Sunday, January 05, 2014

"Kludgeocracy in America:" why it's tough to get a bead on corporate welfare (as with Atlantic Yards)

So much of Forest City Ratner's benefit in Atlantic Yards does not consist of direct handouts or even tax breaks, but more obscured advantages, including the free or low-cost land, the lack of competition in bidding for railyard development rights, the value of delay in paying for the railyard, the giveaway of naming rights, even the opportunity to move to the country's media capital and increase both exposure and the value of the TV deal.

So it's harder to put a price tag on those un-transparent benefits, and tougher to explain how they all came about. It's an example of a term getting some new attention recently: "kludgeocracy," in which policy complexity "so thoroughly obscures the actual mechanism of political action that it is difficult to mobilize against," in the words of Johns Hopkins University political scientist Steven M. Teles.

Attention from Brooks

Oft-criticized New York Times columnist David Brooks, in 12/31/13 round-up of worthy reads, pointed to Kludgeocracy in America from the Fall 2013 issue of National Affairs. Wrote Brooks:
Steven M. Teles had a mind-altering essay in National Affairs called “Kludgeocracy in America.” While we’ve been having a huge debate about the size of government, the real problem, he writes, is that the growing complexity of government has made it incoherent. The Social Security system was simple. But now we have a maze of saving mechanisms — 401(k)’s, I.R.A.’s, 529 plans and on and on. Health insurance is now so complicated that only 14 percent of beneficiaries could answer basic questions about deductibles and co-pays.
This complexity stymies rational thinking, imposes huge compliance costs, and aids special interests who are capable of manipulating the intricacies. One of the reasons we have such complex structures, Teles argues, is that Americans dislike government philosophically, but like government programs operationally. Rather than supporting straightforward government programs, they support programs in which public action is hidden behind a morass of tax preferences, obscure regulations and intricate litigation.
CEPR economist Dean Baker wrote:
To the amazement of millions David Brooks had an interesting observation in his column today. He picked up an article by my friend Steve Teles which outlines the story of kludgeocracy.
From the essay: corporate welfare

Here's the passage that made me think about Atlantic Yards:
Policy complexity is valuable for those seeking to extract rents from government because it makes it hard to see just who is benefitting and how; complexity so thoroughly obscures the actual mechanism of political action that it is difficult to mobilize against. That is why businesses prefer to receive benefits through the tax code or through obscure regulatory advantages rather than in straightforward handouts from the state. Politicians may posture against "corporate welfare," but kludge-ocracy makes it hard for voters to see how much business profits from government, which makes it difficult to effectively target their anger. As a consequence, that anger diffuses onto our system of government as a whole, leading to a loss of trust and to skepticism of the possibility that the public sector could ever be an effective instrument of the public good.
(Emphasis added)

What about housing?

Oh, and for all of those worried about housing handouts to the poor, consider this:
Housing is perhaps the most striking and perverse example of this pattern of government growth through seemingly non-governmental means. The 30-year, fixed interest-rate mortgage exists on a mass scale only in the United States, and only because of massive distortions of the free market by government-sponsored entities like Fannie Mae. Added on top of that are the deduction of mortgage interest from taxable income — the third-largest exclusion in the tax code — and the delay in capital-gains taxation on home sales when another home is purchased. Taken together, the tax code and government-sponsored enterprises amount to a massive housing-welfare state. And although it delivers benefits to many citizens, this set of programs is fundamentally regressive — vastly favoring people in the highest tax brackets and artificially increasing the prices of homes, thus increasing barriers for first-time home buyers.
The solution: real self-government

Teles offers some advice:
While it might seem like an uphill climb, a simpler, less kludgey government is an immensely attractive goal, and should appeal to Americans of all parties and ideologies.
Imagine a world in which the tax code was scrubbed clean of byzantine savings incentives and Social Security payments were increased instead; in which tax deductions for health insurance were eliminated and either Medicare was expanded or subsidies for catastrophic insurance in a competitive market were established; in which taxes on pollution were imposed but complicated regulatory and subsidy schemes were thrown out; in which government contractors and consultants were purged and a sharper division was established between federal and state responsibilities; and in which a maze of loans, grants, and subsidies was replaced with vastly more straightforward programs to help Americans pay for college tuition and housing. Imagine a world in which constitutional norms forced government to act directly and transparently or forgo action altogether. Americans would have a government that did fewer, simpler, bigger things, and they would be able to more effectively reward politicians for policy successes and to hold them accountable for failures.
The politics of that world would be neither more "liberal" nor more "conservative" in any simple sense. Government would be bigger and more energetic where it clearly chose to act (and so received public sanction for doing so), but smaller and less intrusive outside of that sphere. Unlike the kludgey mess that neither party seems willing to take on today, that would be a vision of American government worth fighting for.

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