocracy, are free of subjectivity, disagreement, and indirect government manipulation. To the extent DeLong's proposal to give the SSA independence is a conscious or unconscious imitation of the granting of legal independence to central banks, it would be wise to note that laws alone do not create autonomy.
Instead of offering compromises that might, under a wise government, offer marginal improvements over status quo, we should recognize that we can do no better than to "buy insurance" against truly catastrophic policy choices made by the morons, monsters, and madmen in charge of our government. That means fighting like hell to preserve the good-but-imperfect system we have. On every major policy initiative---tax cuts, Medicare, Iraq, Social Security---the Bush administration has lied about the effects of that policy to Congress. Lied, as in "told Congress things it knew to be untrue", like the size of the tax cut, the cost of prescription drug benefits, the cost and necessity of war, the current fiscal state of Social Security... There can be no relationship of trust with political actors who have repeatedly shown a willingness to lie for short-run gain. We can never compromise or work with them; we can only defend what is good about the status quo, and hold out until they are at last sent home to Texas.
Lesson: We can't expect a rescue by wise men or those missing Republican "adults" Brad and other keep hoping will ride to the rescue. Throughout history, many political economies have found themselves under the power of fools with grand schemes, or under the thrall of petty thieves bent on extracting rents at the expense of national wellbeing. We in the US have largely escaped that fate, through wisdom and luck. We've pressed our luck by (re?-)electing a snake-oil salesman. Without wisdom, even our luck will eventually run out.
*I call this a habit, because I am sure DeLong is as aware as anyone of the need to consider the politics of equilibrium policies, and the role of institutions. I have my own lazy intellectual habits; a good friend often complains about my tendency to confidently assume "the grass is greener" in Western Europe on many issues. Perhaps you've noticed others...
