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Why politicians are addicted to spending

The government’s ability to spend money on virtually anything it wants and the ability to create money to fund such spending has broad negative implications. It means that the size of the State will grow without limit. Why is it that the government is so keen to spend money? Ostensibly to promote a higher growth rate, which they interpret is in the public interest. But too much spending with borrowed money is not in the public interest for it creates inflation and inflation erodes the real incomes of the poorer segments of the population and ultimately impoverishes them.

State spending gives power over resources to the politician but the greater such spending is, the more distorted the allocation of resources which is more optimal where markets operate. State spending also benefits special interest groups- those who are close to the powers that be. Should the private business sector be saddled with higher tax burdens because of over-spending by the government? That is a matter the Taxation Commission must consider.

If your income falls by 10%, you should curtail expenditure by 10%. But because its tax revenue has fallen owing to the global recession, the government instead of cutting on expenditure wants to increase its tax revenue. But higher corporate taxes will worsen the plight of the private sector already suffering from the global economic recession. If the government increases the VAT rates it penalizes the poor consumer. VAT has the advantage that it is hidden in the price of products and therefore easy to increase without the public realizing it. When prices rise as a consequence, blame the high oil or food import prices. Economists don’t love VAT per se, but they do view it as being less destructive than income tax. But less destructive is still destructive.

The political spending process

Political scientists used to take for granted that politicians, when they get into power, act in the interests of the public. Even Adam Smith took for granted the "common interest." But in the last few decades economists began to apply the economic behavior model to the decision-making process of the politicians and bureaucrats. What did they find? That groups and categories like "the people" or "the community" are not the relevant units for study of public choices. They are not the relevant decision-making units in the public sector. Groups do not make choices; only individuals do. These choices are made by politicians and bureaucrats in the name of the people.

Is there a difference in the ways that individuals make decisions in their private choices and in the ways they choose when they act on behalf of the community or the people? The wishful thinking of earlier political scientists was that participants in the political sphere aspire to promote the common good. In the conventional "public interest" view, politicians and public officials are portrayed as benevolent individuals who faithfully carry out the "will of the people." In attending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial interests. This of course is a load of rubbish according to modern public choice theory.

What sort of model would then be useful to adopt when choices are made by self interested individuals on behalf of the government? Economists look upon the behavior of individuals as driven by the goal of utility maximization - jargon for a personal sense of well-being. (They do not deny that people care about their families, friends and community). But public choice theory, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and that the motivations of people in the political process are no different from those of people in other markets, whether it be the used car market, the housing market , or the stock market. They are the same human beings, after all.

So voters support a candidate who can provide them some benefit- be it a job, a transfer if he is a public servant or some other personal benefit. Why do people feel surprised when the incumbent government wins election after election when they are not elections to change the government? It is perfectly rational behavior on the part of voters for they can’t expect benefits from the Opposition. Since the individual vote makes no difference to the result, many people in USA don’t vote at all. This is the most rational thing for them to do for they cannot get the type of individual favors and benefits that voters here get for voting for the ruling party nominee.

Of course in the US interest groups dominate and extort benefits from politicians and their parties that they support with cash at the elections through party contributions. The individual voter in developed countries does not get individual benefits and hence many don’t bother to vote. In our country however the voter has to depend on the State in many ways and since only the politician in power can distribute largesse to them, the voter, if he is rational, will vote for the government candidate.

Personally I think this war victory card is not what moved our voters. Given the unfair use of state vehicles and other state assets in electioneering, the voter who wishes to vote for the opposition stands to lose personally for he is bound to be penalized for voting against the ruling party. What is surprising is that UNP supporters go to the poll at all.

Given our one party exercise of power through a politically subservient instead of the politically neutral model of public service vital in a democracy, voters will vote for the ruling politicians to become personally better off. Similarly bureaucrats strive to advance their own careers by voting for the likely winner; and politicians do everything to seek election or re-election to office.

Public and private choice processes differ, not because the motivations of the actors are different but because of stark differences in the incentives and constraints that channel the pursuit of self-interest in the two settings. A prospective home buyer, for example, chooses among the available alternatives in the light of his personal economic circumstances and fully captures the benefits and bears the costs of his own choice. His purchase decision is voluntary and a bargain will be struck only if both buyer and seller benefit.

But consider a politician who proposes a project to develop a road. This involves the acquisition of the lands of some people who live by the roadside. Of course the value of their land will go up after the road is built. But people have a short term perspective and those whose lands are to be acquired may well oppose the project. As long as those who lose from the project are in a minority, the politician will push for the project. But is the project a national priority? Perhaps not. But the politician wouldn’t care, for the national interest is not his interest. Politicians will act in the national interest only when their personal and political interests coincide with the national interest, not otherwise.

They have strong incentives to support programs and policies that provide benefits to the voters in their electorates no matter how irresponsible those programs and policies may be from a national perspective. Remember the siting of the plywood factory in Avisawella instead of a site closer to the timber extraction source. The Americans call this "pork barrel" projects. But they will gain voter support for the MP. The MP has everything to gain and nothing to lose by bringing forward pork barrel projects. So it makes sense for politicians to do so instead of thinking of national priorities and national interests. It makes them feel powerful and important. It can also benefit them financially by obtaining money from contractors and other groups who benefit from them.

The politician incurs no cost to gain these benefits as he is spending public money. Special-interest lobbyists are also behaving rationally. They can gain government favors worth millions for relatively small contributions made to the minister or ruling party. They face a risk of losing out to their competitors if they don’t seek these favors. The taxpayer is also behaving rationally. In the process the politicians extract resources personally for themselves at the expense of voters. Poor voters are too dumb to notice.

The lessons of public choice

One key conclusion of public choice theory is that electing better people will not, by itself, lead to much better government. Adopting the assumption that all individuals, be they voters, politicians, or bureaucrats, are motivated more by self-interest than by public interest, public choice theory recognizes that men are not angels and are not governed by angels. They focus on checks & balances on the power of government to tax, to borrow and to spend.

We have the Fiscal Management ( Responsibility ) Act of 2003 but it is flagrantly violated. But what do we do when the powers that be decide to overlook such institutional checks? Parliament can’t act against such violations because voting is on party lines. Perhaps the Supreme Court may intervene through public interest litigation. But there is the judicial immunity of the President as a stumbling block. But we also need independent minded persons in high posts who will act according to their consciences. Instead we have sycophants and place seekers who regularly barter away their consciences whether they are in the Executive or Judicial branches.

To work capitalism and democracy requires a secure moral foundation in society which we do not have either in the political level or the official level. So the moral decay of State institutions mean that democracy is doomed. Capitalism may survive but only the bastard variety of crony capitalism. The young and educated have sensed it and are leaving the country in droves.

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