The "Grace of Congress" Problem

What’s wrong with people owning things? Well, if people own things, then the government doesn’t really control it. Apparently it is worrying if the benevolent members of the political class don’t have the discretion to spend your money. I think it is impossible to defend on moral grounds that other things being equal, if the choice is between individual ownership and state control, we should choose state control.

One of the arguments in favor of individual ownership is that property rights create a shield against political predation. Yglesias, who seems to think that other things equal it’s better for the political class to control resources, blithely says, “Why worry!?“:

One [remark on the issue of the relative security provided by legally binding property rights versus the discretion of the politicians] is that while I’ve heard much touching concern from certain privatizers about this “Grace of Congress” issue, the more typical conservatarian complaint about Social Security is that due to the ever-growing voting power of senior citizens it is, in practice, nearly impossible to cut Social Security benefits. So the whole issue strikes me as being of academic concern only.

Matt is pulling a kind of probably unconscious bait and switch here. This is all too common among conservative opponents of progress on social security. Unless there is structural reform of the social security system, such as the implementation of personal retirement accounts, either there will be VERY LARGE future tax increases or VERY LARGE future benefit cuts. The problem with Big Senior’s hegemony and reactionary impulse is not that it makes benefits cuts permanently impossible by constituting an indefeasible coalition, it just pushes the decision into the future while the problem continues to mount. The further into the future we push the problem, the bigger the benefit cuts or tax increases will need to be.

Now, politicians are indeed averse to cutting benefits, due in part to the electoral muscle of Big Senior. Yet they are also averse to raising taxes, due to the electoral muscle of taxpayers. Unless we do something quite soon, the tax increases will need to be quite large. This may not be politically easy, and it is quite realistic to imagine that voters may prefer to cut benefits rather severely in order to avoid giant tax increases, at which point, politicians will cut benefits. Matt’s bait and switch consists in having us imagine that voter demand over policy-bundles remains constant despite the fact that the demographic unsustainability of the system will force tough trade-offs that will alter voter demand.

Matt’s argument is that senior citizens will never allow benefit cuts and so the “Grace of Congress” point is simply academic. Congress will always grace us, so why worry? Well, if Matt is right about the intrasigence of Big Senior, we’re going to need a giant payroll tax increase. Indeed, those who wish to stall serious structural reform are arguing for huge tax increases by default. But the real prospect of a huge tax increase is precisely the sort of thing that will shift voter demand so as to make benefits cuts politically feasible. And so by stalling, Matt is helping to bring into being the conditions under which the Grace of Congress argument gets real teeth.

Unless there is serious structural reform, reduced benefits become increasingly likely. That’s why it’s simply dishonest and incoherent to confuse a politician’s promise with a credible guarantee. There is no guarantee. There are no guaranteed benefits. There are promised benefits — promised by people who honor their promises when it benefits them. And, credibility of politicians aside, given the structure of the system, the promise cannot be kept.

The “conservatarian” argument is clearly not that Big Senior obstructionism regarding reform locks in a sure benefit level, but that it threatens benefits by making the problem ever more acute. At some point, the problem is so acute that the Big Senior coalition will not be political decisve regarding the issue of benefit levels. One main point of reform is to avoid the need to choose between tax increases and benefit cuts, and the political uncertainty the necessity of such choices would create.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center