I think that if there is one consensus opinion amongst economists is a shared hatred of rent seeking. This is where individuals or groups engage in various efforts to secure a bigger share of the pie from centralised decision-makers. Consider Jeff Sach’s comment:
The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor.
We dislike it when it is directed at government or at the powers that be where we work.
And that pretty much explains economists’ nervousness about fiscal stimulii. Taking a macro perspective, the rationale for a stimulus is easy to see and you can come up with a dollar number of what should be happening. But converting those dollars into specific projects is another matter. Stephen tried to do it yesterday and the recent “RuddBank” for construction is another. For my part, I generally agree with the Stephen line but worry about the RuddBank line. And I’m not alone. Chris Joye thinks its rationale is undeveloped and Sam Wylie worried that it seemed inconsistent with other government choices. But then again, I can see how construction ticks the boxes on keeping various sectors in employment and leading to stuff that can be used in the future.
I think the issue relates to rent-seeking. When independent analysts put forward a spending suggestion it is different from when an interested group puts forward one. That is why we don’t like car or child care bailouts but we did not mind it when money was handed directly to local governments.
So how should government’s deal with rent seekers? (I stress should as I don’t expect them to do this). I can relate to their situation of having a myriad of groups coming to their door with hands open. This happens to me everyday with my children. But I have a simple rule there: “if you ask for it, it is likely you won’t get it.” This strategy keeps my children at bay. So if the government simply refused to fund any project proposed by a rent seeker would that be a good thing? If you ask for it, you lose it.
If credible, the rent seekers would certainly run away. But the counter will be: how then can government’s choose how to spend their money. Is a random allocation better than one based on the preferences of at least somebody? It is hard to tell.
But it isn’t really random. As I have argued before, there are plenty of projects lying on the government’s table that have been given cost-benefit ticks and then put off. Those are the ones we should be looking to do and if we implemented “ask for, lose it” those are the ones that will likely be done. That would probably be a pretty efficient state of affairs.
But there could also be some instances of “changed circumstances.” In thinking about this, I wondered if some Web 2.0 input from the public might help. Rent seekers post their “emergency” proposals on a web site and then can do no more. Others then comment. The government uses the process to make a decision but never has to meet with the rent seekers. It is a fast-track version of how we normally do things but it is better than others. In today’s Age, Nicholas Gruen appears to have similar thoughts. It couldn’t hurt, could it?