The Optimal Allocation of Resources

There’s a little bickering going on among the associate bloggers at Outside the Beltway on the subject of earmarks, the appropriations that used to be referred to as “pork-barrel legislation”. First, Doug Mataconis scoffed that cutting earmarks was mere symbolism:

I’d call the earmark debate entirely symbolic, and quite possibly a diversion from forcing politicians to think about real spending cuts. According to one statistic, earmarks account for about an infinitesimally small part of the actual federal spending.

noting that Congressional pay is a microscopic proportion of the total budget. Then Dodd Harris retorted that cutting earmarks was more than mere symbolism:

We wouldn’t — and shouldn’t — wave off a few hundred million in spending for an unconstitutional program that harmed free speech as unimportant merely because it didn’t cost much in the grand scheme of things. The same logic applies to earmarking.

This morning James Joyner put in his oar:

…unless eliminating earmarks coincides with a radical reconception of how our government operates, it may be a step in the wrong direction. The feds spend billions on highways, airports, and other infrastructure projects. Without earmarks, we’d basically have federal bureaucrats deciding how to spend that money. That may in fact be less wasteful and more efficient. But I don’t see how this doesn’t constitute a major redistribution of discretionary power away from Congress — who’s supposed to decide how Federal funds are allocated — to unelected people not mentioned in the Constitution.

Rather than address the meat of this argument in this post I want to address a minor squabble that’s occuring in the comments to James’s post on the role and value of bureaucracy.

Resources are not infinite but scarce. There are any number of strategies that in theory result in an optimal allocation of resources including autocracy, representative government, techocracy, and markets. And I agree: benign all-knowing philospher-kings, humble, eager representatives of the people without ambitions or foibles of their own, brilliant polymath selfless techocrats, and perfectly efficient free markets would all be nifty. Unfortunately, none of them exist in life. Comparing our current Congress with an ideal bureaucracy isn’t just comparing apples and oranges. It’s comparing the bruised, worm-eaten apple on the shelf to a perfectly Photoshopped picture of an orange.

In practice there are any number of reasons to believe that representative government has advantages over autocracy or technocracy. It has been known for well over a half century that for many real world problems there is no one right way. Believing that there is one right way is merely an artifact of limited knowledge: it ignores competing information and unpredictable, capricious, and idiosyncratic personal utility curves.

Representative government, in theory at least, has the ability incorporate more information and to arrive at agreements that take these maddening variances into account. Markets, again in theory at least, have the ability to incorporate even more information and, hypothetically, arrive at an optimal allocation of resources.

However, we live, work, and function in the real world and in that world there are some activities in which bureaucracies are the only practical way of addressing them, some activities in which representative government should be preferred, and yet others in which markets should reign supreme.

The original form of our government in which the federal government was limited to its enumerated powers has, sadly but probably inevitably and permanently, been abandoned. In looking back at it we should recognize that the original form, particularly when incorporated with a commitment to the principle of subsidiarity, had much to recommend it.

To use the bridge-building metaphor, in that old, obsolete original form when Springfield (to pull a city name out of a hat) wanted to build a bridge the city fathers didn’t appeal to state or federal representatives or file a request with the state or federal Departments of Transport, they raised the money and built it. If they didn’t want the bridge enough to finance or build it, the bridge didn’t get built.

In these more enlightened times elected representatives appropriate money to build bridges for Springfield and, if the decisions were relegated totally to the federal Department of Transportation, the experts would decide whether Springfield should have a bridge, the desires, knowledge, and will of the people of Springfield be damned.

33 comments… add one
  • sam Link

    “in that old, obsolete original form when Springfield (to pull a city name out of a hat) wanted to build a bridge the city fathers didn’t appeal to state or federal representatives or file a request with the state or federal Departments of Transport, they raised the money and built it.”

    But even in those times, we had the fight over the Eire Canal. Jefferson was asked for funds, he refused (he thought the idea of the canal was crazy). Later, Congress passed a bill appropriating funds for the canal, Madison vetoed. IIRC, federal funding was finally secured, but in the main, New York State funded the project. The impulse is pretty old in our Republic to use federal funds for local projects.

  • steve Link

    Was the Louisiana Purchase a good idea?

    Steve

  • sam Link

    That’s an interesting case. Jefferson thought it was probably unconstitutional, but he went ahead anyway, citing national security concerns…

  • PD Shaw Link

    sam, you’re right, but I’m pretty sure NY State paid for all of the canal. One consequence though was unequal development in the country that probably precipitated the Civil War in part.

    * * *

    The Jacksonian position was that federal funds could be used for general, not local, infrastructure. (Maysville Road Veto Message) So the federal government could help improve rivers to transport cotton to the coast, but not build a road segment intended to be part of a national highway system.

    The Whig position (and mine) is that if Congress decides the Maysville Road is good for interstate commerce, that’s all that is necessary. The idea that the Presidents are in some superior position to know what is general and what is local is hooey.

    The current practice though is that Congress does not decide generally, but through earmarks, often hidden and unknown and premised on sharing the loot, not forming a national infrastructure.

  • As long as the Federal titty is full of milk, Congress will suck it dry. I don’t think diminishing earmarks is possible without a Constitutional amendment or significant change in the role and scope of the federal government, neither of which is likely. The best we can hope for is to check excess through transparency, exposure and embarrassment.

  • Congress should, I think, be operating in the best interests of the nation, rather than in the best interests of districts. With earmarks the process very much looks like it’s a zero-sum competition, where Congressmen feel that they have to get more pork for their district than other Congressmen bring to theirs or they fear that their constituents will think that they’re failing in their job. Is it in the nation’s best interests to have a process at work in which there is a reputational contest designed to outspend the other guy?

    If the mission of Congress being the agency which decides on allocation decisions is to be maintained, then why not simply allocate to each district a uniform sum of money and allow the Congressman to allocate for the needs of his district? This stops the deal-making and the reputational game of bringing the most pork back to the district.

  • Was the Louisiana Purchase a good idea?

    I have no idea and no way to make a determination. Would the world have been a better place if I had not been born? If you had not been born? I have no way of knowing.

    I’m not Panglossian enough to believe that I live in the best of all possible worlds. Would the history of the U. S. been different at all? Other than details, I mean. Would the idea of Manifest Destiny have ever taken hold or was it inevitable? Would the Napoleonic Wars have ever gotten under way without the financing that the sale provided?

    Perhaps the most significant difference is that Jefferson wouldn’t have been charged with hypocrisy for exceeding his authority. Some other president would have.

    An interesting question but I don’t see the relevance to my post. I don’t believe I asserted that we should have or could have remained a nation of limited government with enumerated powers and sovereign states. Only that such a system has its advantages. So does authoritarianism: you can make the trains run on time.

  • Congress should, I think, be operating in the best interests of the nation, rather than in the best interests of districts.

    What mechanisms would produce such an outcome? I think the die was cast on that one after Jackson.

  • What mechanisms would produce such an outcome? I think the die was cast on that one after Jackson.

    Not to be trite, but things operate as they do until they don’t. If the question is how do you reorient Congress to focus on issues which enhance national welfare rather than the welfare of specific districts, one possible strategy is to remove from Congress the discretion to address district-level issues. Transfer the authority to address district issues directly to the elected Congressman and have him fund the issue directly from the uniform budget that every Congressman is given for that purpose. Now the allocation decisions are made within each district and competing projects within that district play off each other, rather than the current mode where competing projects across districts play off against each other with the successful project owing its success more to the political process and the stature of the Congressman than to the merits of the project.

  • john personna Link

    I was slow to wake up to the fact that this is a checks and balances, division of powers, issue.

    It’s odd that normal believers in checks and balances are, on this issue, interested in concentration power and reducing oversight.

    We see up top that the argument is “which is better, executive or legislative” when the whole purpose isn’t to invest all your trust in one.

    The legislative should allocate appropriate funds to a department, and then be in a position to call them on the carpet if those monies are mis-spent.

    Good Lord. The alternative is that a powerful senator decides to give the navy extra helicopters they don’t want, a bridge the DOT doesn’t want, and on and on.

    As long as the helicopter delivery and bridge opening make a good photo-op, he has what he wants. He has turned dollars into re-election.

  • john personna Link

    ransfer the authority to address district issues directly to the elected Congressman and have him fund the issue directly from the uniform budget that every Congressman is given for that purpose.

    Heh, and I’m sure incumbent congress critters won’t abuse that, at all.

  • PD Shaw Link

    A better outcome would come with greater transparency. My main problem with earmarks are those that are hidden, inserted with non-descriptive language or located in conference reports. In addition, we could require Congress to make findings of national importance (much as it is when it invokes the Commerce Clause). If Congress was required to go fully on record in identifying the thimble museum of national importance, I think there would be fewer of these things.

    Proposals have been thrown around to pass a line-item veto that could stand SCOTUS review, but it’s been a long time.

  • Heh, and I’m sure incumbent congress critters won’t abuse that, at all.

    I’m quite certain that they will, or at the very least will try to abuse their discretion. However, there are likely to be more effective checks and balances in a system where competing projects from within the same district marshall their power bases within the district to balance each other than there is in a system where projects are drawn from multiple districts and the allocation process has more to do with Congressional power relationships than with the projects themselves.

    The way I see it, whenever resources are given over to the control of government, there will be political competition for the control of part of those resources. If you want to reduce corruption and lobbying, then minimize the size of government, thereby giving government fewer resources to allocate. If you reduce the stakes, the effort required to partake of the stakes, or to control the stakes, won’t return sufficient reward.

    So there is no getting away from corruption and abuse, the question is how to design the system so that we can wring the greatest good from the process and also minimize the corruption and abuse to the lowest levels. Making the Congressman’s constituents and local power bases compete against each other is a pretty good self-correcting mechanism because of the Congressman, let’s say, favors the local road building industry to the detriment of the local construction industry or the local arts culture or the local environmental group, then the groups in disfavor band together to remove the Congressman and replace him with someone who isn’t in the pocket of the road building industry.

  • john personna Link

    I guess I’m more libertarian than some, because I don’t see a reason to give congressmen discretionary funds for their local interest groups, at all.

    The purpose of a federal DOT should be interstate commerce, and disaster preparedness, in that order. “Green” projects don’t fit in the first, but might figure into the second, given our “oil crisis” history.

  • It sounds to me as though what you’re suggesting would require an Article V convention, TangoMan.

  • It sounds to me as though what you’re suggesting would require an Article V convention,

    That’s outside my knowledge comfort zone. Is that what you think would be required? Couldn’t the same be accomplished by modifying the internal rules by which Congress governs itself?

  • Powerful as the Congress is it does not have the power to surrender its powers to another branch of government, bind future Congresses other than by the constitutional amendment process, or arrogate to itself the powers of the executive or judicial branches of government.

    Besides I think your measure would merely move the action from the earmark process to establishing the “uniform budget”. I presume you’re aware that the populations and composition of Congressional districts vary considerably, from about 500,000 to nearly a million? How is the “uniform budget” to be arrived at? Do military bases figure into it? The number of people over 65? The number of hospitals? You may be able to see from my questions something of what I mean by “move the action”.

    If a uniform budget is arrived at by the simple method of arriving at a total budget and dividing it by the number of districts, it would be impossible for some districts to stay within budget without a complete overhaul of government. Consider some Virginia and Maryland districts, for example. They’re hosts to large government agencies.

    If such a budget is arrived at by some other formula, the process corruption will be in determining the formula.

  • Tangoman,

    Couldn’t the same be accomplished by modifying the internal rules by which Congress governs itself?

    Theoretically, yes, but that would require electing people to Congress who have an interesting in such rule revisions, or sufficient pressure from the electorate (ie. fear of not getting reelected because of the issue). The reality, however, is that bringing home the federal bacon is what a lot of people want from their representatives. IOW, one person’s pork earmark is another person’s vital economic program.

    Ultimately such a change will have to come from the people and absent some crisis (which is likely coming at some point), there’s isn’t enough public support for earmark reform to gain traction.

  • Resources are not infinite but scarce.

    This should be obvious Dave, but you have commenters who don’t seem to realize this.

    There are any number of strategies that in theory result in an optimal allocation of resources including autocracy, representative government, techocracy, and markets. And I agree: benign all-knowing philospher-kings, humble, eager representatives of the people without ambitions or foibles of their own, brilliant polymath selfless techocrats, and perfectly efficient free markets would all be nifty. Unfortunately, none of them exist in life. Comparing our current Congress with an ideal bureaucracy isn’t just comparing apples and oranges. It’s comparing the bruised, worm-eaten apple on the shelf to a perfectly Photoshopped picture of an orange.

    True, but the thing with Technocracy, autocracy and democracy is that when you give people power they become…well…assholes. Hell some of us are assholes even without power (looks around aimlessly while whistling….who me?). Markets can grant power, but I’d argue it is not as easy and more ephemeral than with the others. In a market the transactions are voluntary. In all the others there is, at the very least, the implicit threat of force/violence. Even in democracy the losing side agrees to abide by the results or the winning side is justified in using force and violence to ensure the winning outcome. Another way to think of it is that markets have distributed power. Sure you might be the king of soft tacos, but there is little to prevent competition. So while markets may not be perfect I think you’d have a hard time finding examples of wholesale slaughter at the behest of markets. I know it is a popular trope in many fiction and science fiction novels, but some real life examples of markets and markets alone producing a war would be spiffy. And yes, examples where large corporations get a government to go to war aren’t what I’m looking for. After all, you have the government involved as well.

    Representative government, in theory at least, has the ability incorporate more information and to arrive at agreements that take these maddening variances into account. Markets, again in theory at least, have the ability to incorporate even more information and, hypothetically, arrive at an optimal allocation of resources.

    So do markets and to an even greater extent. Firms out there right now are making decisions that the government couldn’t make simply because the amount of information is enormous. This was Hayek’s critique of goverment/socialism/marxism. You are really talking theorticals here at this point and in that world the market wins hands down. Prices incorporate vast amounts of information on where resources should be flowing. Governments on the other hand ignore prices and have no such internal mechanism.

    However, we live, work, and function in the real world and in that world there are some activities in which bureaucracies are the only practical way of addressing them, some activities in which representative government should be preferred, and yet others in which markets should reign supreme.

    You are still dealing with theory as far as I can tell. When you show me a market where it is the supreme actor then we can discuss this view of the world.

    In these more enlightened times elected representatives appropriate money to build bridges for Springfield and, if the decisions were relegated totally to the federal Department of Transportation, the experts would decide whether Springfield should have a bridge, the desires, knowledge, and will of the people of Springfield be damned.

    Regulatory capture. You use that alot, but now I have to wonder (with apologies to Inigo Montoya)…”I don’t think those word means what you think they mean.”

  • PD Shaw Link

    Tangoman is describing some of what used to be the approach to federal highway spending:

    “absent earmarks, annual spending by the federal highway program is allocated to each state and territory using a complicated mathematical formula that takes into consideration population, miles of highway, fuel usage, and other quantitative factors in order to match surface transportation needs with available funds. Once the allocation is determined, it is each state’s prerogative to determine how and where this money will be spent in accordance with the federal guidelines as well as federal functional allocations for bridges, transit, repair and maintenance, and new construction.

    In theory, it is the state’s prerogative, in consultation with local officials, to determine the priorities for, say, bridge repairs. At the same time, the state’s transportation department generally reallocates the federal funds to each “transportation district” using quantitative formulas similar to those used at the federal level.

    Federal earmarks circumvent this decisionmaking process by overriding state and locally determined priorities and substituting a series of detailed “priorities” from Washington.”

    http://www.heritage.org/Research/Reports/1999/04/Congressional-Earmarks-and-Spending-Undermine-Decisionmaking

  • The point about prices signaling where resources ought to go is an important one. For example, when a disaster hits it isn’t uncommon to hear about a bottle of water costing some exorbitant amount of money like $15. What is the government response: to prosecute people charging that price and thereby lowering those prices back to their pre-crisis level.

    However, this is an example of how government messes up incentives and prolongs the pain associated with the disaster. Those high prices say to market participants:

    WE REALLY NEED BOTTLED WATER OVER HERE RIGHT F*CKING NOW!!!!111!!!ONE!!!!ELEVEN

    Forcing the price back down to pre-disaster levels says, “Don’t worry we’ve got plenty.”

    Now of course, many firms will realize that water is still needed there and since they aren’t run my monsters who revel in human misery they’ll often send water there and possibly at a discount. But the $15 creates huge profit incentives for even people other than Wal-Mart, Target and Cotsco. Filling up the back of a U-Haul and trucking on over to the disaster area and selling bottles for $14/bottle is viable. As is $13, $12, and probably even $5.

    With modern logistics and transportation those super high “price gouging” prices aren’t going to stay high for very long. And why not let them run in tandem with the government efforts? If the government can get some of the needed bottled water in there and there are people who can and would pay $15/bottle why not? Is is morally questionable? Sure. But how is it any morally superior to prevent that outcome and ensure that some people have to continue suffering?

  • Powerful as the Congress is it does not have the power to surrender its powers to another branch of government,

    Huh? Article I, Section 8, Clause 11 of the United States Constitution vests in the Congress the exclusive power to declare war. What I see is the tail (Executive Branch) wagging the dog (Congress.)

  • john personna Link

    I’m going to call this “related” (or at least as “related” as $15 water what-ifs):

    What’s more, there’s unfortunately a real tension here. The things you would do to outline a bold progressive approach to fixing the economy are very different from the things you would do to try to get the GOP votes you need to pass economy-fixing legislation. In particular, the reaction red state (or district) Democratic members of congress to those things would be very different. The fact of the matter is that the mistakes of 2009 in terms of the stimulus and the Fed can’t be easily undone.

    Tyler Cowen thought that paragraph by Matt Yglesias was worth highlighting, and I’m afraid it is.

    http://www.marginalrevolution.com/marginalrevolution/2010/11/words-of-wisdom.html

  • A few sentences earlier is also relevant:

    I think that where a lot of progressive political junkies go wrong is that they think “blame Republicans for failing to pass plan to fix the economy” is a close substitute for “fix the economy.” In reality, the evidence that fixing the economy would help Democrats politically is overwhelming, while the evidence that the plan/block/blame strategy would work is non-existent.

    If, in fact, the reality is that “fixing the economy would help Democrats politically”, how to explain progressives predisposition, asserted by MY, to blame Republicans as an alternative to offering plans of their own?

    Either he’s wrong, they disagree with him, they’re antithetical to the idea of fixing the economy on the face of it, they don’t care, they don’t know, they’re insane, or some other reason. Which is it?

    My intuition is that it’s the bureaucratic reflex: it’s better not to do anything other than to complain from the sidelines than to take a stand and, possibly, be held accountable for it. Just an intuition. No conviction or certain knowledge on my part. I’d be interested in others’ explanations.

  • What I see is the tail (Executive Branch) wagging the dog (Congress.)

    I’m not sure what the relevance of that is. If you’re pointing out inconsistency, sure. But see above, re: the bureaucratic reflex. Funding is different.

  • PD Shaw Link

    MY is fighting another war from another time. As I see it, the biggest split the last election was between those optimistic about what the government had done to restore the economy (Democrats) and those who are pessimistic (Indpendents and Republicans). Assuming gridlock, to which mutual blame can be cast, 2012 will be a referendum on those forward-looing beliefs.

    And unlike the recovery following ’82, which Krugman believes was a dead cat recovery, Krugman and his followers don’t seem so certain about what has been done.

  • My intuition is that it’s the bureaucratic reflex: it’s better not to do anything other than to complain from the sidelines than to take a stand and, possibly, be held accountable for it. Just an intuition. No conviction or certain knowledge on my part. I’d be interested in others’ explanations.

    My intuition is that a.) they don’t know how to achieve the goal by using ideologically correct tactics and b.) they’re more comfortable in taking their licks for doing nothing than ceding any ideological ground to conservatives by using any of their policy prescriptions. Of course there is the real possibility that they don’t want to face the political and self-reflection consequences of initiating action which fails to work as predicted.

  • Dave,

    My intuition is that it’s the bureaucratic reflex

    I agree but I’d put it a bit differently: I tend to think that progressives, like everyone else, operate inside ideological boundaries. They are perfectly willing to support and take credit for solutions but only if those solutions are inside those boundaries. The problem comes when the boundaries of different groups are so narrow that there isn’t any overlap. They become like little ideological islands. For example, the boundaries between Progressives and the Tea Party are so distant that many genuinely don’t understand each other. I know I’ve talked to a lot of Progressives and liberals who just plain don’t get the Tea Party at all and what could possibly motivate them – and these are the honest ones who want to understand.

    So it’s not that Progressives or whomever don’t have ideas or would rather sit on the sidelines and criticize, it’s that they don’t have the votes to get their ideas passed, they blame the “other” for the lack of votes, and compromise is heresy because compromise is outside the ideological boundaries.

    Tangoman,

    The Constitution splits military authority between the legislative and executive – they each get a piece of the pie.

  • john personna Link

    My intuition is that a.) they don’t know how to achieve the goal by using ideologically correct tactics and b.) they’re more comfortable in taking their licks for doing nothing than ceding any ideological ground to conservatives by using any of their policy prescriptions. Of course there is the real possibility that they don’t want to face the political and self-reflection consequences of initiating action which fails to work as predicted.

    The asymmetry here is that while the Democrats have short term plans to fix the economy (with which we may disagree), the Republicans have only long-term restructuring in mind.

    Long-term restructuring will not produce short term jobs, and yet the must “campaign” it as if it does.

    We saw that very much here in California, as the Dems answered jobs questions with programs, and the Republicans answered jobs questions with tax cuts.

    Well, maybe making permanent the Bush tax cuts is taking that off the table, and setting up for the 2012 question “so, how did that work for you?”

  • john personna Link

    The timing may be favorable to Republicans, if we are leaving the 2nd dip (or soft spot) now, and moving into a natural recovery.

    The Consumer Metrics Institute has called their bottom, Nov. 9th.

  • John,

    There’s also another point more libertarian-minded Republicans would make – that government intervention cannot fix the economy or create jobs in the short term regardless. Sure, the government can hire people directly, but I don’t think it’s unreasonable to suggest that government perhaps doesn’t have much ability to generate private sector job growth in the short term.

  • john personna Link

    (chuckle)

    I get that the point might be made, but I didn’t see it in the 2010 election cycle. Did you?

  • john personna Link

    Very good article here

    and the related “you fix the budget” web toy is fantastic.

Leave a Comment