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Tuesday, January 1, 2013

Handouts in Averting the Fiscal Cliff: The Price of Politics?

What is that nebulous thing called politics? Might it be that the practice is essentially exploiting or creating what are known as principal-agent costs? That is, might politics be skill in putting oneself in place of an agent’s principal(s) (and perhaps principles).
In the U.S. Senate bill to obviate the “fiscal cliff,” for example, the Democrats may have agreed to benefits for the Republican lawmakers’ campaign backers in exchange for going along with a more progressive federal income tax system. Among the added provisions are special expensing rules for certain film and television productions—no doubt those made by particular contributors. The provision for tax-exempt financing for the New York Liberty Zone around the former World Trade Center may also be a favor to a particular someone. Lest one wonder why an extension of the American Samoa economic development credit is doing in an expedited measure to obviate the “fiscal cliff,” the answer may have to do with a particular Republican lawmaker’s relationship with someone having an interest in American Samoa. I can only speculate here, as I was not privy to the actual relationships and negotiations. However, the sheer strangeness of such provisions in such a bill suggests that the particular political or economic interests of particular Republican lawmakers may have been the culprit.
                                                                                                     Is money the language of politics?    citizen.org
Such interests need not stem from particular relationships. To get the Republicans to “move on principle” regarding progressive taxation, the Democrat negotiators may have agreed to give on particulars on another law—in this case, on Obamacare. The bill also contained a provision to remove the Community Living Assistance Services and Support program, or CLASS, which would have allowed millions of elderly and disabled people to stay in their homes rather than be placed in institutional care.
Generally speaking, the pattern involves essentially “buying off” particular Republican lawmakers so they will “shift over” on a larger principle—in this case, progressive taxation. Give a bit on Obamacare and include a provision financially beneficial to a particular Republican lawmaker or one of his or her financial contributors or patrons—anything satisfying a particular interest of a particular lawmaker—so he or she will move from the preference of his or her constituents. The agency cost is the distance of the lawmaker (agent) from his or her official constituents (principals).
If the skill called politics involves a politician’s particular interests at the expense of one of his or her principles or official duties (i.e., to constituents), then negotiation cannot be expected to be confined to compromising on the merits of the bill itself. Rather than merely going back and forth on numbers for the upper income subject to the Bush tax cuts, a Republican negotiator might propose an unrelated provision benefitting one of his or her friends, business associates, or campaign contributors. Granted the provision, the negotiator would then give on the numbers. One might ask whether the inclusion of particular exogenous interests is necessary to negotiation on a given policy. Wouldn’t the final product in terms of the policy be better were the unrelated benefits kept out of the mix? That is to say, is their incorporation a decadent or inferior form of politics, or an essential element that cannot be removed? Perhaps the answer lies in whether negotiation on a given policy, such as deficit reduction, can be done without the negotiators bringing up their particular interests (as a means of shirking their principles or duty). Perhaps ethical leadership in politics involves refusing to enable (or exploit) another’s “agency costs” by incorporating the unrelated provisions, in which case politics itself could find higher ground and the resulting policy would more closely match the preference of the body politic.  


Reuters, “Fiscal Cliff Bill Proposed By Senate Packed With Mix of Handouts, Takebacks,” Huffington Post, January 1, 2013.