Tuesday, January 10, 2006

Political Corruption and Knowledge

Why do politicians allow themselves to take money from people like Jack Abramoff? Is it the Republican culture of corruption? Is it what Lord Acton said about power corrupting? Are humans just weak and sinful by nature?

The federal government spends something like $2.7 trillion a year. This presents politicians with a problem: how do they make rational decisions about how to spend that money? How do they allocate resources?

In capitalism the system of prices gives everyone precise information on how to allocate resources. If the demand for roofing nails goes up .1% and the demand for screws goes down .2%, producers know to make more roofing nails. Hardware store owners know how much of each product to stock depending on supply and demand. With double-entry bookkeeping, they can make calculations down to pennies.

In socialism chaos reigns because they do not have a system of prices to provide information. Should Comrade Boobikoff order factories to produce more roofing nails or screws? The hardware stores always have empty shelves because everything is free -- demand always exceeds supply. Comrade Boobikoof shrugs. Whether he makes more roofing nails or screws, no one will notice anyway.

A mixed economy is, as the name indicates, a mixture of capitalism and socialism. The $2.7 trillion that politicians control is the socialist part. They cannot use the pricing system to make decisions because their function is not to make a profit. On what knowledge do they base their decisions?

That is where Jack Abramoff and his lobbyist colleagues come in. They provide politicians with an ersatz method of calculation. Should group x get $1.1 billion or $1.2 billion? Abramoff says, “If you give $1.2 billion, then group x will donate $15,000 to your next campaign.” The politician’s political self-interest replaces the pursuit of profit by 300 million Americans in the free market as the standard of measurement.

The inevitable corruption of politicians in a mixed economy comes about not because man is innately depraved, but because he is not omniscient. Politicians need knowledge on which to base their calculations of how to allocate resources. They find themselves besieged by countless pressure groups hoping for a piece of the action. How do they decide who gets what?

Imagine you’re a Senator who is promised $50,000 for his next campaign by Lobbyist A. At the same time, Lobbyist B ignores the Senator. Which cause gets a spending increase in the next budget? If the Senator ignore Lobbyist A’s cause, he risks losing that $50,000 he desperately needs to win his next election.

Campaign finance regulations do not end the corruption. As long as politicians have resources to allocate, people will find ways around the laws to get at that wealth. Even if all the money were taken out of political campaigns, some form of influence such as media time would replace it.

The only way to end corruption in Washington, D.C. is to get rid of the socialist part of our mixed economy. When the politicians have no money to give interest groups, then people like Jack Abramoff will have to find honest work.

UPDATE: I have been informed that the model for this argument was created by Gary Becker. I'm happy to give him credit for a brilliant insight. Anything I get wrong in this post is entirely my fault.

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