Wednesday, June 20, 2012

Why don't politicians support public institutions?

Catherine Rampell talks about the vicious cycle that occurs when budget cuts lead to understaffing and inefficiency, which leads to declined trust government institutions, which leads to further cuts. Writing  in response to Tyler Cowan's post on the loss of trust in government, she argues that trying to cut government jobs or government spending will erode public trust further, using the Post Office as a case in point:

Because it is still waiting for Congressional approval to make many of these changes, the Postal Service is cutting costs by reducing staff levels and hours at existing facilities. Reducing costs in the way that’s most politically expedient rather than most efficient and economically sensible means that service will most likely get worse, customers will lose confidence in the agency, market share will fall further and the agency will be forced to make more drastic and possibly inefficient cuts.
Rampell could have looked to the IRS for a similar and I think very troublesome example of this problem.  It seems so perverse to me that politicians can decry and claim to crack down on tax evasion,  while using the next breath to argue that IRS funding should be cut in the name of efficiency in governance.  Tax compliance is a big project and it requires expertise and resources.  Cut those and I think you should expect compliance to fall accordingly.  Less compliance leads to less revenues being collected leads to even more pressure on the budget.   That's a very vicious cycle and moreover it is the fundamental source of all the budget pressure for all the other institutions of government.  But why do politicians let this happen?  Isn't it in their interest to have strong institutions creating virtuous cycles?

From Cowan's post:
 State and local governments are controlled by politicians and, indirectly, by voters. And for better or worse, those voters have lost faith in the social returns of these jobs and our ability to afford them. The voters have responded by looking to cut expenses, and they’ve chosen state and local government employment as a target.
From this we may well extrapolate to the conclusion that politicians undermine government because even though stronger government would be better for politicians as a whole, each individual politician's re-election hinges on satisfying a public that has lost trust in government.

Cowan says all would be well if we could just wait for prices to rise again:
The slow cure for this problem is to allow asset prices, along with perceived wealth and trust, to return to or exceed the previous levels over time. Americans would then spend and invest more money, bolstering both aggregate demand and supply, and in both the private and public sectors. But the process would be cumbersome, partly because trust is more easily destroyed than restored.  
This sounds sort of ridiculous to me as a strategy.  Probably because I am not an economist but I do read children's books and I have heard this story before.

Cowan goes on to talk about the various fixes available to governments, but concludes that basic trust in government needs to be restored before any big policies can be implemented.  I think it's certainly true that lack of trust in government is spurring NGO interest in transparency in tax matters, c.f. the EITI and CBCR movements, UK Uncut's suit against HMRC, Oxfam's suit against the SEC, etc.  I don't see rising prices doing much for the core concerns there.

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