Politics: When it works and when it doesn’t

There’s a certain appeal to political action. It’s effects are immediate. There’s a sense of getting things done. Progress is made, and the march of history goes on.

Yet the often-perverse effects of political change, whilst well documented after they occur, are rarely given attention they deserve. Whilst political action is often well intentioned, it often has many perverse effects that end up harming those it was designed to help.

Take, for example, the introduction of minimum space requirements in housing. Rather than increasing the size of apartments, it simply locks lower income individuals out of neighbourhoods as they’re unable to afford larger sized units, thus diminishing the possibility of social mobility. Or let us examine financial regulation: whilst progressives may be tempted to tame what they see as the worst aspects of the financial sector through regulation, the result is spiralling compliance costs meaning only the largest banks can afford to comply, which in turn has limited competition, created moral hazard, and led to the emergence of banks which are too big to fail.

What these examples, of which there are plenty more, demonstrate, is that decision making through political means has costs as well as benefits. It is also important to note that it is only one kind of decision making. The pertinent question to ask is, in any given circumstance, whether the benefits of decision making through political means outweigh the costs. Often case, the answer is no.

The unintended consequences of political decision making, as detailed above, is one such reason. It is not simply a question of bringing smarter people into Government. Even if our government departments were filled with the best and brightest people, public servants who cared solely about the ‘common good,’ there would still be many unintended consequences. As Friedrich Hayek demonstrated, the social, economic and political systems of today have become so complicated that it is simply impossible for a centralised authority to make sound decisions in all cases. For practical reasons alone, this is a strong argument for limiting the scope of political decision making to those areas in which it is strictly necessary.

In the United Kingdom, dozens of bills are approved by our legislature and signed off by the Queen every year. As someone who has worked within the Westminster machine, I can say from first-hand experience that many bills are passed without MPs having even read the content of the bills they are signing, simply voting according to whips’ orders. Although mechanisms for scrutiny exist in the form of Select Committees, APPGs, Parliamentary debates, and by independent think-tanks and other interested parties, the quantity and complexity of legislation has created a system where only experts or those with specific interests can fully understand the content of laws being passed.

The result is that in addition to unintended consequences, what Frédéric Bastiat called ‘the unseen,’ politics become ripe for bureaucratic capture. Given the immense task of political scrutiny, those who are most interested in the passing of specific measures will have a great advantage, whereas those who stand to lose out will often be unaware of this fact and realise only afterwards.

As James Buchanan showed in The Calculus of Consent, politicians act not in the public interest, but rather, are faced with their own set of incentives.

‘How will I appeal to my constituents?’ ‘How will I finance my future campaign?’ ‘What can I do to increase my visibility and move up the political ladder?’ These are the questions that politicians must answer, and which leads to decisions being taken that benefit not the wider public but a specific set of vested interests.

Even when demands being made are coming from a political majority, politics remains a sub-par way of decision making. Especially after high-profile events — terrorist attacks, natural disasters, demand shocks, fires — there is a strong pressure to do something. Though doing something ignores the existence of trade-offs. A system may be perfectly balanced and at a point of equilibrium. Take airport security: it may be possible to reduce terrorist related incidents to once every 1000 years, but the costs of doing so would be extraordinarily high. People would have to deal with endless questioning, intense and invasive body checks, and costly background checks. Though few people would accept a 1% increase in security if this were the cost attached. Current policy may be at the point of equilibrium where we have a perfect balance between security and related costs. Yet a high profile incident puts pressure on politicians to act and adjust the balance, thus moving us away from this point of equilibrium — thus resulting in a worse overall outcome.

At election time and when asked in isolation, everyone will say they want more spending on healthcare, on the environment, on pensions, on education, on roads, and so on. In a free market, everyone is able to decide for themselves how to allocate their resources — and so the allocation of resources tends to a point of equilibrium. Politics, however, takes one person’s preference and imposes this on everybody.

The problems of decision making through political means listed above have been well documented. And yet rather than revoking bad policy, politicians attempt to solve the problems of bad policy with even more badly thought through regulation.

Take the example of crippling regulation on housebuilding which has created a big affordability issue in major cities across the world. Rather than addressing the issue at heart, which is one of supply, Governments have attempted to solve an undersupply of housing through demand side reforms like increasing credit affordability or applying rent controls. This is no way to solve the problem, and it merely accentuates the problem further. Yet it is not a benefit for the individual, who will have to comply with the policy even if they otherwise wouldn’t have made the same trade off were they acting as a free agent.

A major problem is that politicians are shielded from the effects of their policies. In the words of Liberal politician Joseph Chamberlain: ‘In politics, there is no use in looking beyond the next fortnight.’

If a fortnight is a long time in politics, the five-year political cycle feels like an eternity. By the time the pejorative effects of a policy come to be felt, the administration that introduced it will long have moved on. Ministers will have changed and there’ll be a new set of political challenges, but in the meantime, real people will have been impacted by these policies designed to help them, but which ended up having the opposite effect.

That is not to say that politics is not sometimes a good way of making decisions in a society. Politics is useful in solving issues like how large our military should be, how long sentences on certain crimes should be, and what should be considered a crime.

Today, democracy has become the dominant form of political decision making. It is a word that connotes goodness and fairness. With regards to national policy that apply to everybody, there is strong evidence to suggest that democracy is the fairest kind of political decision making.

Though even when politics is required as a means of decision making, we must be cautious of idolising democracy. Just as politics is not always the best way of allocating most economic resources for the reasons outlined above, democracy is not always the best form of political decision making when politics is applicable.

Within city administration for example, democracy can present a large impediment to constructing infrastructure and getting housing built. Quasi-private cities like the Walt Disney Corporation’s Celebration, in Florida (prior to the decision of Governor to end the city’s favourable status) have a perfectly legitimate form of Government based on a charter which enables the corporation to have almost complete control over the city’s design, fire services, and police. The functional example of Singapore’s efficient city Government also demonstrates that the merits of democracy must be assessed on a case-by-case basis.

As Peter de Marneffe outlined in his academic article, Liberalism, liberty, and neutrality, a political system can remain neutral, and therefore justified, if the principles involved are such that any reasonable person would accept them. That millions of people continue to live in and move to Singapore suggests that people do find this form of Governance acceptable and it meets this procedural minimum. Although we must be always be wary of social-contract type justifications for Government which can be intepreted in a way that allows blatant abuses of individual rights, the example of Singapore does demonstrate the suitability of other forms of political decision making in certain situations.

Decision making is complex, and it simply cannot suffice to apply one form of decision making to all decisions given the immense variety of decisions at stake. Whilst the move towards the democratic principle within political decision making is welcome, it is dangerous to extend the scope of politics to everything for the many reasons listed above.

There are costs, as well as benefits, to political decision making. By imposing collective duties on everyone, politics ignores the individual and his or her rights — making it more difficult for each individual to flourish. It is a form of decision making that is zero sum and often leaves little room for pluralism, and is for this reason inferior to civic and market based decision making in many

If we wish to build a freer and fairer society, which I am convinced most people do, it is vital that we examine the nature of political decision making and understand the costs, benefits, and alternatives in all cases.

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Adam Louis Sebastian Lehodey

Adam Louis Sebastian Lehodey

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I write about economics, literature, philosophy, sociology, urbanism, and anything that interests me at the time.