perfidy

The groovy economist over at the Idea Shop has an interesting post on why tax policy, well, sucks:

There’s a lot of evidence that people aren’t always rational, and suffer from a range of cognitive biases. But thanks to arbitrage, rational people stand to profit when irrational people let prices and wages stray from efficient levels. That’s what justifies the economist’s assumption of rationality—a small number of rational profit-seekers keep markets rational as a whole even when many participants aren’t.

Unfortunately, tax policy has no such mechanism. Tax policymakers suffer the same cognitive biases as everyone else, but the "market" for tax policy—made up of legislators, voters and lobbyists—is much less self-correcting. In traditional markets, bad business practices get pushed out by competition, and bad pricing decisions get corrected through arbitrage. But in tax policy, inefficient tax laws can survive on the books for generations.

Another related aspect of this problem is the asymmetry of the opposing sides. Those in favor of ‘bad’ tax policy (special interests, social engineers, tax accountants and other vermin) are concentrated and focused on their evil work. It is their job to impose these policies on the rest of us, and they have considerable time, skill and resources to devote to that job. Contrariwise, those who favor a simple, transparent, neutral and non-confiscatory tax code (the rest of us) all have day jobs. As attractive as a rational tax code is, and no matter how much we might benefit from such a thing, there are many things that compete for mindshare. For me, the perfectly reasonable and rational tax code is competing with any number of other policy issues, job, time with family, beer and Civ III. The opponents are distracted and diffuse, and so we get the tax code we deserve.

This puts me in mind of something else, too. Different arenas have different time scales. The response time in markets can often be nearly instantaneous. New information immediately affects the price of stocks. In the soi-disant Information Technology Industry (one out of three ain’t bad) the turnover in new software, techniques and indeed people is, shall we say, brisk. In science, things are slower. New paradigms are adopted (so they say) about as quickly as the old generation of distinguished scientists can retire. But the response time of political systems can stretch to centuries.

I’m of two minds about this. On the one hand, bureaucratic inefficiency and glacial response times is bad. The tentative nature and sloth-like vigor of the intelligence reform effort over the nearly five fricken years since 9/11 is a poster child for government incapacity and lack of adaptability. My security questionnaire still had questions about commies on it, for chrissakes.

All of that is unquestionably bad. But, but, what if government weren’t slow? Imagine a government that could reach decisions quickly; create plans and implement them in days; use innovative technologies and management tools to deal with problems in real time. Scared yet? It is well that government’s vast power is balanced by its diffidence and incompetence. In Frank Herbert’s second best novel, he introduces the Bureau of Sabotage. BuSab exists to slow down, interfere with, and screw with the heads of all other government agencies. It is the ultimate citizen advocate, because it stops the government from doing things. In the story, BuSab had its origin in an earlier government that was efficient and fast moving, as well as tyrannical and oppressive. The early BuSab operatives used any means necessary to slow down the operations of this government, and sowed enough chaos that it was able to evolve into a more reasonable and sane government.

Not to be all defeatist, but I think that part of the price of a reasonable government is bad, or at least out-dated policy. Not that we shouldn’t try to reform and improve, but a government that was rapidly responsive to our every need and want would be far, far worse.