Thursday, May 14, 2009

Politics: Mis-Alignment of Incentives

BELLEVUE, WASHINGTON - I'm a big believer in establishing proper incentive structures to try to achieve an outcome. Usually, this involves a financial bonus of some kind. The effectiveness of this kind of structure shows up in situations like the expansion joint project in the reversible lanes of I-90 between here and Seattle--the contractor had an incentive to re-open the lanes early, and it looks like they may be open as soon as tomorrow instead of taking the full three weeks allotted for the project.

It seems to be increasingly clear that one of the major issues in the political system of the United States is that the incentive structure for politicians is not in-line with the long-term interests of the country. The number one goal of politicians is getting re-elected--and what it takes to get re-elected may be completely at odds with the long term interests of the politician's constituents.

I'm not talking about partisanship--that tends to be self-correcting. When a politician does something that benefits their own political party over another, they tend to eventually go too far, anger the public, and find themselves in the political woodshed. Just ask any Republican that lived through the last two election cycles or any Democrat that remembers 1994. Partisanship may make the political system relatively inefficient in terms of delivering effective policies, but it doesn't represent a serious, systemic problem in incentive structure.

The problem instead is more one of time scale. Politicians try to look as good as possible--or make their opponents look as bad as possible--in time for the next election, or in time to fund-raise for the next election. The problem is most acute in the US House of Representatives, which is completely re-elected every two years. Members of the House need to show results in each two-year cycle or risk being defeated. Never mind if investment in infrastructure that will take more than two years to build or a change like health care reform with potential short-term inconveniences but clear long-term benefits is the optimal solution. The politician in the House of Representatives has little reason to vote for such a policy, as odds are they won't be around past the next election to be able to talk about the benefits.

The Senate was supposed to be the systematic antidote to this effect, with six year terms allowing Senators to think in the long-term interests of the country. In practice, though, one-third of the Senate participates in each two-year election cycle and Senate races have become ridiculously expensive (five of the races in the last cycle involved more than $20 million in spending), so Senators do not find themselves that much more free to look to the long-term than Representatives. The increasing level of partisanship in the Senate in the recent era to nearly that of the House reflects how the two bodies are not as different as they once were.

So even if this thesis is accepted and it is agreed that the interests of politicians and the country are not in alignment in the long-term, how can be problem be solved? Is it really possible to have longer terms and avoid corruption in the course of those terms? While the Canadian Senate and its life-time appointments might seem to indicate that it is possible, I have little reason to believe the Canadian model is transferable to the United States. A more practical solution seems to be the restoration of the Senate to its traditional role of looking to the longer-term, and that's probably only possible with campaign finance reform, a topic for another day.

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