My Books, Essay #6

"Unchecked and Unbalanced" and the extreme inequality of political power

In a recent post, Matt Yglesias flatters the left by saying that it stands for equality vs. hierarchy and that its supporters are more intelligent than conservatives.

My 2010 book, the widely-unread Unchecked and Unbalanced argues against Yglesias. It says that the leftist approach to government creates inequality that far exceeds the inequality produced by the market. And it says that the power wielded by government officials far exceeds their intelligence. I suggest ways to break up the concentration of political power.

Concentration of Political Power

There was a joke that I heard growing up during the Cold War. Under capitalism, man exploits man. Under Communism, it’s the other way around.

I argue that we need to pay attention to political inequality, not just market inequality. In fact, our political system creates its own form of extreme inequality. Consider measuring the inequality of power in our political system by looking at budget power.

Montgomery County, Maryland, where I live, has a budget of $4.3 billion, which is allocated by a nine-member County Council…almost $500 million per legislator, every year…

…in 2007, only four executives were paid as much as $100 million.

…If you had a fortune of $10 billion and earned five percent in interest, this would give you $500 million per year to spend…only 83 people in the world, including only 28 American citizens, have as much wealth at their disposal as a member of the Montgomery County Council.

At the time, dividing the Federal budget by the number of people in Congress gave a figure of $5.5 billion per year. Spending on “earmarks” (that is, spending directly controlled by one Federal legislator) alone was $30 million per year. At the time, having an income of $30 million per year would have put you in the top one hundredth of one percent of the income distribution.

Dividing a jurisdiction’s budget by the number of legislators is a crude measure of the legislator’s power. But it is more likely to be an under-estimate than an over-estimate.

They also can enact mandates, laws, and regulations that do not directly increase spending but still exert authority over citizens.

The unmistakable trend over the past one hundred years is for the power exercised by a small set of people has increased. One example is the Federal Reserve, which before the 2008 financial crisis had a balance sheet of just under $1 trillion and now has a balance sheet of nearly $9 trillion.

Within our democracy, power has become more unequal. Ordinary voters have much less influence than they used to, as population has grown while the size of Congress has remained fixed.

In 1910, there were fewer than 200,000 people per legislator. Today [2007] there are more than 500,000 people per legislator.

Los Angeles County…local government has almost 2 million people per legislator.

Too much power, too little knowledge

While power has become more concentrated, knowledge has become more dispersed. In the economy, people are increasingly specialized. Science, medicine, and engineering have split into smaller sub-disciplines

In general, policy makers have too little knowledge relative to the high concentration of power. Consider the bills passed in Congress that run to hundreds of pages, which is more than they can read. And often the bills merely delegate power to unelected officials in government agencies.

Concerning the financial crisis of 2008, I wrote,

The failure to regulate in time was not due to a lack of tools. Nor was it due to a lack of will…The failure to prevent the crisis was due to the lack of knowledge among key policymakers.

When it came to managing systemic risk in housing finance, the regulators thought that securitization was the solution. In fact, it turned out to be the problem.

In the book, I contrast this high concentration of power without knowledge to the way that the Internet works, in comparison with legacy newspapers, radio, and television.

As a medium, it is more democratic, allowing more people to disseminate information. Internet governance is much less intrusive than ordinary government. The Internet thereby provides an example showing that minimalist government can produce richly rewarding outcomes. Finally, by facilitating collaboration and spontaneous production of public goods, the Internet can enable groups to provide substitutes for the work of centralized government.

I did not anticipate the growth of social media, which has given rise to new questions about concentration of power. But it still seems dubious that increased government power over social media would be the solution to whatever problems are caused by the way that information spreads on the Internet.

How to Decentralize Power

If I am correct that power has become far too concentrated, what structural reforms could change that?

One approach is to arrange government by function, rather than by territorial monopoly.

There might be an elementary education unit, a fire protection unit, a garbage collection unit, and so forth. The territories of these different units could overlap. The fire protection unit serving my house could have a different territory from the garbage collection unit serving my house.

This separation of functions could expose more functions to competition. It would

give individuals a lot of choice about which services they want and approximately how much they are willing to pay for them.

I propose that government provision of services be replaced by vouchers. Vouchers would be used not just for education but for health care and other social services.

I also propose that neighborhoods be allowed to obtain charters to purchase services, such as garbage collection or fire protection. Shifting decisions from a city or county level to a neighborhood level would reduce concentration of power.

Another idea is competitive regulation.

For example, instead of having a county or city issue restaurant licenses, there could be private licensing agencies. Some consumers might prefer restaurants licensed by a particular agency…Other consumers might prefer a different agency

A lot of the book rests on my view that Internet technology is a better match for decentralized government than for concentrated power. Sounding like Martin Gurri or Balaji Srinivasan, I conclude,

At the moment, the political stars are aligned to favor greater concentration of government power. However, I doubt that this political trend will be able to overcome the structural trend of greater diffusion of information.

Perhaps I am wrong. Perhaps what appears to me to be a high concentration of political power is mitigated by forces that I have overlooked. Or perhaps I am misreading the technological trends, and in fact new information and communication systems give the advantage to central planning…

I do not claim to have settled the issue of what, if anything, should be done about concentrated political power. My hope is that this book will help provoke further discussion of this neglected but crucial topic.

For the left, concentration of political power is a non-issue. For me, that makes their concerns with inequality come across as unfocused at best and phony at worst.

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What the left gets right