Information, Competition and Congress

There's a public choice lesson in here, though as an international macroeconomist, I'm not really qualified to figure out exactly what it is... Today's NY Times reports that "Pet Projects Are Flourishing in Congress:"

If the idea was to shame lawmakers into restraint, it did not work.

Eight months after Democrats vowed to shine light on the dark art of “earmarking” money for pet projects, many lawmakers say the new visibility has only intensified the competition for projects by letting each member see exactly how many everyone else is receiving.

So far this year, House lawmakers have put together spending bills that include almost 6,500 earmarks for almost $11 billion in local projects, half of which the Bush administration opposed.

The earmark frenzy hit fever pitch in recent days, even as the Senate passed new rules that allow more public scrutiny of them.

Far from causing embarrassment, the new transparency has raised the value of earmarks as a measure of members’ clout. Indeed, lawmakers have often competed to have their names attached to individual earmarks and rushed to put out press releases claiming credit for the money they bring home.

Perhaps its not surprising that more information leads to heightened competition - this is true in many markets; think of how much harder the internet makes it to charge a high retail markup or sell a shoddy product when it is easy for consumers to see competitors' prices and get quality reviews. And it is a reminder that members of congress have a strong incentive to maximize their probability of getting re-elected by keeping their constituents happy, and this does not always coincide with the national interest. One might say their rational earmark-seeking behavior has negative externalities - if only the founding fathers knew about Pigouvian taxes!

Before we get carried away with hand-wringing and indignation, its worth keeping in mind two things: (i) some of the projects probably are worthwhile, even if this is a silly way to allocate resources, and (ii) $11 billion is nothing to sneeze at, but its 0.4% of total federal outlays of $2,655 billion (FY 2006), so even if crusaders against "waste, fraud and abuse" were able to eliminate all the earmarks, it would hardly make a dent (and would not go far towards undoing the damage to our fiscal situation from President Bush's tax cuts).

Incidentally, though the local Congressman, John Boehner, is notoriously chummy with lobbyists and special interests he eschews earmarks. I'm sure he'd say its a matter of principle, though maybe he's just afraid of the competition! Too bad, since I really think Oxford would be a nicer place if they built a bypass for US-27.