Saturday, June 4, 2011

citizens/owners/taxpayers and our short and long term actions

Citizens are owners, as are taxpayers. And citizens are taxpayers, too. Thus, we are all citizens, owners and taxpayers. We need to act accordingly.

Two recent articles make the point, at least for me. Student enrollment in public schools fell by 157,114 jobs in 2008-09, while teacher employment grew by 81,426 that same year. More teachers hired to teach fewer students in the midst of a recession. When combined with the new teachers hired, the total public education workforce grew by 137,000, or almost one new employee was added during the recession for each student who left the system (Notable and Quotable).

The second article (Doctors Inc.: As Physicians' Jobs Change, So Do Their Politics) revealed that many doctors in Maine are leaving private practice and taking salaried hospital jobs. As a result their priorities are changing. There is now a growing tendency to support the government's increasing role in medical care. These same practitioners, when they were owners of their practices, came down firmly and strongly on the side of individualism, entrepreneurship and ownership, arguing strongly for keeping government out of their business. This "old" view of the Maine doctors represents what we think of as the physicians' conventional view. So what changed?

In both cases, it seems like "We the People", or at least some of us, have misinterpreted the concept of citizen taxpayer ownership and instead adopted the all too prevalent short term oriented "it's not my money" stance as opposed to considering the long term responsibilities of citizenship. When the doctors owned their practices, they concerned themselves with both costs and patient care. Now they apparently don't concern themselves with the cost side of the equation. That's too bad. As for the school boards or administrations choosing to add staff in the midst of declining enrollment in a recession, that's not an act in the best interest of their fellow taxpayers and fellow citizens either.

Future generations depend upon current generations to act responsibly, with both a near and long term perspective (what behavioral economists refer to as "time consistency"). That means many things, not the least of which is to act like fiduciaries for the future citizen owners when performing our daily duties.
But too many of us have adopted the stance of John Maynard Keynes who said "The long run is a misleading guide to current affairs. In the long run we are all dead." I totally disagree with Keynes on this, as I do on many other things concerning Keynesian economics as well.
But back to the topic du jour. What does all this short term/long term/citizen/owner/taxpayer stuff have to do with doctors in Maine, public school administrations and concerned citizen taxpayer owners? And our staggering deficits and debt load?

Stated another way, why do otherwise good and responsible people act contrary to their and our long term best interests?
Behavioral economists refer to this as the "time inconsistency" problem. It involves taking actions today which are inconsistent with good policy in the future. This is turn often leads to very bad economic outcomes. A "time consistent" outcome, on the other hand, would dictate that we decide what to do in the here and now in a manner which is consistent with what we want to achieve in the longer term. So we tend to overemphasize the NOW, and that heavily influences, and often inappropriately, our current decision making. Simple examples of time inconsistent behavior would be postponing homework or, in my case, a much needed diet. For us as Americans, it's things like not addressing our deficit and debt problems but instead deferring them into the indefinite future.

Accordingly, my bet is that the aforementioned Maine doctors and public school administrators may well have acted differently if a long term view in the best interests of their "future citizen owner taxpayer selves" (looking at the situation 10 years hence, for instance) had received equal weighting in their respective judgments. But time inconsistency causes us all too often to ignore what's best in the long run and instead behave as if we agree with Keynes when he said, "The long run is a misleading guide to current affairs."

Keynes was wrong about that. My view is that we citizens of today have clear and unequivocal responsibilities to the citizens and adults of tomorrow. To put it directly, we adult citizens have "ownership/fiduciary" responsibilities to those who will follow. Of course, we also have every right to focus on the here and now as long as by doing so our actions don't harm future generations.

Someone needs to remind the Maine doctors of this simple truism. Those who run the public schools need to be told, too. The ability to walk and chew gum simultaneously is required of adult citizen/taxpayer/owners. Short and long term considerations both count equally. Time consistency needs to practiced by one and all. And the time inconsistency problem needs to be fought fiercely.

So why doesn't government cost containment work? It's a simple matter of human nature. In a government run or controlled enterprise, the taxpayer gets the bill. Thus, although government employees such as these Maine doctors and public school administrators obviously well understand that costs to taxpayers matter, they don't alwsys act that way. Nor do they act as if an ongoing cost/benefit analysis is as important in government run institutions as in any for profit business. "We the People" simply aren't as cost conscious when we're spending the taxpayers' money (OPM or other people's money) as we are when spending our own money. I call that the MOM (my own money) versus OPM conflict. MOM wins every time, or should.

So taxpayers generally aren't well represented by their fellow citizens when those citizens, whoever they may be (including well intentioned people like us) serve as government employees. It's not their/our money they're/we're spending, and their/our term of office is brief and may soon expire if they don't actively practice timing inconsistency behavior. The system isn't designed to work effectively, and it doesn't.

On the other hand, individuals, owners or entrepreneurs don't have the luxury of not concerning themselves with the long term and things like profit and cost containment. It's their money they're spending. And besides, they'll go out of business if they don't earn profits. Human nature works here, too.

Short term "time inconsistent" thinking and acting will us into the ground. Squandering societal resources will make us weak.

Free markets cause us to consider both costs and benefits with a long term, "timing consistent" perspective.
In free societies informed citizens will always act as if free lunches don't exist. Because they don't.

Citizen/taxpayer/owners focused on both the short and long term act to "promote the general Welfare", as stated in the Constitution.

Thanks. Bob.

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