Why Democracies Give Us Unwanted Policies: The Politicians
This is the third of a multipart series providing insight into government operations from a former staffer.
In my previous essay, I asserted that everyone can name at least one useless government program and discussed two voter-centric reasons why we get wasteful programs. In this essay, I will discuss two reasons that are politician focused: the political process and political incentives.
Let us look at the deficit and debt as an example. Everyone agrees the government should balance the budget, but in 2023, the federal government collected $4.47 trillion in taxes and spent $6.16 trillion for a deficit of $1.69 trillion, bringing the federal debt to a staggering $35.9 trillion. But that is not the whole story. The federal government is also obligated for Social Security and Medicare payments, which are not currently funded. All totaled, the federal government owes more than $100 trillion. Everyone says it is a problem, yet the debt continues to grow — no matter who is in the White House or Congress.
To understand this (or any wasteful policy/program), we need to re-think how we view political leaders. Intellectually, we all know that winning an election does not magically endow someone with all the knowledge and power to be what many voters seem to expect. I addressed unrealistic voters’ expectation in the previous essay. The reality is that politicians are human and, therefore, self-interested. That is not a criticism and should not be confused with greed or self-centeredness (some are that too), but we need to be realistic. Like everyone, politicians have goals, desires, and things they want. Politicians enjoy being at the center of policy making, having their opinion matter, the nice office, staff, office budget, power, a six-figure income, and media attention. Most of them want to continue or move up and become a chairman or cabinet secretary. This goes back to my comments in the first essay about training politicians when they are in state or local offices. But if they are not trained, what happens?
To stay in office or advance, politicians need to keep their voters happy. But since individual politician effectiveness is hard to measure or see, politicians focus on visible things, like securing money for district projects. And, since all members have the same goals, the legislative process has evolved to enable achieving them — but at a cost. One method is vote-trading. The legislature is a market, and the currency is votes. If “Congressman A” wants a project for his district, one way to get votes for it is to offer his vote to support other member’s projects in exchange for their votes for his project. This results in many programs that look wasteful to everyone outside that particular district.
Another method that gets media attention from time to time is the omnibus bills; those huge thousand-page bills that contain dozens of unrelated “pork” projects. Omnibus bills are not allowed in many state legislatures. These contain something for everyone. Many programs that would not pass as stand-alone bills get bundled into one large package, and, in order for a congressman to get his program, he has to vote for the entire bill.
The other explanation is the distorted and skewed incentives politics creates. Economist and commentator Thomas Sowell wrote, “It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”[1] He was referring to certain public-school programs, but it applies to all of government. Who loses money when the government messes up? Only taxpayers. Who gets a bonus when something works out well? No one. A public debacle may have some repercussions but not always. The incentives in politics are a mess and result in significant inefficiencies. We can see these inefficiencies in a simple decision matrix originally presented by economist Milton Friedman.[2]

This matrix measures two kinds of efficiencies: budget efficiency, which is when the spender does not over spend, and utility efficiency, which is when money is spent on items people want. When you spend your money on yourself (the upper left green box), you achieve both kinds of efficiency: You buy what you want, and you do not overspend. The gray box in the upper right is when you spend your money on someone else — gift giving. We only get budget efficiency here; you spend carefully but do not always get something the other person wants (evidence: re-gifting and long return lines after Christmas). The gray box on the bottom left is when you spend someone else’s money on yourself, like an expense account. This is utility efficient but not budget efficient. We tend to get what we want, but — absent some strong rules — we over spend. The pink box in the lower right is when “Person A” spends “Person B’s” money on “Person C.” We get neither budget nor utility efficiency. We overspend on things we do not want. The bulk of government spending is in this box.
Combine these distorted incentives, which lead to significant inefficiencies with low to no accountability, and incentives that hopefully look good to voters to get re-elected, and we have a recipe for deficits and debt that no one wants but to which everyone contributes.
[1] http://www.jewishworldreview.com/cols/sowell081800.asp
[2] https://www.financialsamurai.com/the-four-different-ways-to-spend-money-by-milton-friedman/