April 21, 2009
Tea Parties and Public Choice Theory
Put your wonk hat on. Economists Brian Wesbury and Robert Stein write:
While the theory of public choice can be broadly applied, it is the ideas of "special interests" and "rational ignorance" that are useful in understanding last week's tea parties.It also explains why we Rhode Islanders seem so apathetic when it comes to giving Joey Downthestreet a little more cake. Not for nothin', but it ain't really a big deal. At least for a while. Oh, and incidentally:Here's an example of public choice at work. Let's say teachers could benefit by $2,000 each per year (in higher pay or benefits, smaller classes, etc.) from a piece of legislation currently under debate. But the cost per taxpayer averages just $15 per year.
The "special interests" (teachers and politicians) have substantial personal incentive to see that the bill is passed. Teachers, who benefit directly, will use time and money to lobby for the bill. And lawmakers will expect campaign contributions, votes or both, in exchange for their support.
But the taxpayer will remain "rationally ignorant" of the whole process. Why spend time even thinking about an issue when the cost is only $15 per year?
....This is why government will tend to grow in excess of what a true democracy really wants. At least, it will grow until those $15 hits accumulate to such a level that people have finally had enough, and in a seemingly spontaneous eruption, the average voter finds the energy to fight back.
Apparently, this is what happened last week.
Here is an interesting set of facts. If the government increased the top tax rate from the current rate of 35% to 100% (yes, that's right 100%), it would only collect an extra $400 billion this year. In other words, confiscating all the income that is currently taxed at 35% would not raise enough revenue to cover any of the annual deficits projected in the next 10 years. There is no way that tax hikes on the rich alone can pay for proposed spending in the current budget.
"Let's say teachers could benefit by $2,000 each per year (in higher pay or benefits, smaller classes, etc.)"
I have no brief (at present) against this post generally. I must note, however, that smaller classes are not just a benefit for teachers. Pretty much everyone knows that smaller classes benefit students. Cost-conscious administrators have an incentive to increase class sizes. Whatever disagreements you might have with the unions, this is one issue on which teachers' and students' (and parents') interests coincide, and the interests of administrators (narrowly conceived) diverge.l
Posted by: Thomas Schmeling at April 21, 2009 6:50 PM"confiscating all the income that is currently taxed at 35% would not raise enough revenue to cover any of the annual deficits projected in the next 10 years."
Oh, that's no longer a problem. The administration has ordered federal agencies to cut $100m from their budgets.
"If the government increased the top tax rate from the current rate of 35% to 100% (yes, that's right 100%), it would only collect an extra $400 billion this year."
No it wouldn't. It would collect less. Why would any one of those people work? The Laffer Curve in action. (Yes, I realize the 100% thing is a theoretical.)
Posted by: Patrick at April 21, 2009 9:20 PMSmaller class sizes would be preferable assuming that teacher quality (which we do not -- and cannot? -- measure in a meaningful way) is unaffected by the greater demand for teachers. If asked to choose between smaller classes or the best teacher, which option would most parents choose?
The cost issues are greater than just more teaching bodies, as well. There are significant faciliites issues -- a decrease of a few students per room may lead to 10% more room being needed, no? this becomes magnified when you have more specialized classrooms in secondary schools.