Too Much Democracy? (Part Deux)

In an earlier post, I wrote:

No, I believe that California’s problem lies with those enlightened technocrats who, because they obviously know what is best for the people, push through their own agenda regardless of the ability to pay.

I want to elaborate on this statement, and show why, if true, this is particularly damning for Kurt Andersen.

Start with the assumption that people are self-maximizing in the short run, and narrowly altruistic in the long run. In this sort of equilibrium, people value not only policy that pays off in the short-run, but also separates the current period from marginal cost. In normal speak, people like getting their desert now, and not eating spinach. In this type of equilibrium arises two problems that are irreconcilable. The first is people’s preference for keeping their money, and the second is people’s preference for getting things at low (no) marginal cost. Enter the political process.

The marginal cost of voting is very low. That is why so many people do it! So the median voter has two opposing preferences, and little incentive to weigh them. Incidentally, voting about ones wallet, and one’s gifts rarely happens at the same time. Thus you not only have an irreconcilable problem — you have an intertemporal inconsistency problem in voter bias. In 2010 people vote that they want to keep their money, and then without weighting their previous preference, in 2012 people vote that they want “free” health care for everyone.

And did I mention that people really like “free” things? Even if there is little marginal benefit, or even if it harms them! Take Denny’s recent free Grand Slam! offer. The Grand Slam! is not a particularly healthy meal, and driving out of your way to get one is not a particularly productive use of time — and adding up these opportunity costs, it’s likely that getting the Grand Slam! was far from free…but boy were there lines!

Photo courtesy of the Wall Street Journal

This is why I don’t take seriously the argument that since universal health care proves untouchable after it’s implemented, it is proof positive that UHC is a success. By that criteria, giving people anything that doesn’t hurt them is a success (I like to use gummy bears). In Oregon, you can’t pump your own gas…and that policy is literally unrepealable (on the grounds that it creates jobs, but of course, that’s a perversion of economics). That doesn’t make it a successful policy.

Back to the policy issue. We have already seen that referendum does not lead to a breakdown of democracy. The voters of California unanimously voted in 1978 that they like fat wallets. Obviously, the expectations of this were lower revenues, and more renovation projects instead of new construction. In the face of this obvious expectation, the elite policymakers in California decided that, knowing what is good for people, they would build a large, expensive state apparatus to provide all sorts of various things that sounded great to the median voter…despite state incomes coming primarily form property and sales taxes. Of course the elites knew that Proposition 13 cannot be repealed…but they also “knew” that what they were doing was “right”, so they forged ahead anyway. Now, we see they drove right into another train…but that wasn’t an issue of “populism” from the 70’s (or turn-of-the-century, as it were) coming back to haunt them…

…that was solely a failure of the elites.


3 thoughts on “Too Much Democracy? (Part Deux)

  1. “This is why I don’t take seriously the argument that since universal health care proves untouchable after it’s implemented, it is proof positive that UHC is a success.”

    I think you took my tweet too seriously. LOL

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