20101125

Politics and Budgets

(I had a lot of time to think this week while sitting in airports, hence the posting blitz.)

While watching the recent economic turmoils such as the collapse (so to speak) of Greece, and the pending collapse of the state of California, I've come to the conclusion that Democracy is failing.  Now, I'm not much of a political science guy, so I really don't have a better system on the whole.  The really nice thing about Democracies is that they tend to be stable governments (in the sense that they resist violent-revolution) since malcontents and prospective revolutionaries find it easier to work within the system than to overthrow it.  But they seem to be failing the "rational self-interest" test for short-sightedness across the board (ie, "Will I later regret the costs of getting what I want now?").

There is a trade-off here between short-sightedness, and the length of time you are willing to tolerate bad leaders.  Giving elected leaders longer terms will force them to plan farther ahead, since they will suffer more consequences when they are held responsible for the results.  So, to some extent, short-sightedness is the price you pay for avoiding being unhappily misgoverned by a leader you cannot dispose for a while.  But I think there are more basic problems with the control systems that might be fixable without such a trade-off.  (Yeah, I'm a computer engineer, so ideal governments are just fancy control systems with lots of inputs.)

The most basic problem I see, is that there is the lamentable lack of an educated, and self-disciplined populace.  This seems to be indirectly asserted by the prevalence of political advertising.  Everyone who puts up a political sign with "Yes on Blah" and "Vote for Me," seems to be implicitly admitting that they expect a large enough portion of the voting population to be swayed merely by repeated exposure to their signs that it is worth the expense and effort of placing them.  This to me, is the antithesis of a well-educated and self-disciplined populace.  But short of disenfranchising such folk (which severely reduces the stability benefits mentioned above), or pumping lots of money into education (which has been shown to increase both education and discipline, but takes a good 20-40 years to kick in), I have no real solution, so I will limit my whining.

The solvable part of what I think is behind the economic troubles, is that legislatures experience what Frederick Brooks calls the "committee effect."  When you get a group of people together with varying interests, there is a strong incentive to pass anything you do not strongly object to.  To use a game theory explanation, if each committee member has an item he or she personally wants passed, and fighting against another's item will cause them to retaliate by trying to block yours, it is in your best interest to make friends and support everyone's agenda, so that they will support yours.  In engineering, this results in "design by committee," where the feature list is so bloated as to be unrealizable.  The problem here is that while each individual item may be doable, there is an inherent trade-off in constrained resources.  However, the game-theory dynamics of each individual actor in the standard committee promote neither the conservation of those resource, nor any consideration of the trade-offs.  The result is that while each actor succeeds at the committee game by getting their feature on the list, they ultimately lose the real-world game, when the project fails (or random features get cut, if you have a particularly aggressive engineering department).  For legislative committees, the items are often government programs, and the constrained resource is budget dollars for their implementation.  When everyone's programs pass, the government overspends their revenue, and eventually the bottom falls out and someone loses the reality game (usually the voters).

The underlying economic problem seems to be requiring a balanced budget (or at least requiring the budget to fit some fixed figure, determined by the financial policy gurus who may calculate the optimal level of overspending).  There are a few ways to do this, and I think the best solution is a hybrid approach that uses all of them.  First, you could require the legislatures to balance the budget.  This effectively moves the resource constraint problem inside the committee.  Unfortunately, it also destabilizes the equilibrium of the game theory, which quickly results in deadlocks.  The California legislatures inability to pass a budget every year is a prime example of this.  So while I ultimately think that the solution is to move the resource constraints inside the control system, you have to be slightly more clever.

Another way to get around this is to add a second, post-committee control system that intelligently handles the over-spending problem.  If you can excuse the Computer Science reference, this would be a second-pass on the output.  This is akin to the engineering department that intelligently drops what they consider to be the less important features in order to make it fit into the schedule and budget.  You've now separated the decision making from the people who should rightly be making the decisions, and lost some subtleties about the true priorities and rankings in the process, but at least you have the problem solved somewhat intelligently by an interested party.  The improvement here is that otherwise, the real-world could impose constraints randomly, as whatever features fail to be finished on-time are cut, or when the project fails and everyone loses.  In the legislature, the place to vest this power seems to be with the governor.  Any budget which passes the legislature that over-spends the expected revenue, will be trimmed down to size by the governor however he sees fit.

While I think this is an improvement, I see it as falling into one of two possible traps.  If the legislature is consistently unable to pass a controlled budget, then you have just given the governor basically arbitrary control over the budget and program funding (up to the amount the legislature goes over).  To me this seems like a lot of power to stick in one place, even if it's only there as a check when the legislature has "failed".  Alternatively, the legislature could realize that it's in their rational self-interest to balance the budget themselves, and the dynamics reduce to the previous case where the legislature deadlocks.  So this system seems to oscillate between misrepresenting the true priorities (by concentrating the power in one man), or deadlocking.  But at least now we're only deadlocking sometimes.

The third approach is to change the game, so that the priorities of the actors promote balancing the budget more than (or at least appropriately with) their own personal (or constituent if you are less cynical) agendas.  This is kind of tricky, especially given the term-length/responsibility trade-off I've mentioned above.  But, I think that one way to improve this, is to give voters an incentive to care about the state budget, by raising taxes across the board to fund any budget overages.  Especially if this is done on a yearly basis, so when the taxes shoot up, or a new unpopular program gets started, it's fairly easy for an individual voter (or their favorite political media) to figure out why, and calculate their expected return for canceling the program.  Once this is well-understood enough that political candidates can use a rivals spending preferences against him, it should help coalesce the legislative agendas with the true cost to society, while avoiding the long-term overspending trap.  It might even produce better-educated, engaged and disciplined voters, but that's just a pipe-dream of mine...  I don't see a particular downside to this (besides the difficulties of getting it implemented), but it's unclear to me how much of an effect this would have by itself on the voters.  If nothing else, it would reduce the debt-incurring costs of overspending, even if the government itself is not made more efficient with respect to societies' true wishes.

But, I think that you can combine the strengths of all of these into a hybrid system.  First, require tax increases to cover any spending deficits, putting an overall constraint on the system.  Then, allow the governor the power to cut funding at will from any program if an over-spending budget passes the legislature.  To avoid the power issues, give the legislature the power to override the "budget veto" with a super-majority.  Together, this would establish hard-cap on the over-spending from the tax increases (with whatever accompanying changes in voter priorities that come out of it as a secondary benefit), allow intelligent decisions to be made about where to cut over-committed resources during legislative failure, move the constraining problem inside the committee deliberations (with the "out" of passing an over-spending budget to avoid deadlocks), and not concentrate too much power in the governor by allowing to a legislative override.

I realize, the current economic situation is much more complicated than government overspending, but this seems to be a recurring theme in modern democracies.  But, I'm approaching this from a control systems angle with a little bit of game theory thrown in for politics.  Anyone have a better idea?

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