The politicians we deserve?

June 29, 2009

Laurence Copeland- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

The unending saga of MPs’ expenses has to be seen in perspective. Of all the dishonest things that politicians do, inflating their expenses is about the least damaging. At their worst, they lie to us whenever they think it politic to do so and knowingly favour policies which suit their own interests rather than those of the country. How can this happen? After all, in a democracy the interests of government are supposed to be aligned with those of the electorate, aren’t they?

It might work if we were all rational, but alas, we are not. Only too often, we want the best of both worlds. Nobody is offering us endless sunshine with no hosepipe bans. But there are always politicians prepared to tell us we can have low taxes without reducing government spending, longer sentences without overcrowded jails, near-total job security without high unemployment (the French are especially keen on this), and so on. Why do democratic politicians repeatedly make these promises which they know to be impossible? And why do we keep believing them, election after election, in spite of the repeated failure of politicians to deliver the impossible?

The question is as topical now as ever. In spite of their frightening levels of indebtedness, neither the UK nor the U.S. government has yet said how it proposes to pay off debts in the future – in fact, Gordon Brown is adamant that spending will carry on more or less unaffected. Yet surely voters on both sides of the Atlantic can see that at some point they will have to pay higher taxes and/or accept substantial cuts in Government spending? If so, why do politicians persist with the charade?

The answer lies, I believe, in the nature of the competitive process through which politicians appeal to the electorate. Suppose 80 percent of the electorate know that a choice has to be made – we cannot have both spending and lower taxes. If, say, half of these “informed” voters favour lower taxes and cuts in government spending if necessary, it is fair to assume they also predominantly support the right wing party (Conservative or Republican, for example). Similarly, the other informed segment of the electorate prefer higher taxes and will overwhelmingly vote Labour or Democrat.

Now it is axiomatic that a two party system is a battle for the centre ground, inhabited by the floating voter. In the example here, it is a fight for the 20 percent of the electorate who either still cling to the hope that we can have the best of both worlds or, possibly, who know we cannot, but nonetheless cannot face the decision (and who may have the same attitude to their own credit card bills). In order to capture their votes, politicians must continue to offer pipe dreams. If they can include a reassuring wink to their own side (“when the crunch comes we’ll do the right thing”), so much the better.

At some point, the process must come to an end, as more and more voters realise the truth – that neither they, nor the Government can go on borrowing indefinitely. The game is over when, either the segment of the electorate still in denial has dwindled into insignificance, or maybe when politicians risk alienating their own supporters by the patent dishonesty of their pitch. If the reports are to be believed, Prime Minister Gordon Brown thinks we are still some way from this point, while Chancellor Alistair Darling begs to differ.

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