by Dan Mitchell.
Okay, I’ll admit the title of this post is an exaggeration. There are lots of things you should know – most bad, though some good – about international bureaucracies.
That being said, regular readers know that I get very frustrated with the statist policy agendas of both the International Monetary Fund and the Organization for Economic Cooperation and Development.
I especially object to the way these international bureaucracies are cheerleaders for bigger government and higher tax burdens. Even though they ostensibly exist to promote greater levels of prosperity!
I’ve written on these issues, ad nauseam, but perhaps dry analysis is only part of what’s needed to get the message across. Maybe some clever image can explain the issue to a broader audience (something I’ve done before with cartoons and images about the rise and fall of the welfare state, the misguided fixation on income distribution, etc).
It took awhile, but I eventually came up with (what I hope is) a clever idea. And when a former Cato intern with artistic skill agreed to do me a favor and take the concept in my head and translate it to paper, here are the results.
I think this hits the nail on the head.
Excessive government is the main problem plaguing the global economy. But the international bureaucracies, for all intents and purposes, represent governments. The bureaucrats at the IMF and OECD need to please politician in order to continue enjoying their lavish budgets and exceedingly generous tax-free salaries.
So when there is some sort of problem in the global economy, they are reluctant to advocate for smaller government and lower tax burdens (even if the economists working for these organizations sometimes produce very good research on fiscal issues).
Instead, when it’s time to make recommendations, they push an agenda that is good for the political elite but bad for the private sector. Which is exactly what I’m trying to demonstrate in the cartoon,
But let’s not merely rely on a cartoon to make this point.
In an article for the American Enterprise Institute, Glenn Hubbard and Kevin Hassett discuss the intersection of economic policy and international bureaucracies. They start by explaining that these organizations would promote jurisdictional competition if they were motivated by a desire to boost growth.
…economic theory has a lot to say about how they should function. …they haven’t achieved all of their promise, primarily because those bodies have yet to fully understand the role they need to play in the interconnected world. The key insight harkens back to a dusty economics seminar room in the early 1950s, when University of Michigan graduate student Charles Tiebout…said that governments could be driven to efficient behavior if people can move. …This observation, which Tiebout developed fully in a landmark paper published in 1956, led to an explosion of work by economists, much of it focusing on…many bits of evidence that confirm the important beneficial effects that can emerge when governments compete. …A flatter world should make the competition between national governments increasingly like the competition between smaller communities. Such competition can provide the world’s citizens with an insurance policy against the out-of-control growth of massive and inefficient bureaucracies.
Using the European Union as an example, Hubbard and Hassett point out the grim results when bureaucracies focus on policies designed to boost the power of governments rather than the vitality of the market.
…as Brexit indicates, the EU has not successfully focused solely on the potentially positive role it could play. Indeed, as often as not, one can view the actions of the EU government as being an attempt to form a cartel to harmonize policies across member states, and standing in the way of, rather than advancing, competition. …an EU that acts as a competition-stifling cartel will grow increasingly unpopular, and more countries will leave it.
They close with a very useful suggestion.
If the EU instead focuses on maximizing mobility and enhancing the competition between states, allowing the countries to compete on regulation, taxation, and in other policy areas, then the union will become a populist’s dream and the best economic friend of its citizens.
Unfortunately, I fully expect this sage advice to fall upon deaf ears. The crowd in Brusselsknows that their comfortable existence is dependent on pleasing politicians from national governments.
And the same is true for the bureaucrats at the IMF and OECD.
The only practical solution is to have national governments cut off funding so the bureaucracies disappear.
But, to cite just one example, why would Obama allow that when these bureaucracies go through a lot of effort to promote his statist agenda?