The Kronies, the animated characters who populate Washington’s corrupt corridors of power, are back in a new video. This time it exposes the unhealthy marriage between lawmakers seeking campaign contributions and business support and companies that benefits from the Ex-Im Bank.
What I think is great about this video is that, instead of demonizing lawmakers, it shows the perverse incentives that drive decision-making in Washington.
Putting an end to the massive cronyism that goes on through Ex-Im should be a no-brainer for anyone who believes in markets and opposes subsidies, big or small. It should also be easy since most of the bank’s activities support large and successful companies that aren’t waiting for the handout to do these kinds of deals.
But the reality is that it is hard, because as much as we would like to believe that government agents act in the public interest, the reality is quite different. That was the tremendous contribution of Nobel Prize laureate and founding father of the public-choice school of economics, James Buchanan (for a great overview read “Politics Without Romance”), and other economists who have contributed insights on this issue over the years (Gordon Tullock, William Niskanen, Richard Wagner, William Shughart, Robert Congleton, and so many others).
Writing at the time of Buchanan’s death last year, my colleague Eileen Norcross summarized the importance of public-choice economics:
While it may seem naive in 2013 — a credit to the field Dr. Buchanan developed and advanced — a reigning assumption among academics in the early 1960s was that government agents always acted solely in the public interest. Buchanan’s work launched an entire field of study focused on the incentives individuals face within bureaucracies and the effect these have on economic, political, and policy outcomes.
An important shift occurs in the public choice framework. As economist William Shughart II points out, the unit of analysis in public choice is the individual, not the collective. In other words, governments don’t act. Bureaucrats, voters, politicians, judges, lobbyists and staffers do. Shughart goes on to note that the problem for the economist is to figure out how the individual preferences of bureaucrats are expressed in the collective decision-making process. Figuring that out means means analyzing the “institutions of democratic governance,” or the rules and systems, under which “public choosers, choose”. The study of those decision frameworks, (e.g. constitutions, laws, democratic processes, parliamentary procedures) is itself a field of inquiry known as constitutional political economy.
Some of the major insights of public choice theory developed over the past fifty years include the “median-voter theorem,” William Niskanens’s ”budget-maximizing bureaucrat,” and Buchanan and Richard E. Wagner’s development of “the fiscal illusion,” a very relevant subject in today’s debt and taxation debates. Fiscal illusion is when a citizen prefers higher levels of public spending where that individual’s tax burden is obscured through complex taxation or debt finance.
But things are changing, I think. A growing number of people are aware that Big Business often teams up with Big Government, and that it’s causing big problems. People know this and they’re sick of it — the outrage about cronyism is definitely bipartisan.
It’s an issue that has been more aggressively embraced by free-market activities in Congress and around the country, and I actually think we’re about to see a backlash against “pro-business” Republicans (George Will rightfully argues that Eric Cantor’s demise can be traced back to people being fed-up with pro-business Republicans). If this trend continues, we may end up seeing a real shift in policies.
The first big test? In September, when the Ex-Im Bank reauthorization issue comes up. It will be interesting to watch.
For all my charts and commentaries about Ex-Im, go here.