Why Do Governments Do What They Do? Economic Policy As Political Choice

Governments, all too often, intervene in economies, regulating, incentivizing, subsidizing, and generally gumming up the works, making marketplaces less nimble, and slowing creative processes. Why?

Some imagine the government as the neutral umpire, the objective referee who keeps the playing field level and fair. Others imagine government as the benevolent patriarch, reaching in with parental wisdom to adjust market forces. But neither of these images prevails.

Instead, governments routinely get in the way of wealth creation, and inhibit the very opportunities which they often claim to foster. James Buchanan, recipient of the Nobel Prize, sought to explain this quirky characteristic of governments, as journalist Dylan Matthews writes:

Buchanan is most famous for breathing new life into political economy, the subfield of economics and political science that studies political institutions, and in particular how they affect the economy. In particular, Buchanan is strongly associated with public choice theory, an approach which assumes that individual actors in political contexts are out for themselves, and then uses game theory to model their choices, with the hope of gaining insight into the incentives faced by political actors.

Policymakers have various motives, and the average of these motives - much like the net effect of several vectors in physics and engineering - determine their policy choices. Legislators are not thinking in the abstractions of equations and graphs which constitute academic economics.

Governmental regulators are flesh-and-blood human beings who are concerned about public perceptions, about private success, and whose preconceptions and ideologies shape their decisions with as much efficacy as empirical data.

Before Buchanan, economics was primarily about how individuals make choices in the private sphere. He was among the first to argue that it could explain their choices in the public sphere as well. Traditionally, economists have treated the government as a dictatorial “social planner” which is capable of impartially correcting failures in private markets. Buchanan's contribution was pointing out that that social planner also responded to incentives, and that they sometimes pushed him to make markets worse off than he found them.

Legislators, even those with the best of motives, nudge policies in suboptimal directions merely by being one of many vectors which will be averaged out: a perfect policy, when averaged with many other policies, does not steer policy toward perfection.

The legislators who have less than the best motives will clearly see opportunities for gain as they shape policy. This need not be flagrantly illegal or immoral, but merely an opportunity to benefit his constituency, which is, after all, the reason he was elected. But what benefits his constituents in the short term might harm others areas of the country in the long run, and therefore ultimately be suboptimal for everyone.

Government intervention will never be the crystalline abstraction which some academic economists hope it to be. At its best, it will be an approximation, an averaging of policies, in which even very good policies, when averaged, might produce less than very good results.

The safest conclusion, itself also not quite perfect, is to minimize regulation. Given that governmental intervention is never perfect, it would be wise to have as little of it as possible.

The Story Behind the Story: Flint Was Not the First Water Crisis

The problems with government-provided drinking water pipelines in Flint, Michigan began in 2014, and by 2015 had obtained a high level of attention in news media. Since then, the problems have been resolved, and the water supply for citizens of Flint is once again safe to drink.

This story has been well documented in various media - and from various political viewpoints. The basic narrative is clear.

What is less well known is that this is not the first such water crisis.

A decade earlier, a similar series of events unfolded in the comfortable upper-middle-class neighborhoods of Washington, D.C.

The story broke in 2002 in little-known, alternative media outlets like the Washington City Paper. Surprisingly, there was little response from the government or from the mainstream media.

The neighborhoods affected by lead in their drinking water were economically middle- or upper-class, and racially mostly white.

The problem was largely ignored for over two years. Citizens were drinking lead-tainted water on a large scale.

In 2004, the Washington Post began to follow the story. Gradually, the size and scope of the problem became clear to the mainstream media. Eventually, action was taken, and the problem was corrected.

Comparing Washington to Flint, several contrasts emerge.

Flint’s problem was publicized and corrected quickly - within a year. Washington’s problem was ignored for over two years, and only after two years were steps taken to correct the problem.

Why the difference?

Flint had two variables which worked in its favor:

First, Flint has a manufacturing sector; Washington doesn’t. While Flint’s factories have declined in number and activity over the decades, there are still functioning manufacturing facilities in the city. The very first warning about water quality problems came from a General Motors plant. GM was concerned that high levels of lead in the water could damage machinery. If GM hadn’t raised the alarm, the problem could have continued for much longer.

Second, Flint has a significant African-American population; the affected neighborhoods in Washington, D.C. were mainly white. The residents of Flint were used to alerting political activists about their concerns, and the activists, in turn, were in the habit of worrying about Flint. Activists were more likely to engage about a public health issue in Flint than in a comfortable neighborhood in Washington.

So it was that Flint’s water-quality problems gained attention quickly and were corrected quickly, while the citizens of Washington were exposed to high levels of lead for a longer time. The public health problems in Washington are correspondingly greater, as data show.