Politicians’ need to be like puts us in a financial pickle

The initial economic consequence of this is a clash of goals.

Meredith Willson posed an interesting question in one of his songs in “The Music Man.”

“Where is the good in goodbye?” he asked.

Economics provides us with a similar question: What’s not to like about being liked? The answer is that it could be a lot, especially when a decision-maker puts being liked above his or her responsibilities.

Most of us enjoy being liked and generally avoid behavior that would cause us to be disliked or despised. That is a good trait; it allows our society to function without disabling levels of friction and conflict. For a leader, though, this tendency can, and does, produce a pattern of outcomes that are inefficient and often toxic.

When we look at the causes of today’s state and city crippling financial woes, for example, the culprit usually turns out to be the pension obligations to public employees. How did that happen in the face of the horde of pension accountants and actuaries available in today’s world? In most cases it isn’t fraud or corruption. It’s simply excessive need to be liked.

Politicians not only want to be liked, they have to be liked in order to survive and advance in their calling. As a practical matter, though, what that means is that they find it very difficult to say “no” to anyone or any group, especially those that do or could represent a bloc of voters.

The initial economic consequence of this is a clash of goals. Saying “yes” almost invariably means public funding, which involves higher taxes. Higher taxes are traditionally disliked by voters, who often include in their dislike the politician who proposed them. This clash of goals, though, is often resolved with a pincer movement: First, tax increases are disguised by describing them as responses to emergencies or for sympathetic groups. Increasing education budgets, then, are cloaked in causes like “it’s for the children,” or, “too many classrooms don’t have heat.” These reasons often don’t stand up to close inspection, but those who must be liked have discovered that voters’ dislike of tax increases doesn’t have staying power but dislike of the politician who said, “no” is more permanent.

Taxes are what they are, though, and their effect is very visible. The other arm of the pincer, in labor negotiations, is easy for the public to ignore, and thus is frequently the “go to” strategy for saying yes, staying liked, and spending more than current revenue.

Spending more than income, of course, usually means balancing the budget with debt. This is the way many individuals and households sustain their spending habits and it all too often ends badly. Many of our cities have taken that same route and now have debt levels that are threatening their credit ratings.

More insidious financially is a practice whose implications now haunt so many states and municipalities: padding public pensions. This technique is a way for a politician to appear to be stingy with the public purse while still saying yes to an important voter bloc.

It is straightforward and doesn’t require any exotic or creative accounting methods. The additional compensation agreed upon in the labor force negotiations is divided into two parts so that the wage increase is modest, and the bulk of the compensation increase goes to pension benefits. Pension benefits have the advantage, to those needing to be liked, of not often showing up in the headlines. And when they are reported in the news media, they do not have the same impact of payroll wages because they only become cash-like in the vague future.

Unfortunately for today’s office holders, the once undefinable future is now. Pension benefits are now coming due and they are choking many of our cities and states.

In fairness to politicians, they aren’t the only ones with problems stoked by being overly worried about being liked. The U.S. military has experience with this problem, especially with its young, inexperienced junior officers; higher education has found that its students’ course evaluation systems can erode academic standards; and the problem is not unknown in today’s corporation and even in our families.

For the financial mess in some states and municipalities, we need a remedy for now and a preventative to eliminate repeat performances. Recognizing the problem and identifying its causes are essential steps forward but we still need a solution … and it isn’t bankruptcy.

One way to help may be a federal regulation. If municipal bonds had to obtain federal approval in order to qualify for their income tax exemption, for example, it would be relatively easy to apply fiscal management standards to the system. That may be the route to restoring the financial health of state and local governments. That would be a good thing.

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