Monday, February 28, 2005

Thought Experiment

In deciding whether we can trust our leaders.

There are two great theories of government overspending (which is a chronic problem, not cyclical), political science wise. A: Anyone given power wants to use it, and if they aren’t constrained by income, then will spend as much as they like. B: It’s a tragedy of the commons problem, where each representative wants to add money for their constituency, and doesn’t care about the avg cost of that to everyone else.

I think most political scientists believe that B is the answer. Particularly looking at the infamous story of the Hawley Smoot Tariff was my first game theory professor’s favorite analysis.

Does the empirical history support either hypothesis? If A is true, we might expect low spending under divided government, and high spending under unified government. Under divided government, the excesses of one party are checked, and the common consensus that is most easily reached is “fiscal sanity”, while when government is unified it will give as much to its supporters as possible while it can. It would follow that if we value fiscal sanity and other forms of pragmatism, we must force our rulers to compromise and be checked at every turn. We could say that people are bad, and systems are good.

If B is true, then we’d expect high spending under divided government. [In truth our government is always divided in some way, but there’s a qualitative difference between just many representatives, and two parties.] In order to reach agreement on any bill, each side will just have to give the other money in their important constituencies. While a unified government would have a decision maker that internalized all the costs of increased spending, and thus would keep unified government (one of the generally proposed solutions to tragedy of the commons problems). This would be a people are good, and systems are bad approach.

So which do you think happens more often? In the immediate past, Republican unified government has had deficits, and the previous divided government has had surpluses. Most economists feel that even accounting for the economic cycle (which the current administration is often quick to point out is perfectly fine thank you no recession here), these are big differences. But looking farther back, we see Reagan divided government was pretty deficit based too. It’s hard to get data from this, but I think it’s some template for historical analysis.

Also, I think there might be some good theories that “unified” government is more divided than divided government, because (in our loose political party system), a unified government has 300 agents competing for power, while a divided government has only 2. Such a theory would espouse that our current president does not have total control over his party, which is a very {controversial, subtle, hard to research, interrelated} point.

PS: Of course, this ignores theories C and D, that “Conservatives are better spenders” and “Democrats are better spenders” which many in the political community hold. Let’s assume not.


At 6:50 PM, Anonymous Anonymous said...

Can you clarify more for me the ideas of 'unified' versus 'divided' government?


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