Freeman

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Your Money—Your Choice

ABC ignores the most important public policy problem in a free society.

OCTOBER 01, 1993 by E.C. PASOUR

E. C. Pasour, Jr., is Professor of Agricultural and Resource Economics at North Carolina State University.

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 re-allocated, 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.

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October 1993

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