Matthew Yglesias on the Underlying Problem with Tax-Financed Services

by Reihan Salam

Matt Yglesias writes:

I understand and, indeed, agree with the argument that public sector labor unions often use their political clout to advance the interests of service providers relative to the interests of service beneficiaries. This is often a source of bad public policy. What I don’t understand at all is the view that if we eliminated the unions the problem would go away. Consider, for example, the fact that alongside anti-union proposals Scott Walker’s budget would allow him to sell off state assets via no-bid contracts.

I agree that the problem in question wouldn’t go away. This is a theme that Matt has touched on a number of times recently, and it deserves to be echoed. The phenomenon he is describing is one of the many reasons the Wisconsin conversation has been so frustrating. When some of us mentioned that Virginia doesn’t have CBR for state employees, we were trying — at least I was trying — to offer a reminder that the sky hasn’t fallen in Virginia. Virginia still has all kinds of problems that stem from flabby, opaque public sectors, and from voters who want expensive services but are reluctant to pay for them.

Matt continues:

People claiming to be shocked to discover special interest politicking in the administration of the public school system might be interested to learn that military procurement decisions aren’t immune to political influence. Or that the orthodox conservative opinion has become that for-profit colleges are entitled to federal subsidies irrespective of the quality of services provided.

I often find myself frustrated by notional statements of what the orthodox conservative or the orthodox liberal position is on issue X. The truth is that most conservatives have never heard of the gainful employment regulation. But I take Matt’s general point. The regulation in question is a series of “gainful employment amendments,” as Ben Penn reports at Youth Today:

The controversy involves the department’s plan to establish minimum requirements schools would have to meet in order for their students to be eligible for federal student loans. These minimum requirements are in debt-to-income ratios – the amount of student debt at graduation compared to the amount they earn after graduation – and students’ loan repayment rates.

I’d be perfectly happy with these rules if they applied to not-for-profit schools, including public colleges and universities, as well. Perhaps that is not the orthodox conservative opinion, but I’m quite happy with it, and I hope that public institutions would be happy to subject themselves to tougher standards or risk forfeiting federal funds. 

Similarly, the orthodox conservative opinion was that federally subsidized student loans should be required to pass through the hands of bankers who take a cut along the way.

I actually used to think that the issue was this straightforward. Here’s an argument — perhaps a laughable one: a private sector middleman makes it harder for the a pressure group, say loan recipients, to simply call for loan forgiveness in the future. Some will no doubt see this as a feature, not a bug, but it’s worth noting. Also, private sector middlemen might introduce innovation into the payment system, like the late, lamented MyRichUncle. These benefits might not actually make it worthwhile to have a private sector middleman, but the issue is not a no-brainer.

Whatever cynical and pernicious things teachers’ union leaders can do can also be done by charter school leaders, and for the exact same reasons. Indeed, thanks to Citizens’ United, government contractors will be able to engage in unlimited anonymous campaign spending.

Any government empowered to collect taxes and spend money will be subject to possible interest group capture. Capture by the workforce of a public agency is no better or worse than capture by a private firm. If you look around the world at the best examples of efficient provision of public services (oftentimes through privatization) what you find is a list dominated by Nordic countries with extremely high levels of unionization.

You also find Singapore, Rwanda, Qatar, and a number of other countries that don’t match that description on the list of top performers in terms of wastefulness of public spending. The Nordics are quirky and distinctive in many ways that go well beyond high levels of unionization

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.