Political choices and moral hazard

Craig Newmark writes:

Some people think Katrina will be bad for Republicans and for conservatives generally. . . . I disagree. . . . I think Katrina will ultimately redound to the benefit of conservatives. The pointed, effective question that conservatives used to pose: “Do you want the same people that run the Post Office and the DMV and the IRS running [fill in the blank] for you?” will now become “Do you want the same folks–local, state, and/or federal bureaucrats, whoever you prefer to blame–that responded to Katrina doing [fill in the blank] for you?”

This is an interesting point. If true, it suggests there is an inherent “moral hazard” for conservative politicians, in that they have a long-term incentive to perform poorly in order to discredit government performance more generally. (I wouldn’t think the moral hazard holds in the short-term, since I’d assume that poor performance in office leads to a greater probability of losing the next election. But for a farseeing conservative who is willing to lose the next election, it seems that this moral hazard exists.

Not that moral hazards, or perverse incentives, in politics, are limited to conservatives. It’s also been said that liberal politicians have an incentive to maintain poverty (to continue getting the votes of the disaffected poor), that anti-abortion politicians have an incentive to keep abortion legal, and so forth. I’m not quite sure what to make of this, or how to study it empirically. At some level we just have to assume that politicians are motivated by doing the right thing. But it’s a little scary to think that a slow response to a disaster could be considered a plus.

4 thoughts on “Political choices and moral hazard

  1. Krugman seems to be making essentially the moral hazard argument, though he doesn’t say it explicitly. (“That contempt … reflects a general hostility to the role of government as a force for good.”) In other words, if you’re ideologically neutral, it’s better to have a party that is committed to making government work rather than one that would just as soon see it fail.

    There is almost certainly some moral hazard for conservative politicians; the question (as with moral hazard in health insurance) is whether it is enough to be important. A politician who is pro-government obviously has more to lose (not just the public interest and personal career interest, but also ideological interest) when her own government fails. Even if one thinks that the Katrina response has hurt the Republicans, it clearly has not hurt as much as it would have hurt the Democrats, which is perhaps why the Democrats wouldn’t have allowed it to happen. It’s a very interesting argument, and I’m glad you have made the issue explicit.

  2. The current administration's social security initiative seems to follow this "creative distruction" theme. Even hardcore conservatives admit that personal accounts would be much more expensive to administer than the status quo, and carry the inevitable fallout of individuals buying high and selling low. It appears to me as an attempt to dismantle the benefit in favor of a tax cut.

  3. This appears to be a naive or overly abstract distinction for voters. Polls do not suggest that voters make this simplistic dichotomy when looking at conservative and liberals when making voting decision. Issues that influence voters are more concrete. Models do not appear to be of the simple simple additive variety. This line of reasoning suggest that voters to be monotonic reasoners. They are not by any stretch of the imagination.

  4. martha: A lot of people voted for Ronald Reagan in part because he promised, abstractly, to “get government off our backs.” The promise was successful in part because government was perceived as doing a bad job. Any leader who wishes to avoid having a future Ronald Reagan elected has an added incentive to do a good job. It’s not necessary that voters make a simplistic dichotomy between conservatives and liberals, only that they (some of them) care about the issue of large vs. small government and that their opinions on this issue are influenced by the perception of whether government is doing a good job.

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