Capturing The Policy Info Process

Brink Lindsey and Steven Teles’ book The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality came out November 10. Steven Pearlstein titled his review “What’s to blame for slower growth and rising inequality?” Robert Samuelson says:

As societies become richer, so does the temptation for people to advance their economic interests by grabbing someone else’s wealth, as opposed to creating new wealth. … This sort of economy may be larger than you think. That’s the gist of the provocative new book …

And so on. The book’s marketing, intro, and reviews all suggest that the book is about who to blame for bad trends. And on how exactly (i.e., via what bad policies) bad guys have achieved their nefarious ends. Which to my mind is a dumb topic. Yes, it is what everyone wants to talk about for moral posturing purposes. But it is a far less useful topic than what exactly are the fundamental causes of our problems, and what we could do to address them.

However, sometimes when people play dumb, and observers treat them as dumb, they are not actually dumb. And this book in fact contains a brief but thoughtful analysis of the political obstacles to solving our many policy problems. It also suggests solutions. The problems:

The problem of narrow interests’ advantages in organizing and welding influence is always with us, but it is especially severe in the cases at hand where the interests are so flush with resources. Furthermore, we identify four additional sources of bias that stack the deck even more in favor of the rent-seekers. The first source of bias is information asymmetries, in which the government’s dependent on regulated interests for policy-relevant information makes it especially open to capture. The second involves the exploitation by rent-seekers of a favorable “policy image” that short-circuits appropriate scrutiny of their self-serving claims. The third source of bias concerns the venue of decision making: when policies are crafted in obscure or insular settings that discourage monitoring and participation by outsiders, it becomes all the more likely that policymaking will be captured by insiders. Finally, the fourth source of bias is the pronounced tendency of American public policy toward “kludgeocray” – indirect approaches to addressing social problems that funnel resources through the private sectors and allow rent-seekers to skim off some of the flow.

The usual win scenario:

The vast majority of issues and problems are not ripe for political decision. What is ripe, meanwhile, is often hard to predict much in advance. … These moments of agenda focus are particularly important for challengers to rent-seeking. … When the public is paying attention, many of the advantages of rent-seekers temporarily fall away, as policymakers become fearful of being associated with groups that have gotten an unsavory reputation. … These moments never last long. … A great deal depends on whether alternatives to the status quo have been put before the community of relevant policy makers, reducing their uncertainty about the consequences of change. When this kind of vetting has been done, as it was with the deregulation initiatives of the 1970s, huge shifts in policy change can happen in moments.

Suggested solutions:

The most effective [cases] in the United States over the last half-century have come through … the willingness of wealth individuals and foundations to provide funding and organization. … [For example,] in the 1960s and ‘70s … the Ford Foundation poured huge smell into getting a broad range of environmental organizations started. … [But] it will be much harder to find philanthropists with the same zeal for attacking the rents held buy doctors, lawyers, financiers, record moguls, and wealthy homeowners. …

Increase salaries, along with a generous pension program for senior [Congressional] staff to encourage longevity. … We should double committee staff and triple the money available for salaries. … By rotating between different members and working solely for the committee, staff would build broader networks. …

New forms of central policy clearance. … Office of Management and Budget (OMAB) is a famously high-status destination for civil servants, attracting some of the best talent from the nations public policy schools. With its strong reputation and its placement in the White House, OMB has the prestige and power to push back against poorly considered programs or regulations. … Argued for extending central review of regulations to the statues. … The FTC could be doing even more by providing more resources to pay for research and participate in state deliberations. The FTC could also be given a greater voice on federal regulations. … Special Financial Regulatory Commission … whose sole job would be to prepare an annual report to Congress on the quality and effectiveness of regulation. … Similar federal commission charged with reviewing intellectual property law. …

Under a [municipal zoning budget] the city government would decide every year on a target for how much the overall housing stock should increase. … Moving control over land use away from localities entirely and vesting it with state authorities. … Require Congress to give an up-or-down vote to legislation proposed by the president … would give presidents much more power.

Any serious attack on upward-redistributing rents will need to enlist the power of the judiciary, especially to take on policies at the state and local levels.

So, let’s review. We can prosper at least modestly when firms compete to employ us and serve us with goods. But such firms are selfish, making market failures possible. We could just have a centralized government employ and serve us, a government who supposedly shares our interests because we can fire its leaders. But that scenario has less competition, weaker incentives, and often goes very badly.

As a compromise we can have government regulate private firms. Unfortunately, each area of regulation policy gets only rare random attention from politicians, and even less attention from voters. So both groups defer a lot to groups that seem high status and noble, and they both get most of their info on policy details from channels that pass through our most organized citizens, who have agendas and are not representative of the public. Our info problem is made worse by most policies being complex kludges with so many small decisions made in obscure venues.

Given the existence of market failures in our policy info processes, we again have three types of solutions. We can just accept the existing problems with getting our info from private competitors, we can replace those competitors with centralized government info providers, or we can have the government regulate private competitors.

Now Lindsey and Teles might have proposed ways to induce more policy info competition, or to regulate its more harmful aspects. For example, they might propose stronger subsidies for academia, think tanks, news media, or social media. Or stronger penalties against misleading info via such channels. Or more info prizes and legalized prediction markets.

Instead, however, Lindsey and Teles seem most drawn to creating and empowering centralized actors who are less competitive or accountable. For example, they hope for big pushes by foundations and the wealthy, they encourage courts to intervene more, and they propose to empower the president over Congress, the feds over states, states over cities, and city centers over more local agencies. They also propose funding and empowering larger federal agencies with the explicit task of, on the margin, displacing our current reliance on policy consequence info from organized citizens.

The intuition seems to be that, relative to our current competing private info providers, we can better trust these centralized actors to share our values. But that’s much like the intuition that could tempt us to just have government directly employ and serve us. And if we reject that option at the basic level in most areas of our lives, it isn’t clear why we should be more tempted by it at the info level.

Now if we are currently in a situation of massively under-provided info on the consequences of policy, most any way to pay for more info could be an improvement. And in that case more funding for federal sources of policy info could be a win compared to the status quo. But for the same level of spending, we might win even more by better subsidizing and regulating private info sources. We may be wary of allowing the policy info process to be captured by a few key policy info agencies, or by whatever other groups capture them.

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  • Curt Adams

    Expecting private foundations to step into the breach is just wishful thinking. I also don’t see why larger scale government entities would generally be better than smaller scale ones, and there are good fragility reason to keep power partially decentralized. In general Congressional staff, though, is a pretty good investment as it’s reasonably accountable to the voters, and, indeed, is about the only power center which is. The crusade to reduce the costs of Congress is classic self-destructive behavior because Congressional staff is effectively the voters’ only oversight for government spending. Note that Congressional staff is a good solution to the problem of restricted information.

    The one big exception where larger scale government entities are better than small scale, however, is land use, so ideas like a zoning budget imposed from higher up are good. There are big incentives for homeowning neighbors to oppose improvements in land use because restricting the stock of housing drives up the prices of their own houses, even thought it can be very destructive to the nation as a whole. We are seeing that conflict here in California as the state legislature has realized how pathological our housing market has become and is trying to take steps to allow slightly more sensible land use, with almost all local governments resisting in every way possible, causing the state to take additional steps to block the resistance. I expect we’ll see a couple more rounds before things actually start happening.

  • David Richter

    If the problem is special interest capture of regulators and rent seeking of subsidies, why advocate more regulation and subsidies?

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  • Stephen Diamond

    “Are you looking for how to get out of our current mess? The Captured Economy is perhaps the very best place to start.” — Tyler Cowen, Professor of Economics, George Mason University –

  • cwcwcwcwcw

    If the problem is capture of government then the answer is changing the incentives of the political representatives. Currently our political representatives are incentivized to serve themselves and by extension their party, above anything else. For instance, because it gives the job of drawing voting districts to state politicians, our constitution incentivizes those politicians to draw district boundaries that favor themselves and their party. Another example is campaign financing laws. Our courts have allowed virtually any amount of money to be given anonymously to any politician. This obviously incentivizes politicians to favor, with at the very least access, those giving them the most money. There are many more examples of our system incentivizing political representatives in ways that are counter to the public interest or even acceptably competent or even just functional government. Anytime you wonder why politicians (or anyone really) acted the way they did, figure out what the incentive was.

  • JW Ogden

    In at least some cases I can see some better incentives coming fro a more centralized regulator.

    1. Zoning local government have a strong incentive to restrict building in order to drive poor people away. The fed Government does try to keep poor people from coming to the USA but they do not try to drive the poor out.
    2. With the Federal Government paying for half of all medical care there is some incentive for local politicians to regulate with more focus on quality and less on keeping costs low.

  • xyz

    It seems to me that the system tipped irrevocably in the direction of regulatory capture around the turn of the century and there simply are no viable solutions any longer. Generally societies in this situation end up, after a prolonged and chaotic interregnum, being ruled by strong-men.