Bootleggers and Baptists: XLIX- Keynesianism, Stimulus, and Political Manipulation

Photo by Karolina Grabowska on Pexels.com

Frequently in economics, the views of a specific theorist are exploited for the interests of various political factions. The most salient examples are economic theorists are labeled as “free market” economists. Conservatives generally celebrate Adam Smith as a defender of unfettered commerce but conveniently ignore his concern for the blight of the poor. Smith was too multidimensional to be distilled to a simplistic bumper sticker slogan. The great F.A, Hayek suffered from a similar syndrome as many Conservative and Libertarian pundits disregard the nuances of his work and paint him as radical. However, there are also instances of the intellectual advances of various theorists being embellished by their opponents for partisan purposes. For example, the moderate and subtle rationalizations of James M. Buchanan are characterized as extreme libertarianism. Nancy Maclean is unacquainted[1] with the work of Murray Rothbard!

The inaccurate framing of economic theory for political interests is not limited to right-of-center economists. Many left-wingers exaggerate the beliefs and postulations of their favored economists, the most conspicuous example being the abuse of John Maynard Keynes [2]. Yes, in the eyes of most Conservatives and Libertarians, Keynes had a flawed perception of market processes. Although, he was not communist. Keynes still had some semblance of a pragmatic filter, which placed constraints on his sanguine view of consumption. Keynes did believe that after the end of an economic downturn, deficits should be eliminated. Therefore, Keynes did not advocate for a policy of perpetual deficit spending, most likely would take issue with the massive debts amassed by the United States over the past couple of decades.

It wouldn’t be outlandish to examine the embellishment of Keynesian economics for political gain from the precepts of Bruce Yandle’s Bootleggers and Baptists (1983) coalition paradigm. A political relationship between various factions of policy advocates where some supports sincerely believe in the normative intention of the policy (the Baptists). In contrast, the tacit beneficiaries (the Bootleggers) merely ride the coattails of the moralistic advocates (either silently or vocally alongside the Baptists). The support for various stimulus policies would have its share of Bootleggers and Baptists to defend “stimulus spending”. The most recent examples are the Obama-era stimulus programs (American Recovery and Reinvestment Act of 2009) and multiple rounds of COVID stimulus allocations. Often, Keynesianism is justified when it becomes politically suitable to do so. The most recent examples of economic stimulus initiatives exemplify this point quite well. This observation becomes more striking when you consider that the convergence of our monetary and fiscal policy has amounted to a hand-selected bastard-breed mutation [3] of Keynesian economics and Monetarism. The conception of this flawed system is being spurred by policymakers trying to select the most politically advantageous characteristics of both economic philosophies.

We could consider the founder of Keynesian economics the Baptist of stimulus spending policies. As Keynes envisioned stimulus spending as being a temporary remedy amid an economic downturn. Despite his good intentions, Keynes failed to recognize the political incentives to politicians, bureaucrats, technocrats, activists, and even ordinary voters; factors that only serve to reinforce one of Milton Friedman’s most enduring dictums “There is nothing more permanent than a government program”. While stimulus initiatives come and go, policymakers still keep implementing them as a remedy to soothe economic turmoil. Stimulus policies were adopted with little regard for the implied discipline advocated for by Keynes. After all, he was still an economist and was not ignorant of the discipline’s conceptual pillars. Stimulus spending is an unsound policy, but he never intended for it to be at the regular disposal of politicians and lawmakers. Dating back to the observations of Niccolò Machiavelli, politics is a game of perception, not one of technical proficiency. Conversely, economics is ideally a positive social science unconcerned with popular opinion.

Moral values always enter the equation whenever we enter the realm of actual decision-making, even in economic decision-making. Unfortunately, the line between economic science and public perception is often blurred, especially by the adroit manipulation of politically savvy elected officials, activists, lawmakers, and activists. Promising ever-larger transfer of “free” goods and services to the voting public. Applying the principles of concentrated benefits and dispersed costs, voters believe they have made out like bandits. Thereby, forming a mutually beneficial feedback loop of voters believing they have won and political actors presented in a positive light; as being defenders of the common man. Elected officials portrayed as advocates for the “little guy” helps establish social currency with the voting public. Social currency dovetails nicely with a politician’s incentive to remain in their position of political power.

Foot Notes:

  1. Maclean is aware of Rothbard’s work to a superficial extent, but if she sincerely understood his work, she would not be portraying Buchanan as a radical.
  2. The author is not an exponent of Keynesian economics.
  3. Despite the intense debate between Keynesians and Monetarists, both have their commonalities.

The Bridge Between Partisan Voters and The Paradox of Implict Logrolling

Photo by Tara Winstead on Pexels.com

Political ideologies often develop in a manner that is independent of logical continuity. Political parties adopt platforms that hold philosophically inconsistent policy positions. Can an exponent of the death penalty or a hawkish foreign policy be sincerely “pro-life”? Can a pro-choice activist honestly defend bodily integrity if they support vaccine mandates? Both examples display some of the most salient normative incongruencies of the American conservatives and liberals. This phenomenon is a formal category in observations asserted in Peter Clark’s micropaper The Paradox of Implicit Logrolling (2021):

“…The process of Implicit Logrolling (Buchanan & Tullock,1962) is a form of indirect vote-trading that heavily relies on the bundling of wedge issues. By way of tying specific groupings of policies to attract targeted demographics of voters to a political platform. This political strategy is especially effective in capturing the commitment of single-issue voters. These voters need to tacitly accept the rest of the policies on the political platform to have their one area of interest acknowledged. This is why implicit logrolling is such an effective mechanism in shaping the American political landscape.

Most analysts ignore how voters reconcile selecting programs and political candidates that hold logically inconsistent views. For example, an individual that defends abortion rights on the grounds of a bodily integrity argument concurrently favoring vaccine mandates. Here is where the Paradox of Implicit Logrolling comes in; voters then must rationalize these discrepancies due to the lack of logical consistency. In vote trading, the individual voter expects to make some concessions. However, when these concessions present logical and philosophical contradictions, few people question the conflict. In short, the paradox describes how people are willing to accept contrary political positions if parceled with a party or policy they favor..”

The bundling of various “wedge issues”; might force many voters to justify supporting positions they would not usually. Even if these disjointed amalgamations of policy positions logically cancel each other out. What about voters that consider themselves diehard partisans? The role of implicit logrolling is much more salient on singe issue voters than on unwavering party members. It is difficult to assess if the bundling of opposing political positions does generate some cognitive dissonance among entrenched members. Typically, these political actors only outwardly convey rhetoric consistent with party loyalty, displaying the tribalism of contemporary politics. 

The recent article Political Preferences and Public Policy, written by economist Randall Holcombe provides some insights into how party loyalists end up getting locked into advocating for specific policy platforms. Holcombe suggests that political elites contrive the policy positions that a party endorses; voters merely attempt to conform to these sets of political beliefs. Per his article:

“…Citizens and voters anchor on political identity. It might be a party, a candidate, or an ideology. Most of their political preferences are then derivative of that identity. People don’t think: I support a woman’s right to have an abortion, I support more gun control, I believe the government should be more involved in health care, and I think impediments to voting should be relaxed. Therefore, I am a Democrat. The reasoning goes the other way. People identify as Democrats; therefore, they support a woman’s right to have an abortion, more gun control, and so forth.

Citizens and voters adapt their public policy preferences from the political elite–the people who determine public policy…”

Some may interpret Holcombe’s observations as invalidating The Paradox of Implicit Logrolling, but it supports the theory. Why? It is easy to perceive this article as conveying the top-down nature of advocacy selections by formal political parties superseding all over mechanisms for cultivating political preferences; there are a few points to consider. For one, single-issue voters are taxonomically a sub-ideology. It may be true that a dedicated Republican, maybe a party member first and then adopt all the views held by the GOP. In contrast, a single-issue voter is (e.g.) a gun-rights activist first; their party affiliation is merely a second-tier political identity for this individual. Since the gun-rights activist will side with whatever political movement is most advantageous for their ends, they naturally have to acquiesce to policies they have no interest in or may even personally oppose.

Holcombe’s article also supports this theory because his observations imply that most voters do not critically evaluate the positions held by the party they conform to. In many cases, ride-or-die party members never give themselves a chance to ascertain whether they possess conflicting views by labeling themselves a Democrat or a Republican. These voters are preoccupied with aligning their discourse and beliefs to the tenants their self-professed political affiliation. Demonstrating the folly of an individual picking their label before choosing the core philosophical values guiding their political decision-making, they allow party designation to rule their decision at the ballot box.

Overall, Holcombe provides a conceptual bridge for the connection of the Implicit Logrolling Paradox to hardline partisan voters. In most cases, these strongholds within various subsets of voting Americans assimilate to political factions with little consideration of the long-term consequences since partisan loyalties take primacy. Further exploring the mechanisms of issue bundling in party platforms might shed more light on America’s currently contentious political climate. 

The Paradox of Implicit Logrolling

Photo by Mikhail Nilov on Pexels.com

The Paradox of Implicit Logrolling

The process of implicit logrolling (p.101) is a form of indirect vote-trading that heavily relies on the bundling of wedge issues. By way of tying specific groupings of policies and candidates to attract target demographics of voters. Per Buchanan and Tullock (1962), such arrangements encompassing political platforms can be manipulated by “…political entrepreneurs…”. Simultaneously considering the zealous nature of many single-issue voters, it is easy to see why implicit logrolling is such an effective mechanism in shaping the American political landscape. If the American voters continue to support controversial political positions, implicit logrolling will be effective.

Most analysts ignore how voters reconcile selecting programs and political candidates that hold logically inconsistent views. For example, an individual that defends abortion rights on the grounds of a bodily integrity argument concurrently favoring vaccine mandates. Whatever happened to “my body, my choice”? Although, if this individual held both positions on the grounds of an externalities argument, perhaps there might not be any logical discrepancies. However, few voters delve that deep into the logic of their political philosophies. Here lies the Paradox of Implicit Logrolling; political platforms drive voters to support policies they would not otherwise choose. We have most saliently observed this phenomenon in the demographic shifts within the Republican Party. The GOP was once favoring free trade, now advocates for tariffs.

The Abilene Paradox And The Collective Action Problem Are Both Cut From The Same Cloth

Photo by Christina Morillo on Pexels.com

This observation may be self-evident or even shallow, however, the Abilene Paradox is nothing more than the complete opposite of the Collective Action Problem. Both concepts demonstrate the pitfalls of the decision-making process but embody the extreme ends of the distribution. One demonstrates the follies of too much agreement in the decision-making process and the other details the difficulties of coordinating action when there are dissenting opinions and interests. These conceptions of the difficulties of managing agreement and disagreement provide us with the precepts to navigate the traps that impede effectual action.

In the Abilene Paradox, we drive towards disaster choices due to no one wanting to be the voice of dissent. The Collective Action Problem details how disagreement can paralyze us in the decision-making process which will immobilize the entire group from acting. Through understanding how to navigate these speedbumps in reaching unanimity will help us more efficiently coordinate various forms of group decision-making. Each of these concepts is applicable in a diverse number of settings ranging from the arenas of public policy, the boardroom, and even in the bedroom. I consent and or agreement is required it is imperative that everyone is on the same page. Not just merely trying to appease one another or being too bellicose and unwilling to compromise.

Why more theorists and management experts have not compared and contrasted these prevalent “agreement traps” is perplexing. However, from a superficial standpoint, one is nothing more than the inverted version of the other. The major difference between the two is most like the conditions under which both arise. These reciprocals may be linked a demonstrating the same problem, however, the defining variable that influences economic agents to either excessive amounts of agreement or following their divergent interests are likely context contingent. Contextual attributes such as incentives, personalities, external costs, penalties, cultural norms, societal affiliations, etc. can sway actors towards committing one of these fallacies over another. Neither of these challenges in the bargaining or agreement process yields optimal results, even us with either poor decision or incapacitated by inaction. Whether you are managing a nation, a company or a household all of these societal structures represent graduations in the scale of decision-making units. Making them susceptible to either over agreement or paucity of agreement, either is detrimental to all parties involved.

It is difficult to ascertain if a “golden-mean” can be found in striking the right degree of agreement. Again, what would strike the right ratio of consent-to-descent is highly contextually based. Choosing the wrong ice cream flavor does not carry the same magnitude of consequences as bombing the wrong country (hypothetically this is not an appeal for a hawkish foreign policy). The stakes are much higher in the latter example than in the first example of a decision gone wrong. A lot of this can be resolved through the constitutional basis for decision-making. In other words, what set of rules are established governing the initiation of choices. The seminal text of Public Choice Theory, The Calculus of Consent (1962) loosely defines constitutional decision-making as being any set of rules (two or more) governing the decision-making process. These rules do not need to be formally codified nor do they need to extend beyond a single person to be constitutional. Any means of quelling the concerns of group members of the fence can secure unanimity, whether it be through persuasion or compensation/ lessening of any external costs imposed on them can settle a disagreement. The role of the compensation would have to be implied in the rules guiding decision-making. Much how the articulation of opposition needs to be tolerated from group members to avoid an agreement for a course of action everyone knew would be calamitous. All because the group members want to conform to what they perceived was the desired action of the group. Anyone in leadership needs to have a tacit or formal understanding with their subordinates or constituents that constructive criticism is welcomed. If not you may be taking a long ride to Abilene!

Cooperation and Conflict

Photo by Alexander Suhorucov on Pexels.com

Staying within the structure of methodological individualism it is important to see how Smith’s Pin factory example (p.54-55) exemplifies the coordination of a group of economic agents. All working in unison towards the common goal of producing pins. All of these individual works comprise the overall assembly line. The totality of all the adjacent departments related to manufacturing makes up the internal structure of the firm. Any social institution whether it be a hobbyist club, social club, buyers club (e.g. Sam’s Club, BJ’, Costco), government, business, trade association, private governing bureau/authority (e.g. homeowners association), charitable foundation, research institute, study group, etc. are comprised of multiple individuals forming the group. It is flat-out erroneous to speak of the entire organization without any consideration for its members. The collective action of all the group members acting harmoniously to achieve the same ends is much more complex than treating these collective efforts as lumped together aggregate.

Each member of an organization has their internal objectives, thoughts, feelings, and desires. It can be said that all the active participants have their utility functions (p.25-26). Meaning that to some extent their wants, needs, and desires align with the overall group goals. For example, very few people like their jobs, but they voluntarily consent to the terms of employment because of their desire to earn money. Whether it is for the intrinsic satisfaction of possessing money or what currency can be redeemed for. Keeping within the theme of a Smithian analysis of social institutions, it is important to note that more than tangible goods are exchanged through interaction with others. We exchange ideas, culture, skills, knowledge, friendship, guidance, sympathy, morality, and moral support among other forms of desirable forms of social currency. Political activities tend to be a form of social association that is frequently marred by corruption and various forms of abuse. However, is the dynamic of politics overtly a zero-sum game? Not necessarily. As it can be viewed as a form of exchange, individual actors engage in various exchanges for mutual benefits (p.25). One example being logrolling the practice of lawmakers trading votes/favors.

The intangible exchange of social commodities cannot be understated in formulating effective working relationships. One crucial assumption of Smith’s Theory of Moral Sentiments (1759) that we seek the “approbation” of others. In other words, we seek to praise and approval from others. We are constantly seeking the acceptance of our peers. Being well-liked on the individual level wields a significant amount of social currency. If the ability to seek acceptance and cooperation is applicable on the individual level, couldn’t it also apply to the harmonious relationships between groups of people? After all the scope of social and economic interactions operates on a continuum of scale, what is applicable on a minuscule level should also work on a larger scale. The principle is a general maxim governing social interactions, therefore it should be transferrable. One of the best ways to overcome cultural barriers is through finding a form of social exchange desired by both parties. It does not mean that it must take the form of economic exchange. It possibly manifests itself in alliances and treaties among nations. Special agreements, pacts, contracts among nonpolitical social units. Most often it takes the form of economic trade between foreign nations. The necessity of unilateral trade agreements is refutable. Consumer sovereignty is the true impetus of international trade. Despite the bluster and theatrics of vociferous diplomats and other garden variety elected representatives.

Why voluntary association over other coercive means do we yield harmonious interactions? There isn’t a magic bullet answer to this question. However, some insights from Public Choice pioneer Gordon Tullock may help elucidate a potential variable that sheds some light on this occurrence. It is the ability to choose our partners in voluntary social arrangements that reduce the instance of Prisoner’s Dilemma. If our trading partner is not being cooperative, we can easily do business with someone else. Because of the mobility of free association (which is purportedly protected under the First Amendment) we do not need to be held captive by aggressive or hostile social relations. Due to this consideration, it is easy to see the original sentiment behind antitrust laws, but much like all laws, they suffer from loopholes and other issues. Even from the standpoint of the definition of a monopoly. One of the common attributes of monopolistic market behavior is assessed by is market concertation. However, this is problematic how do we determine which market is categorically correct for the assessment of market concentration? Nevertheless, we can freely choose our partners whether in trade or other forms of social situations it reduces the occurrence of the perverse incentives to be noncooperative. Sullying our reputation deprives us of the esteem that Adam Smith surmised we all crave.

Considering that trade is one of the forms of association that fosters cooperation. Even if free trade is not the key to world peace, it still makes us less apt to raise the sword to our geographic neighbors. To repudiate the previous administration’s trade policy, international trade should be encouraged. It is only natural to perceive David Ricardo’s concept of comparative advantage as an extension of Smith’s pin factory.  The premise of comparative advantage is that it can make production global and explains why we tend to import higher-order goods to produce commodities domestically. No one climate can best produce glass, grapes, and corkwood in the Cognac region of France. However, all of these components are required for assembling a commercially produced bottle of Cognac brandy. This specific region in France has some of the best grapes in the world for brandy production. The climate is wholly inappropriate for cultivating and harvesting the wood used in the stopper placed in every Cognac bottle. To avoid placing great restrictions on our ability to manufacture sophisticated goods, we need to trade with other nations. We can only truly achieve this through peaceful relations. Free trade in itself helps to facilitate peaceful relations.

Thier’s Law Applied to Human Capital

Photo by cottonbro on Pexels.com

This blog entry was inspired by feedback from Enrique at the Prior Probability blog.

If Gresham’s Law applies to retain human capital in the job market, is it possible that Thier’s law (p.9) could also be applicable in certain contexts? On money, when legal tender laws forcing vendors to accept both forms of money at nominal value, economic agents will choose to transact with the higher valued currency. Presenting an axiom that is the opposite of Gresham’s Law, “ Good money drives out bad money”. Typically in the arena of monetary economics, the divide between advocates of Gresham’s Law and Thier’s Law is a sharply delineated dichotomy. Most proponents of one will not defend the possibility that the principle could apply to the circulation of money.

However, in terms of the circulation of human capital these concepts are not necessarily opposed. Employee retention is the byproduct of several highly qualitative attributes that are generally specific to a certain firm. In corporate vernacular, the term “culture” is thrown around so frequently that it has become a buzzword deeply embedded in the American psyche. Companies such as Google, go to great lengths to demonstrate that they have a flexible, open, and innovative corporate culture. The veracity of the claims is ultimately judged by the perceptions of the individual employees. One employee may adore working at Google, while their colleague completely despises the company’s ethos. Making the ebbs-and-flows of human capital even more complex. Employee retention at the individual level is based upon a multitude of various factors. The aggregated collection of the opinions of all the individual employees regarding their work-life satisfaction tends to paint a fuller picture. If while perusing Glassdoor, you happen to see a company with eighty-five two-star ratings, chances are this is not the petty slander of a few disgruntled employees. This is why oftentimes companies will periodically send out surveys to their employees in an attempt to measure overall morale throughout their organization.

Putting aside the highly individualized variable of career satisfaction metrics for an entire firm, if there is a pattern of talented employees leaving, there is a retention problem. Sometimes this may be isolated to a specific department even if the firm as a whole has no issues keeping competent and productive workers. Certain companies and even job roles select for specific attributes that may not be conducive to attracting skilled and reliable labor. Some industries are notorious for high turnover rates, one salient example being the hospitality industry. I remember a few years back, being in between jobs, so I briefly worked at a call-center. For me, this was an income stream until I found something else, for many of the people in my training class it was a lifelong career path. This path was a volatile one. Staying only a few months at one company and then abruptly quitting, generally with no notice. Upon receiving a new job offer, I gave my supervisor my two-week notice and he was astonished by the fact I even bothered to take this step. After only six months, only five people (including myself) out of the twenty-five in my training class remained. Industries and job roles with high turnover may be more willing to retain employees with fewer skills or with a poor performance history, due to the outflow of higher-skilled employees. Perfectly mirror the effect described in Thier’s lawinstead of money, the commodity that is flowing out of the firms is quality human capital.

The question becomes how can these opposed ideas transpire concurrently in the same labor market or even the same company. The answer to this question is predicated upon a “rules of the game” type logic. Each company and each interior department within a firm operate as governing bodies directing the task of workers. Meaning both varying capacity function as “ruler-makers” within the company. Think of corporate policy as being analogous to the federal government, while the department formulated rules are similar to state law. Clearly, in most cases, corporate policy supersedes department policies. If these rules are too onerous or unjust there is little a qualified and skilled employee could other than leave. Either accept and abide by the rules set forth or resign. Resignation being a clear withdrawal of consent on the part of the employee. One relevant example of this is companies still drug testing for marijuana in states where it is legal. Granted, it is an organization’s prerogative to make employees refraining from drug use a contingency of employment. However, if enough high-caliber job candidates take to smoking cannabis they may be in a bit of a quandary. A few years back the FBI ran into this problem due to their “drug-free” employment policy.

If the rules governing the management of a firm are too oppressive, people with options are going to find another job opportunity. What the company is left with are those who lack the skills, ambition, and conscientiousness required for productivity. The employer is left with the staff that clings to their jobs for dear-life as odds are they do not carry too much value on the job market. Much how department policies such as catering to senior and skilled workers can impose an effect similar to Gresham’s Law the opposite is also true. If you create rules that disincentives tenure and self-development, odds are you will lose a lot of great workers. The kind of workers that can be a game-changer in managing strategic customers. As we have observed with the call-center example, frequently due to the oppressive rules, low pay, and dismal work environment people with potential tend to leave these positions. Leaving you with the unskilled and the desperate who are locked-in to the role due to their circumstances. Keeping this dynamic in mind, it is a wonder why people expect quality service whenever they call tech support.

Bootleggers and Baptists XV: Term Limits

Politicians often support policies that they indirectly benefit from. One example of this is supporting legislation or various forms of deregulation that has a populous bend to it. The kind of policies that set this individual apart from the political establishment. Typically, the politicians that support such policies tend to operate within the context of a Bootleggers and Baptist dynamic.

However,  these attempts to garner public support through supporting policies that attack the status quo are not the typical B&B dynamic. Much of the time these actors (the politicians)  economize the benefits on two fronts. Supporting their ideological agenda and securing firm endorsements from their constituency. Meaning that as economic agents in the marketplace of ideas, they operate as dual-role actors. Effectively they operate as the Bootlegger and the Baptists simultaneously. Through advocating for a specific policy position, the outspoken politician operates as a Baptist. They stress the moral and technical concerns of a specific stance on policy. Whether it is AOC advocating for the Green New Deal or Rand Paul arguing for term limits, both positions take on a moral dimension. For this very reason, both economic actors in the political sphere are Baptists.

But we would be remiss to assume that they also do not take on the role of Bootlegger concurrently. Why? I will give both Rand Paul and AOC the benefit of the doubt and assume the defense of their ideological pet projects is sincere. The economic agent’s sincere belief in the moral aspects of their advocacy is a crucial contingency for it being a true Dual-Role actor dynamic. All because some are sincere in their moral arguments for tax cuts (for example) doesn’t mean they do not stand to benefit.  Neither Dr. Paul nor AOC benefits monetarily from supporting policies that are popular among common people. The most conspicuous benefit is both political figures getting re-elected for another term. However, what they stand to gain through “pollical popularity” extends well beyond merely keeping their sear in the House or the Senate. In the age of social media, politicians now have a very different kind of relationship with their constituents. With platforms such as Twitter, there is a much higher degree of personal interaction. The days of listening to your public figure from afar as they pontific upon public policy at the podium (political pulpit) are over. The voter can now to a limited degree interact with their elected officials on social media. Many of them have amassed something of Fanclub on various social media platforms. Their social media presence has permanently shifted the dynamic between politicians and voters. Various political leaders are now being quoted, re-Twitted, and immortalized in internet memes at a mind-boggling magnitude. One only needs to remember the emergency of the Bernie Bros to see in current times the line between celebrity and political renown have been blurred. Formulating a subculture of political celebrity. That could have never existed without the on-ramp of cyberspace.

The cult of personality has morphed into a political bastardization of celebrity culture, politicians have quite a bit to gain through maintaining a positive image. These figures now carry social currency with people outside of their constituency. You have people in Hawaii following Rand Paul on Twitter and he is a senator for the state of Kentucky! Political forces such as Paul and AOC  carry enough populous clout they have mobilized political activism across the country. Their influence extends well beyond the jurisdiction of the state they represent. This is how they truly benefit! They reap the rewards of advocating for policies that concern the public. If James M. Buchanan was correct politics is a form of exchange. In most cases (except bribery, welfare programs, and subsidies) money is not being exchanged.  One of the most obvious examples of the non-monetary exchange in politics is log-rolling. Politicians trading votes in the House or Senate. However, the social currency earned through supporting policies popular among the public such as term limits is a different kind of exchange. The politician gives lips service to policies that benefit the average person. In exchange, you get the support of the people. The catallactics of this trade-off is quite salient once you give it some thought.   

Why Are They Urging Us to Vote?

Photo by Artem Podrez on Pexels.com

The 2020 Election season will be historically noteworthy for several reasons. One characteristic that cannot be underscored is the aggressive voting campaigns. Celebrities have been demanding we all vote. Internet advertisements have been hounding us to vote. Campaigns at the state and national level have been emphasizing the accommodations made to enable near-effortless voting. Which is perceived as being particularly important with the looming specter of COVID-19 threatening to reduce voter turnout. Historically, voting rights and “get out and vote” initiatives have been the enterprise of left-wing political interests. Not that conservatives are inherently anti-voting, but due to the fact, right-wing populism is a new phenomenon.

Voter empowerment has always been a thinly-veiled attempt to pander to the average constituent. The aptitude of an individual vote holds little sway over the actual outcome of elections. Making the overall influence of a solitary vote is near-zero (P.603). The advocates urging the every-day citizen to vote side-step this issue through embellishing upon the impact of a single vote. One vote will not sway the overall aggregate electoral vote. That one vote is numerically inconsequential. Even on the microscopic scale of a small village of two-hundred residents, a single vote only 0.5 percent of the vote. Exemplifying the fact that the ruling power of voting comes from the aggregate voting power of various political coalitions. The collective-decision making power of organized political interest proves to be more effective than a single disorganized voter (p.54-56). The attempts to summon all eligible voters to do so serves as circuitous means of forming a like-minded voting bloc. The paradox being those who have an invested interest in promoting the institution of nominally democratic elections need to prey upon the illusion of every voting carrying weight in the polls.

Generally, the promotion of participation in the “democratic” process is purported to be for the “common good”. A profoundly ambiguous statement that could be applied in a litany of various subjective interpretations. What is advantageous for one person may be detrimental to another. Making claims of initiatives being in the name of the common good board-line spurious.  There is something of a gulf between the best interest of the individual versus that of society (p.284). Without a clear and concise criterion of what constitutes public interest, political pressure groups are enabled to take the reins and divert the cause for their purposes (p.283). The utilization of powerful imagery helps the invested interests mold public perception like clay. Conjuring apocalyptic images of a world with health care, social security, and other entitlements brought forth by a tyrannical despot. Allusions to tyranny captive the imagination of the American voter quite vividly due to the context of the nascent years leading to the Revolutionary War. Most of these claims are hyperbolic and are intended to urge the viewer to vote.  The foreboding catastrophe resulting from not casting your one measly vote may result in the demise of the republic.  Such tactics are nothing more than providing misinformation that is tantamount to psychological manipulation.

Aside from this exaggerated claim being cartoonish, they do not consider informal checks on power. By virtue of the median voter theorem, a true contender in a political race would not dare commit the cardinal sin of outright eliminating such programs. Some may discredit this argument as our current president is somewhat unorthodox. Even if the pressure of government agencies or constituencies does not hold, the pressure of lobbying groups will.  For example, the hyperbolic bombastic rhetoric of the Republican party overturns social security is laughable. Equal to political suicide. Seniors organizations such as AARP weld a significant amount of lobbying power. Could effortlessly embark upon a rapturous counter-campaign against the GOP. Potentially leading to a drastic drop in the senior vote, arguable one of the most active voter demographics in the country. The dystopian tone of these advertisements reflects a sensationalized depiction of political reality. A fabricated reality was political pressure groups have surrendered all of their political purchasing power to the voter. Which is a highly unlikely scenario. Especially when confronted with the fact that there is a plethora of perks and money to be made by lobbying. Only serving to solidify the fact that the myth of “every vote counts” is a pure illusion.

If the consequences of not voting are not as desirable as perpetuated by the media and the voter has next to no control over the result, what is the point in trying to mobilize voters? Stressing the moral imperative of arriving at the polls over hell or high water?  The observant reader probably notes how it was previously mentioned that voter empowerment was an enterprise of the left. Coupled with the storied history of left-wing media bias, the motives of the “get out and vote” campaigns become much more salient (p.49). There is a tightly woven network of celebrities, musicians, actors, and media personnel who operate as the mouthpiece for the moral imperative of voting. These de facto “Baptists” help paint the grisly picture of an America where the interests of the common person have not been represented. Doing all of the heavy lifting for the true beneficiaries. Those who stand to benefit politically from such initiatives. Democratic politicians, trade associations, administrators for entitlement programs, the community organizers who host and plan voting drives, and so on. Most of these interested parties stand to benefit through career advancement, increased job security, increases in social clout, etc.  All of these concentrated benefits were acquired without productively contributing to society. Textbook definition of rent-seeking. The morally suspect part of these unearned benefits is that isn’t obvious that these self-interested individuals truly haven’t contributed to society.  Due to the virtuous choir of the media mouthpieces creating the smoke-screen for the beneficiaries to hide behind, we are deceived into the belief they are working for our benefit.

It can be surmised that the reason for the upsurge in a panic regarding this election is based on the motive to oust Donald Trump out of office. I disagree with his politics. After all, I am a steadfast and unwavering free trader. The magnitude of moral indignation facing the president is unjustifiable. To genuinely believe that Joe Biden is the white knight who is going to save the United States from uncertain cataclysm, is comical. Neither man ideologically represents the correct direction for this country. Then again, that may precisely be the reason both are the premier candidates for the job.  Lobbyists and bureaucrats need elected officials they can bend for their purposes. Needless to say, the droves and networks of various spokespeople urging us to vote are not truly working in our interest. Despite whatever flimsy claims they make. Voting does have a valuable quality as a form of self-express, but that is about it. The odds of your vote deciding the next election is nothing more than pure fantasy.

Politicians Are Beholden to the Voter

stickers with i voted inscription and flag of usa
Photo by Element5 Digital on Pexels.com

 

Matthew Miller’s The 2% Solution is filled with interesting and novel insights on the inadequacies of the political process. Miller a self-proclaimed radical centrist provides a rallying cry for all political pragmatists. Get over the drama/ trappings of political theater and get the bargaining table.  Yes, there will be trade-offs, but at the end of the day, the results will be worth the compromise. At least in theory.  Miller’s objectives are certainly laudable. However, clearly in the nearly 20-years since the book’s publication, few have taken his advice seriously. Miller certainly does not lack creditable credentials, after all, he was a senior advisor in the Clinton White house.

 

Miller does touch upon the root of the problem in the American phenomenon of ineffectual government. He cites the typical observations of the government’s ineptitude, invested interests, partisanship, etc. He does address one point that is often underscored by proponents of limited government. Typically were are so enamored with the inefficiencies and corruption in politics we forget about other factors that make government fail. How often are politicians avoiding making effective decisions due to not wanting to alienate their “base”? They are beholden to the voters to retain their position as an elected official. Frequently like to create the illusion of meaningful action (p.3).

 

Miller expounds upon how conservatives are generally between a rock and a hard place when it comes to social issues. Generally, Republicans are expected to give lip service to fiscal conservationism and small government. This cultivates a dilemma. The representative may personally favor some social safety nets, but will their core voters agree? The situation becomes more sticky when you take into account the attitudes of Swing voters. The proverbial Independent voter. As Miller quotes the  late Daniel Patrick Moynihan

” … Showing enough leg to convince the Independents we would like to attract that they are not neanderthals ..” (Miller, 2003, P. 28)

 

This juggling act is more about image management than producing good policy. However, this behavior is rational given the incentives of an elected official. Re-election! These balancing acts are more about voter appeasement than about doing what makes sense economically or socially. In my opinion, make the crusades embarked upon by many self-righteous politicians outright spurious. It is impossible to differentiate if they are passionate about the issue or the more so their re-election campaign.

 

Let me pick on a politician that demonstrates these principles,… Rand Paul. He’s a relatively unique Republican from an ideological standpoint. He has “Libertarian” tendencies. Similar to Senator Mike Lee of Utah. In terms of his re-election efforts, we can transpose Independent voters with Libertarian voters. Senator Paul will attempt to balance his campaign platform in a manner that will please mainstream Republicans but will also entice Libertarians to vote for him. While his target demographics may vary slightly from the majority of Republicans it is a similar concept. Attempting to strike the golden-mean, an image that is favorable in the eyes of Republican and Libertarian voters. This means making compromises on policy and diluting his ideological to pander to the other side.

 

Senator Paul also suffers from what I like to refer to as Soapbox syndrome. This is were a politician or activist who takes a stand on a minor issue or one that is convenient for them to be an advocate for. It is a blatant form of ideological rent-seeking. Instead of gain monetarily they gain more social creditably in the political sphere. James M. Buchanan was joking when he referred to politics as a form exchange. “Interpersonal trading to capture mutual benefits” (P.594). Taking on a policy issue as crusade you are giving X to obtain Y. Y  comes in the form of votes or creditably in certain political circles. Colloquially we refer to it has having cachet or currency. For example, presently the issue of policing reform has a lot of currency. This credibility transfers to anyone willing to take the position that is most congenial to the voters.

 

Bless his heart, goes on these short-lived crusades that make him appear to be a different type of politician. Remember back when he was fixated on term limits? I haven’t heard him gripe about term limits in awhile. Then again amid all the upheaval spawned from COVID-19 he probably has bigger fish to fry. It’s convenient in the here and now to give lips service to term limits, however,  the odds of such a policy coming into being are scant. Senator Paul knows this. There are far bigger issues than term limits. While implementing this policy may do some good in eliminating some of the invested interests. Not allowing senators to form longstanding relationships with lobbyists. It is easier to go off on a rant on the senator floor about term limits than to take the unions and lobbyists head-on. If he was truly committed to this issue why not impose your term limit. I am not suggesting he immediately resign. Say, ” After 15 years in the senator I am retiring. I will be full-time with my practice .” He would avoid looking like a hypocrite and it would be a graceful way to end your stint in the senate. He would be setting a good example, even if no one else wants to follow suit.

Workplace Rent-Seeking

 

 

architectural design architecture blue sky business
Photo by Juhasz Imre on Pexels.com

 

Introduction:

One of the core principles of Public Choice Theory is the concept of behavioral symmetry.  Behavior symmetry can be best defined as

“… the same behavioral model of human action must apply to all decision-makers regardless of institutional setting (public or private).” (Shughart II & Wardle, 2020, P.594)

This conceptualization firmly reflected in James M. Buchanan’s proclamation of  Public Choice Theory being ” politics without romance“. Meaning whether you work in for the government or a private corporation your incentives generally don’t change. Working as a bureaucrat doesn’t dampen the allure of a high salary or generous benefits. Many people tend to view politicians and government employees as working towards the common good. Ignoring the fact that their decisions are not immune to self-interest. Demonstrating that this faulty assumption about civil servants is nothing more than a halo effect. The belief that government employees are striving towards a higher moral good than individuals employed by a corporation is illusory. People respond to incentives regardless of their occupation.

 

Considering the previously described application of behavioral symmetry, it wouldn’t be outlandish for a phenomenon that transpires in the public sphere to occur within a private institution. To take it a step further, to even claim that it takes place on an individual level. As in actions taken by a single person versus a solitary institution.  Could the principles of Public Choice even be applied to the individualized interactions of workers in an office environment? Certainly! After all, incentives do not change. We are merely changing the environment and the scale of transactions.

 

The concept of rent-seeking tends to be commonly reflected in the behavior of office workers. What is rent-seeking? It can be described as a person or organization attempting to secure wealth without creating generating any productive output. Generally, this is done so by seeking an institutional advantage. Gordon Tullock, the theorist who developed this theory, utilized the example of tariffs to demonstrate a practical application for this concept. Governments typically do not impose tariffs on their own, but rather due to lobbying pressure from interest groups. Tullock referred to this variety of behavior as “wasteful” (Tullock, 1967, P.5). As a side note, Tullock may have been the architect rent-seeking, however, it was economist Anne O. Krueger who coined its name’s sake back in 1974.

 

Based on my observations of working in a corporate office there are three prevalent forms of workplace rent-seeking. This list includes: self-praise/  verbal demolition of co-workers, brown-nosing, and creating busywork. Any action or omission of action in the workplace is overtly economic. No one works for free. The only difference is scale. Many of these behaviors are anti-competitive. At work, your co-workers are your competition. All of these behaviors are attempts to secure gains without creating any additional wealth. Through damaging the image of co-workers or the individual improving their image, they are gaining potential job security which protects their paycheck. Typically, at the expense of the employer because this behavior does not distract from employees doing their jobs.

 

Self-Praise and Verbal Demolition of Co-Workers:

As the saying goes talk is cheap. Unfortunately, empty words have carried more clout than they should out on the sales floor. Anyone can pat themselves on the back and expound upon the “superior” customer service they provide. Especially when the boss is present. Much of this bluster, whether it is factual or not, skew popular perception. It is easier to take things for face-value than to look below the surface. If someone is persistently selling their skills and value to the company, it is easier to believe them than to validate their claims. Even when faced with contrary metrics many managers still fall into the folly of accepting the shameless self-promotion of these under-performing employees. This acquiescence is generally also reflected in the perceptions of this subpar employee’s peers. Despite all of the opposing evidence they will express a favorable opinion of this individual. Making the manager less inclined to terminate this individual. The manager would not want to jeopardize group dynamics. However, baseless self-promotion does is nothing but counter-productive and a waste of company resources.

 

The devious foil of Self-praise is the verbal demolition of co-workers. Portraying co-workers in a bad light to distract from an individual’s performance deficits. One common example is proliferating gossip and rumors. Even to be so brazen to fabricate formal complaints regarding interactions with individuals. For example, a false sexual harassment complaint filed with human resources.  Gossip being on the lower end of the scale and fraudulent human resource reports being a more extreme form. Going to great lengths to assassinate the character of your co-workers requires a great deal of time and effort. It could be suggested that it would even be easier to just do your job. Versus wasting everyone’s time and resources with such puerile and sophomoric attempts at subterfuge.

 

Brown-Nosing:

 

Complimenting the boss, attending all of the social functions you are invited to, pretending to be his friend, laughing at all of his lame jokes. Brown-nosing, sucking-up… this behavior goes by many terms. No one every engages in brown-nosing without having a specific set of ends. Whether it would be the boss overlooking poor performance or giving other forms of preferential treatment. Such as being picked over more qualified candidates for a promotion. Why work harder when you could just work smarter? It is easier to go get drunk with your boss at a happy hour and pretend to be his best friend than to do your job. It is astonishing how many people in management fall for these naked attempts to curry favor with them. Then again an entire encyclopedia could be written about the psychology behind this mystifying phenomenon.

 

Creating Busywork:

 

The image of busy workers is synonymous with productivity.  Is this always the case? Not always. Sometimes workers will generate work or purposely utilize inefficient methods to complete tasks to create the perception of productivity. Some employees will go so far to create arbitrary tasks they will intentionally do their jobs incorrectly. Their pointless busywork would be correcting their own mistake. As perverse as that sounds, I have seen it with my own two eyes! Unfortunately, perception tends to carry more weight than substance.  Even if that perception is illusory.

 

A more traditional example of this rent-seeking tactic is to intentionally procrastinate and then do all your work at the end of the day. To create the illusion that you are busy and working hard.  Versus addressing action items as they come in throughout the day. Generating the image of having a mountain of work to do makes it look like you have a heavier workload. Making you less susceptible to being ousted out in the next round of layoffs. While counter-productive these methods aim to mask the fact that their position is nothing more than a redundancy.

The Samartian’s Dilemma & Welfare

selective focus photography cement
Photo by Rodolfo Quiru00f3s on Pexels.com

Introduction:

On a philosophical level, the virtue of charity is highly exalted. Few are willing to question if charitable efforts are effective. An even increasingly small number of philanthropists are willing to entertain the notion that they are harming the recipient. It is counter-intuitive to fathom the idea of our helping hand is causing negative consequences. Unfortunately, sometimes good intentions do not yield good results.

Despite the clear need for charity in our society that still doesn’t negate potential externalities. Intentions are mutually exclusive from the repercussions. This observation is demonstrated by Noble Laureate James M. Buchanan’s Samaritan’s Dilemma.  Buchanan based his postulation upon the Parable of the Good Samaritan. This biblical passage details an account of  “… the Samaritan aiding a man who had been beaten and robbed by thieves…” ( Wagner, P.11) [1]. Buchanan took this biblical allusion one step further and generalized it to charity as a whole. Once the recipient is cognizant that the charitable donation is larger than what they can earn from labor, they will lose the incentive to work (Wagner, P.11) [1]. Thus, they become dependent upon charity.

While this concept is applicable to private charity, it is quite prevalent in public policy. Many “safety-net” programs are merely forms of socialized charity. The implication of “socialized charity” is intended from a value-neutral standpoint. The Samaritan’s Dilemma is not confined to our stereotypical examples of government assistance. For instance, the Samaritan’s Dilemma arises in the area of subsidies for crop insurance. A 2009 study found a” … 0.2% decrease for every percent increase in expected disaster payments…” (Deryugina & Kirwan, P. 27) [2].  Similar findings are also applicable to moral hazard in flood insurance policies.  As policymakers succumb to the pressure of voters demanding increased funding for flooding relief. The number of property owners with flood insurances decreases (Michel-Kerjan et al, P. 9) [3].

The presence of moral hazard seems to be prevalent throughout disaster relief literature. Applying both domestically and internationally. If the precedent for government aid is established individuals are less apt to take precautions. Making them solely dependent on aid provided by various government agencies.

Why Focus On Means-Tested Welfare Benefits? 

It is quite evident that there is a robust body of literature related to disaster relief and the Samaritan’s Dilemma. The obvious question becomes, why focus on means-tested welfare?  For one, programs such as SNAP, WICC, Medicaid, etc. tend to find into our stereotypical perception of charity. Making it a clear example of where the line of assistance veers into incentivizing long-term dependence. Also, funding for such programs is always a consistent talking point pertaining to economic policy. There is also a lot of misconceptions concerning the incentives for welfare dependence. The ubiquitous image of indolent dirtbags avoiding work is largely a myth. The vast majority of welfare recipients wish to participate in the labor force. However, typically the total value of welfare benefits allocated tends to surpass an annual salary for most entry-level positions.  A fact that has been demonstrated by a 1995 study (Tanner et al. p.2) and the 2013 follow-up (Tanner & Hughes, p. 7) conducted by the Cato Institute [4] [5].

The Cato Institute 1995 Welfare Study:

The 1995 welfare study conducted by the Cato Institute found that overall combined welfare benefits generally exceed the income of most entry-level positions. The added benefit being even a state with benefits comparable to minimum-wage such allocations would be tax-exempt (Tanner et al. p.1) [6]. Clearly aligning incentives with long-term welfare dependence.  In the short-term could be perceived as being within the best interest of a rational actor. Setting the stage for applicability of the Samaritan’s Dilemma in the sphere of entitlement programs.

In order to fully illustrate how welfare benefits reduce incentives to work, it is best to compare wages with the sum of allocated benefits. Back in 1995, 40 states’ welfare benefits collectively amounted to more than $8.00 per hour (Tanner et al. p.1) [7]. In 17 states, the total amount was equivalent to more than $10.00 per hour (Tanner et al. p.1) [8]. Some of the more generous states in the country (HI, AK, MA, CT, NY, NJ, RI,& Washington D.C.) paid out more than the equivalent of $12.00 per hour in welfare benefits. That is more than 2.5 times the federal minimum wage in 1995 (Tanner et al. p.1) [9]. 8 states within this time frame provide more than $25,000.00 in welfare benefits annually (Tanner et al. P.2) [10].  This is equal to the purchasing power of $42,154.53 in 2020 when adjusted for inflation.

It is imperative that we cross-compare these findings with average entry-level wages back in 1995. This will establish a proper context for the previously detailed allocations.  Simply stating that Hawaii paid out the wage equivalent of $17.50 means very little without the appropriate context of market wages (Tanner et al. P.2) [11]. Per Tanner et al. :

An entry-level secretary can expect to earn about $9.01 per hour, which is less than equivalent to welfare benefits in 29 jurisdictions.[38] The national median wage for a janitor is $6.75 per hour.[39] Welfare recipients in 47 jurisdictions receive more in benefits than the average janitor. It is important to realize that, contrary to popular belief, the average janitor’s wage is well above the minimum wage rate of $4.25 per hour. Perhaps more interesting, the national median wage for computer programmers is about $13.03 per hour–less than the welfare benefit levels in the six most generous states.[40]  (Page 23-24) [12].

It is quite conspicuous why a welfare recipient would be susceptible to indefinite reliance on entitlement programs. If you are able to obtain more than the equivalent of a computer programmer’s median annual salary in public assistance it would be irrational to work. Typically those receiving government assistance lack the human capital to make equivalent wages in the labor market. When you combined the advantages of these benefits being tax-free and the general human preference for leisure, the choice is simple. Continue to receive welfare benefits as long as possible. Not only are incentives to work are removed, but consequentially the drive to improve one’s circumstances is relinquished. An occupation such as computer programming requires a lot of job training and even college degrees. Keeping human nature in mind, if there is a way to circumvent the schooling and job training but have equal compensation most people will take the shortcut. It is not laziness or malevolence, but rather a rational cognitive appraisal. That is why merely  68.6 % of welfare recipients in 1995 were actively seeking employment (Tanner et al. P.2) [13]. Poor people aren’t stupid, they respond to incentives in the same way anyone else would.

It should be important to not overgeneralize the findings of the 1995 study. The potential for misapplication is highly probably. Both by welfare advocates as well as opponents. The study notes how there were 77 programs in 1995, no single recipient receives benefits from each one (Tanner et al. P.4) [14].  For example, only 23 % of  AFDC beneficiaries had received housing assistance (Tanner et al. P.26) [15]. However, most had received benefits from multiple programs.

The 1995 study concludes that the salient incentives for long-term welfare dependence are tied to the number of benefits provided. As a means of policy reform, it is recommended that welfare benefits be reduced to minimize persistent reliance on such programs (Tanner et al. P.30) [16]. The timing of this study is somewhat ironic considering the timing of the study in relation to the 1996 Welfare reform of the Clinton administration. I would strongly surmise that this study provided some fodder for justifying such a policy change.

The Cato Institute 2013 Welfare Study:

In social sciences much like other disciplines that utilize empirical research replication of results is paramount.  In science, if results cannot be replicated odds are the researcher’s results were due to sampling error. Verifying the importance of follow-up studies. Michael Tanner and Charles Huges conducted a follow-up to the 1995 study.  One core difference between the 1995 and 2013 study is the implementation of the Welfare Reform Act of 1996. It would be natural to assume that the parameters of this reform have reduced the numbers of people dependent on welfare. Unfortunately, such an assumption is superficial and inaccurate.

Despite the efforts of the Clinton administration, the welfare reform of 1996 wasn’t as successful as anticipated. The dollar value of welfare benefits paid out has declined in 18 states since the reform (Tanner & Hughes, P. 8) [17]. However, in 33 states and the District of Columbia, the monetary sum of benefits paid out increased even when adjusted for inflation (Tanner & Hughes, P. 8) [18]. Placing into question the overall impact of the 1996 reform. Since 1995 the number of federal programs geared towards low-income recipients ballooned 126 (Tanner & Hughes, P. 7) [19]. Which does not lend much confidence in the effectiveness of the 1996 reform.

The unfortunate facts are that many state welfare programs are still far too generous. Despite minor improvements.  In 2013, 13 states had benefit allocations averaging over $15.00 per hour (Tanner & Hughes, P. 7) [20].  The study also notes that 35 states still have welfare benefits that exceed the wages earned on a minimum-wage salary (Tanner & Hughes, P. 7) [21]. The subsequent study found that in 12 states leaving welfare would result in a loss of income. Even with EITC and CTC tax credits taken into account (Tanner & Huges. P.7) [22]. An incentive that makes up for taking a job that pays slightly less than welfare benefits in  39 states. However, still cannot counterbalance the value of leisure (Tanner & Huges. P7) [23].

In  2013, the issue of welfare allocations eclipsing many entry-level positions is still a lingering issue.

In 11 states, welfare pays more than the average pre-tax first-year wage for a teacher. In 39 states it pays more than the starting wage for a secretary. And, in the 3 most generous states a person on welfare can take home more money than an entry-level computer programmer. (Tanner & Hughes, P.8) [24].

The number of states providing benefits surpasses the salary of an entry-level computer programmer has been reduced by 50% since 1995. However, it does seem superfluous to have any aid to top the salary of a computer programmer. Computer programming is a prime example of skilled labor. That alone is enough to discourage those in need to find work. Why go to college to gain such skills when you can just apply for welfare? However, it seems as if such generous distributions are relegated to a minority of states. State welfare benefits exceeded the salary of a starting secretary in 29 states in 1995. That number jumped to 39 in 2013. This is obviously a step in the wrong direction. Especially considering secretary positions can be a solid career stepping stone.

The five most generous states all increased the overall welfare allocations since 1995. Hawaii had a  $7,265.00 increase in average welfare benefits paid to a household. Washington D.C. a notably $8,730.00 increase. Massachusetts exhibited a $5,169.00. Connecticut a modest increase of  $1,781.00. Finally, New Jersey with a $5,533.00 (Tanner & Hughes, P. 8) [25]. To truly put these numbers in perspective it would be helpful to see how these benefits rank terms of hourly wages. For Hawaii, it amounts to the pre-tax equivalent of a resounding  $29.13 per hour. Washington D.C. $24.43 per hour. Massachusetts $24.30 per hour. Connecticut $21.33 per hour. New York $21.01 per hour (Tanner & Hughes, P.12) [26].  Please note that in Hawaii minimum-wage as 2020 was $10.10 per hour [27].

While derisive criticism could be directed at the states for generous benefits programs, there are other factors contributing to the lackluster results of the 1996 welfare reform. There is much due opprobrium that can be levied against the work requirements. The 1996 legislation added more stringent work requirements as a contingency for receiving means-tested aid [28].  Per federal law,  each can provide hardship work exemptions for up to 20 % of all welfare recipients (Tanner & Hughes, P. 39) [29].  Such a restriction seems like reasonable restraint many there are still states such as Massachusetts that have few recipients participating in work actives.(Tanner & Hughes, P. 39) [30].  For example, per the study, only 18% of adult participants in TANF were engaged in work actives (Table, P. 41).

Nationally less than 42% of adults receiving public assistance are working (Tanner & Hughes, P. 41) [31]. Even at that, the definition of work activities stretches beyond actual productive labor. Encompassing job training and even schooling. The definition of work activities was made even broader under the Obama administration. Per a 2012 executive order (Tanner & Hughes, P. 41) [32]. Providing more malleability in the parameters for welfare requirements only creates more loopholes. Participants are most likely not looking to cheat the system. However, broadening requirements increases the aptitude and propensity for chronic dependence. In turn, fulfilling the prophecy of Buchanan’s Samaritan’s Dilemma.

Conclusion:  

A help-handing can make all the difference for those who are in need. I would never set out to write a critical polemic against the virtue of charity. The institution of privatized charity would be the preferential over socialized assistance. Whenever the costs are socialized there is a disconnect between funding and the actual effectiveness of the government program. Most taxpayers operate under the assumption that the policy must be effective. Acquiesce the existence of welfare as a necessity, if it wasn’t the program wouldn’t exist. Few question whether or not their helping-hand is securing the ball-and-chain of multi-generational welfare dependence.

My policy preference concerning welfare programs leans Libertarian. However, the complete abolition of social assistance initiatives is unrealistic. Any politician suggesting such policy prescriptions would be committing political suicide. Most of these programs are entrenched fixtures of the massive bureaucratic body. Making them difficult to dismantle. Odds are most voters’ preferences would align with keeping such efforts in place. Therefore, it is important to look at this issue from the framework of reform versus the lofty aspirations conveyed in political theory.

Once you re-orientate your expectations become a matter of honing in welfare. Focusing on shaping these programs into being temporary assistance versus lifelong entitlements. Scaffolding towards independence versus multi-generational shackles. The only way to make this policy shift would be through reducing the value of welfare benefits paid. In turn, such a policy adjustment would realign motives towards investment in human capital and situational improvement. Not indefinite continuation of the same programs. Which is why I would recommend time limits on the duration of time a recipient can receive benefits. It is evident that work requirements are flimsy barriers. Flimsy barriers which can be easily penetrated.

Judging by some of the gaping holes in the Welfare Reform Act of 1996, it is reasonable to question if the Clinton Administration was serious about welfare reform. Easy to see this piece of legislation as a series of insincere concessions between a Democratic White House and a Republican congress. Even in light of the loopholes in the initial legislation, the reform initiative has been further eroded by subsequent administrations. Per the Cato Institute 2013 study pertaining to the work requirement changes made by the Obama administration:

However, other observers disagree, pointing out that the definition
of work activities is already extremely loose so that any increased latitude can only make the situation worse. Ron Haskins, who as a Republican committee aide helped draft the 1996 welfare reform and who now is an analyst for the Brookings Institution, says that if the administration “wanted to undermine the work requirement,” the new policy “is away to do it.” (Tanner & Hughes, P.45-46)

Which circles back to the whole concept of welfare dependence being a byproduct of legislative flaws. Designing welfare programs that make it too easy or too rewarding to obtain welfare benefits will breed long-term dependence. The question becomes are we are helping or hurting these individuals. I would be speculating we are hurting them. They continue to lack the skills for substantial employment. All it could are budget cuts or elimination of a program and then they are living in a cardboard box. The price of being completely reliant on government assistance is having no autonomy over your economic future. No hope of upward mobility. Being held captive by congress and voter attitudes towards welfare. If either falls out of favor of supporting welfare, vicissitudes do not bode well for recipients.

Fiscal Illusion- Sneaky Taxes

accounting analytics balance black and white
Photo by Pixabay on Pexels.com

 

Taxation and public expenditures are enduring sources of frustration for the voting public. Contention stemming from a perceived lack of transparency and frivolous pork-barrel spending. These grievances are completely justifiable. Whether or not revitalizing infrastructure is a worthwhile expenditure is debatable. However, utilizing tax money to provide salary raises for administrators of an ineffective government program is clearly wastefully negligent. Calls for increased transparency of government spending is only the natural consequence of continual misallocation of tax dollars. Unfortunately, such measures are more wishful thinking than a political reality. The inefficient allocation of public funds is one of many factors eroding the public’s trust in government institutions. Invariably the question becomes, what is the government doing with my money?

The dynamics of transparent government spending is an area that has been thoroughly studied by Public Choice economists. From my own personal study of the literature, I haven’t seen any concrete solutions. Public Choice theory does, in contrast, provide us with a wealth of insight into how expenditures and taxes are obscured. How the waters are muddied is known as Fiscal Illusion. A concept first purposed by Italian economist Amilcare Puviani back in 1903 [1]. Fiscal Illusion went into relative obscurity until the theory was revived by Nobel Laureate James M. Buchanan in the 1960s. Over the years economists ranging from Richard Wagner to Tyler Cowen have addressed the mechanisms behind Fiscal Illusion. It has gone on to become one of the steadfast fixtures of Public Choice theory.

In a broad sense what is Fiscal Illusion and how does it operate within the context of taxation and government spending? Fiscal Illusion can be concisely defined as:

 

“ …. the concept that governments find it easy to raise tax revenues because of consumer ignorance about the way the tax system works” [2].

 

Once confronted with this premise it is easy to surmise that the complexities of the American tax code may be intentional. If you bury tax burdens in more deceiving means of appropriation the taxpayers are less apt to question why additional taxes are being imposed. As previously mentioned nothing irks voters more than needless government spending and tax hikes. Maybe other than cutting entitlement programs, but then again that is a different topic altogether. Being able to utilize a mechanism such as an inflationary monetary policy to operate as an implicit form of taxation. The government gets its funding and most taxpayers aren’t the wiser.

Thankfully for us, Dr. Buchanan detailed the various ways that governments implement policies that keep us in the dark about taxation. Per the noteworthy Nobel Laureate, there are seven broad categories of Fiscal Illusion:

 

  1. “ The connection between the total amount of resources actually utilized in producing or supplying public services and any individualized share in this total may be obscured to the taxpayer. In other words, the individual shares in the opportunity cost of public spending may be hidden” [3] (Page 130)

 

This is achieved through utilizing government-owned property to produce revenue, “Specific excise taxes”, utilization of public debt, inflation (printing of more money, mentioned above), false promises (labeling a long-term obligation as temporary).

 

  1. “…. institutions of payment that are designed so to tie the obligation to a time period or an event which the taxpayer seems likely to consider “favorable.” Puviani’s ingenious idea here is based on the recognition that isolated individual decisions can be influenced by temporary circumstances, and that the attitude of the individual may vary significantly with such circumstances” [4] (Page 132)

 

  1. “A third means of introducing a fiscal illusion, and one that is closely related to the one previously discussed, is found in the charging of explicit fees for nominal services rendered upon the occasion of memorable or pleasurable events. Puviani brought in marriage license fees, hunting licenses, entertainment licenses, fees for diplomas, etc.” (Page 133) [5].

 

Occupational licensing not only can serve as an unnecessary impediment to commerce, but it can also operate as an underhanded means of generating revenue.

 

  1. “ If a particular attitude is pervasive in the community, an opportunity is provided to levy a tax that will capitalize on such sentiment, making the burden appear less than might otherwise be the case” (Page 134 ) [6]

 

Essentially, manipulate social issues as a means of justifying spending. Just think about anytime the government declares war on something. War on Drugs, War on Poverty, etc.

 

  1. “ Puviani was on somewhat more firm ground when he argued that the governing class will, in order to secure the general acceptance of a tax, threaten the body politic with the direst of consequences if, in fact, the tax levy is not approved. (Page 134)” [7].

 

In other words, state officials will oversell the danger of not having a policy or program in place. Yet again to justify the budgetary earmark.

  1. “ To the extent that the total tax load on an individual can be fragmented so that he confronts numerous small levies rather than a few significant ones, illusory effects may be created (Page 134)” [8].

 

Providing some validation to my point pertaining to the complexities of tax codes. The more convoluted you can make the taxes the more difficult it becomes to track.

 

  1. The seventh way per Buchanan that Fiscal Illusion is implemented is through policies that generate ambiguity of who is ultimately responsible for the expenditure. (Page 135). [9].

 

 

There was a study published back in 2011 by the Independent Institute that did elucidate the seventh form of implementation of the illusionary policy. The study was conducted in Sweden back in 2003, the first year that “taxes constituted 55 percent” of the national income. It was found that Swedes often were aware of a specific tax and even the financial burden attached to it. However, where oftentimes confused about when it was applicable and who it was applicable to [10] (Page 9).

 

In an age of precipitous erosion of trust in institutions, the utilization of Fiscal Illusion to obtain extra funding appears to be a double-edged sword. Once the ploy to deceitfully apply more taxes is exposed then the respect for governing institutions will sink even lower. However, the trust may have not been compromised in the first place if the location of tax dollars was done so efficiently, honestly, and frugally. While this may not still appease an anarchist but would have mass appeal to most voting constituencies. The facts of reality seem to conflict with the idealization of an honest, efficient, and dollar conscious government. Either by size or by institutional corruption government programs not only are ineffective but often inefficiently funded. Creating the context for a system of state consumption that would incentivize politicians and bureaucratic administrators to favor illusory tax policies. Especially when departmentalization and staff reductions are on the table for government agencies. When you examine the role of incentivizes, if a government clerk is facing a potential layoff, it is understandable they would have circuitous taxes that would fund their department. That does not make such policies Pareto-optimal or in accordance with sound economic practices.

 

The issue of inefficient and misbranded government programs and associated allocations, in the long run, they generally end up failing. Many who purportedly oriented towards reason feel as if government programs are the most efficient means of allocating resources and services. If this were so, these same institutions would not resemble a pack insatiable jackals. A bottomless pit. These programs would be able to make do with a moderate amount of public support. Instead, we hear the countless claims of underfunding reinforced by many of the tactics described by James M. Buchanan. If a tax hike would be political suicide the government can always print more money to fund wars and other misadventures. This is why it was so prudent of Buchanan as well as Puviani to consider inflation as a form of Fiscal Illusion. The irony is that we have consumer protection laws allegedly to protect us from the deception of vendors. No such measures are in place to protect us from the same sort of dishonesty of government institutions. After all, the government is merely a socialized service provider. Since when has anyone in the private sector ever overtly paid to be robbed? Unless it constitutes some sort of perverse sexual fetish the odds are extremely low anyone has. However, the employees over at the U.S. mint are essentially publicly funded bank robbers. Providing more cash flow to the state and diminishing the purchasing power of the currency. Operating as an implied tax on the citizenry. Not with anyone’s consent, no one voting in favor of such methods of funding. However, this all reflects the haunting words of economist John Maynard Keynes:

 

“ By this means the government may secretly and unobserved, confiscate the wealth of the people, not one man in a million will detect the theft” [11]