Pigs Still Don't Fly

by Russ Roberts on December 6, 2007

in Politics

In this recent essay, I discuss how politicians are driven by incentives rather than ideology or party:

We should be realistic about politicians. George Stigler used to
contrast his theory of politics with Ralph Nader’s. In Nader’s view,
all of the ugly aspects of government were caused by the wrong people
getting elected. If we could just elect better people, then we’d get
better policies. Stigler argued that it didn’t matter who the people
were—once they got in office, they responded to incentives. They would
convince themselves that they were doing the right thing, either
because they really thought so or because doing the wrong thing was
necessary in order to be able to do the right thing down the line.

Being a Stiglerian in this area, I expect less of my politicians and
I am rarely disappointed. Even those politicians we think of as
principled, pursue the calculus of the bootleggers and Baptists. Ronald
Reagan, an eloquent defender of free trade, imposed "voluntary" quotas
on Japanese cars. That is the way the world works.

In the economist’s view of politics, ideology and party matter less
than the incentives facing politicians. Political parties in a
democracy differ more by the words they use to justify their actions
rather than by the actions themselves. Republicans talk about economic
freedom and the dangers of big government while making government
bigger. Democrats talk about their devotion to labor unions and the
dangers of free trade but they rarely push for tariffs and quotas.

Today’s Washington Post brings a nice example:

President Bush will announce this afternoon an agreement with major
mortgage firms to freeze interest rates for five years for financially
troubled homeowners — a plan advocates say will help forestall a major
foreclosure crisis but some conservatives say amounts to a bailout of
people who made bad financial decisions.

Bush, the so-called conservative who supposedly believes in the "ownership" society where people take responsibility for their own actions and act responsibly because they bear the costs and reap the benefits, is going to bail out people who acted irresponsibly. I love the end of the WaPo quote—"some conservatives say." The implication is that other conservatives and liberals disagree. But isn’t it a bail out of people who made bad financial decisions? Would anyone disagree?

I like this part, too:

But it appears no tax dollars will be used to subsidize the freeze on
interest rates. That cost would be borne primarily by lenders and
investors, and by homeowners who may have to pay a fee to modify their
loans. The details will be released today.

Quiz: Will the costs really be born by lenders and investors? Will homeowners really only pay that additional fee? Bush likes to call his brand of conservatism, compassionate conservatism. Do you agree that this is compassionate? In your answer, ignore the damage to the rule of law that comes from government pressuring a private industry to invalidate the contracts that they signed with their customers.


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