Krugman on deficits and voters.
You don't have to like Keynesianism, but the crude public choice argument that it's a boon for politicians makes no sense at all.
To bureaucrats who may want to maximize their own budgets, the costs and the benefits of advocating tax increases are both diffuse. For politicians who do the budgeting, running deficits is definitely a political cost. The reason why we run deficits is that (1.) as a policy question it is so overwhelmingly obvious that balancing budgets would be sub-optimal, (2.) the commitment of automatic stabilizers like a progressive tax system and a counter-cyclical safety net. If politicians were unconstrained by the economic reality of (1.) and the policy reality of (2.) - if they were optimizing in an unconstrained rather than a constrained environment - we'd probably have far fewer deficits.
Wednesday, March 20, 2013
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I'm not sure I know what constitutes a "crude public choice argument" (I do hope I'm not about to fall into one!), but I can't see how this contradicts public choice arguments as I have heard them expressed.
ReplyDeleteLook at it this way. When we run a deficit, we spend money. That money gets spent on specific things, which is why interest groups spring up, organize, and lobby, so as to get a grubby hand or two in that process. Politicians are naturally amenable to these groups, because they're the ones pushing hardest for that money to be spent. Often, that money goes to causes that sound all sorts of pleasant and admirable.
The diffused costs of deficit spending mean that everyday voters don't necessarily have a strong incentive to really oppose such spending. It's easy to say one thing to a poll, but entirely different to act those sentiments out.
I don't know if I expressed that very well, but does that make some amount of sense? When push comes to shove, voters are never very keen on cutting specific programs, whether they benefit from them or not. The pressure brought to bear upon deficit-supporting politicians appears to be pretty minimal in the grand scheme of things.
Let me know if this is the sort of crude public choice you're talking about ;)
So the cruder argument you hear is that politicians love Keynesianism because it gives them the cover to do what they like, which is spend a lot and run big deficits. It takes the chains of the "old time fiscal religion" (presumption being that that was a good thing) off of them. In reality they aren't covering their deficit-love with Keynesianism at all. They don't use it to justify anything and the public certainly isn't convinced of anything like that.
DeleteIt's an awful argument that you hear too much and it doesn't make sense.
Yours is a better argument, but I still think it poses problems. The concentrated benefits of spending programs are fine, but a lot of our spending has fairly diffuse benefits (SS, Medicare, UI, defense). The particulars of those budgets probably to have Mancur Olsenesque attributes to their allocation, of course. But the deficit is not run up because of the agglomeration of lots of different pet projects. A few giant gorillas in the room with diffuse benefits dominate the budget. You also have to remember that the costs of taxation are diffuse too (again - Mancur Olsen is in the details of the tax code which is why we've got all kinds of credits and deductions, but the broad burden of taxes is diffuse). So if I had a pet project that I wanted to get funded, why would I be more likely to fund it through deficits than taxes?
Arguably, the costs of deficits are far more concentrated and the bearers of those costs are far more politically connected than the costs of taxation. Carville wanted to come back as the bond market, not the tax-paying public, after all.
I'm not saying public choice will always work against deficits. It won't always.
But too much public choice - even when it's not as crude as the crude public choice story I described - is a just-so-story to get an answer that someone is looking for. In reality whether public choice theory suggests we lean towards or away from deficits probably boils down to whether Carville's bond markets or lobbies like Norquist's have the upper hand at any given point in time.
I would think more of public choice theory in explaining the deficit if the budget were composed of lots of different pet projects and if the bond market were timid and sheepish (out of the liquidity trap, of course! - not much going on now!).
This is not what the situation looks like, so I don't think much of most public choice explanations, even the more sophisticated ones.
Daniel this doesn't prove anything. Of course people will say, "I want the government to cut the deficit." They will also say, "I don't want the government to mess with my Social Security checks" and "I don't want the government to raise my taxes."
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