Thursday, October 21, 2010

Bargaining or "Expecting Too Much"?

Tyler Cowen reports:
Some Americans: "I expect my government to solve Problem X (fill in the blank, the list is a long one) without raising my taxes, and in the meantime I will refuse to countenance a tax increase. To support this attitude I am willing to sound fiscally unreasonable, if necessary."
Do read his post to get the proper context.

I frequently hear others deride the fact that voters want more public services but will not support the appropriate tax increase that is necessary to finance them. They tend to view people like this as irrational or ignorant.

By contrast, I think this is the default way of thinking in a market-based society. You go to the bargaining table as a buyer, and you want everything for nothing. The seller plays the role of a counterbalancing force wants to give you nothing in exchange for every penny you have. These competing tensions are reconciled to a mutually beneficial exchange of money and services. Consumers are not ignorant hypocrites for going to the bargaining table with this set of initial demands.

If you think of voters as buyers and the public sector as sellers for government services, then I see no reason for buyers to deviate from what they are accustomed to...start by demanding everything for nothing. Who truly knows what the cost of public provision is any how? Might as well push them as hard as you can for a lower price. All subsequent problems that follow from that mentality are really problems that are already identified in a broader public choice analysis.


Will Luther said...

The empirical reality that individuals in advanced economies do not bargain over most things they purchase is consistent with the view that most people believe that the best possible good is being provided at the lowest possible cost (and, hence, they can do no better; the only question is whether you are willing to pay more for the higher quality version of the same good).

IF this is an accurate assessment, it would suggest that these same individuals are not convinced that the best possible service is being provided at the lowest possible cost from the public sector. Citizens demand more service at the same price because they believe the government is currently operating somewhere between the origin and the PPF.

Fundamentally, I think our points are the same. In the market case, there are entrepreneurs "behind the scenes" demanding more for less, i.e. ensuring that producers are on their respective PPFs.

Observing what is purportedly "irrational" political behavior could merely be evidence that (1) the political process is set up so that all of us must play the role of entrepreneur or (2) political process is so damn inefficient (i.e. it takes longer to push public suppliers to the frontier) that many more people have time to spot the profit opportunity.

Justin Ross said...

I agree that are points are basically the same, yours a bit more refined than my expression.

I do want to point out that even though we don't bargain over most things, we do bargain over big things: houses, cars, etc.

If you think of citizens as choosing politicians as a bundle of services and taxes, then it would seem like a similarly big purchase.

Eric Seymour said...

You may be right, but I think it's more likely that either 1) People think the government should do more of A *and* stop wasting its money on B (or at least do it a lot more efficiently), hence no net increase in spending will result; or 2) People think "the rich" ought to pay for the services they desire from the government.

Eric Seymour said...

On a closer reading of the previous comments, I think my first point was more or less covered by Will.