America’s Principal-Agent Problem

Instapundit frequently links to another story of government incompetence with the comment “We have the worst ruling class in our history.”

There are so many examples, it is hard to list them but I will try with a few.

First, let’s have a definition.

The principal–agent problem, in political science and economics, (also known as agency dilemma or the agency problem) occurs when one person or entity (the “agent”) is able to make decisions on behalf of, or that impact, another person or entity: the “principal”.[1] This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard.

The Founders were well aware of this problem and tried to protect the citizens with certain provisions of the Constitution.

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

This provision was violated by Barack Obama who spent billions to subsidize insurance companies to support his “Affordable Care Act” which was not successful.

Of course, the Amendments were intended to protect the rights of the people but the one that has been ignored for 100 years is the Tenth.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The Civil War largely ended Federalism.

In recent years, political parties have mislead their voters, the worst offender being the Republican Party. The Democrats posture as the party of the working man but it has become a party with two wings, the rich who want social liberties, and the poor who want to be taken care of. Jay Cost has written a good book about the Democrats Party called, “Spoiled Rotten, which explains the current policies of the party that has adopted “Identity politics” in which race and victim status has become a principal focus. My own review of the book is here.

The Republicans have gradually become the party of small business but the interests of small business are not being considered as paramount as the party seems to be evolving into another party of professional politicians whose personal interest trumps (so to speak) the interests of the voters. The result has been the rebellion of the Tea Party and more recently the election of Dave Brat, an economics professor, to Congress defeating Eric Cantor, a member of the GOP leadership, in 2014.

The election of Donald Trump has presented the GOP Congress with a crisis to which many have responded by retiring. One wonders what the next step of their career will be. Few, I suspect, will return home to the district that elected them. Most will remain in DC as Cantor has done.

Immediately thereafter, Cantor accepted a position as vice chairman of investment bank Moelis & Company. and,

In February 2015, the firm opened its Washington DC office, following the hire of Eric Cantor, former House Majority Leader, in September 2014.

The “Swamp” as President Trump describes it.

Other examples of the decline of the ruling class are easy to find.

A former professor at West Point, the Army’s Military Academy described the decline in standards at that institution.

The US Navy has had a series of catastrophic ship incidents an analysis is here.

As you will see over and over; yes there is individual failure, but this is actually a systemic failure. No one gets to be OOD overnight. No one gets to be the senior officer in CIC by fogging a mirror. These are, in theory, highly trained professionals who have invested years to be standing that watch. At a minimum, the basics should be instinct, should be expected – should be reinforced by the entire watch team because that is what we do. This did not happen in isolation. This is not the first time any of this took place.

Why, on this ship on this watch, did this happen? What were the conditions that created such an environment?

The rest is horrifying. What has happened to competence ?

The Transportation Security Administration has improved their success at detecting violations to only 80% failure.

Back in 2015, the TSA failed 67 of 70 tests that were conducted around the nation, which involved undercover officers smuggling banned items through security. That’s right, they have a ~95% failure rate. At least up until recently, the TSA has been consistent. In July a similar test was conducted, where 16 of 17 tests were failed, which is a similar failure rate.

I simply can’t wrap my head around how this is acceptable. Earlier in the year we saw the federal government imposing ridiculous (and dangerous) bans on electronics for flights from the Middle East to the US, while for flights departing the US, 95% of weapons go undetected.

Information is now coming out about the latest tests conducted by the Department of Homeland Security, in which undercover agents brought weapons through TSA checkpoint. This time around they’re not revealing exact numbers, but rather are only giving ballpark figures.

Then, of course, we had the botched implementation of Obamacare and its web site registration system.

Though the Obama administration tried to cover up the full extent of the website failure in the days following its launch, the lengthy HHS document tells a tale of complete collapse. It was forced out of this secretive administration by our November 25, 2013, Freedom of Information Act (FOIA) lawsuit. Judicial Watch filed suit after HHS refused to respond to our October 7, 2013, FOIA request seeking the following information:

Any and all records concerning, regarding, or related to the number of individuals that purchased health insurance through between October 1, 2013, and October 4, 2013.

A simple request – that was stonewalled for over six months. Now we know why. This document shows that, on its first full day of operation, October 1, 2013, Obamacare’s received only one enrollment! That’s one – out of 334 million Americans. On the second day, 48% of registrations failed to process.

Billions were spent on this disaster. The Oregon state program failed completely

Oregon, under then-Gov. John Kitzhaber, aspired to create a shining model for other ObamaCare exchanges, but instead, it became its poster child of dysfunction. After spending more than $300 million in federal taxpayer dollars, Oregon pulled the plug last year and decided to default to the federal exchange.

The state is now embroiled in lawsuits with its primary vendor, Oracle, and current and former Oregon officials are the subject of congressional and other federal investigations. Depending upon the outcome of those investigations, Congress could demand that the state to pay back the $300 million it spent on a project that numerous reports show was fraught with mismanagement and political maneuverings.

Kitzhaber was an ER doc and may have returned to that occupation after his adventures as Governor.

The failure of Congress to repeal Obamacare is one more example of incompetence. The reaction of Republican Congress persons to Trump after his election suggests where their loyalties lie. The Swamp.

I think Angelo Codevilla’s piece about “The Ruling Class” has the best explanation.

When this majority discovered that virtually no one in a position of power in either party or with a national voice would take their objections seriously, that decisions about their money were being made in bipartisan backroom deals with interested parties, and that the laws on these matters were being voted by people who had not read them, the term “political class” came into use. Then, after those in power changed their plans from buying toxic assets to buying up equity in banks and major industries but refused to explain why, when they reasserted their right to decide ad hoc on these and so many other matters, supposing them to be beyond the general public’s understanding, the American people started referring to those in and around government as the “ruling class.” And in fact Republican and Democratic office holders and their retinues show a similar presumption to dominate and fewer differences in tastes, habits, opinions, and sources of income among one another than between both and the rest of the country. They think, look, and act as a class.

23 thoughts on “America’s Principal-Agent Problem”

  1. Your point that these people are a class rather than just a bunch of rapacious individuals seems to me to be a good one. Was it the end of Federalism that led to the emergence of this new class devoted to conspiring to pillage the country in its own interest? Or did it emerge from the war-socialism of WWII?

    The problem seems to me to be the near impossibility of reform from within the republic. Your constitution is too hard to change. Perhaps more importantly the custom of pursuing the almighty dollar without a thought for other consequences is too inbred: unenlightened self-interest rules. Still; something may turn up, eh?

  2. ” Or did it emerge from the war-socialism of WWII?”

    The first period of war socialism was in WWI and it was pretty fascist, Harding and Coolidge reversed a good deal of it.

    After WWII, the Democrats pretty much ran things and it was never reversed. Neither Eisenhower nor Nixon was very conservative.

    Reagan had a Democrat Congress. Bush was blindsided by 9/11 but he is no conservative nor was his father.

    Lyndon Johnson was the most destructive of all of them and gave us the deficits and the Vietnam syndrome.

  3. I believe Al Gore coined the phrase “no controlling legal authority.” If a president, judge, or representative violates the Constitution, the only punishment is removal from office. Like defrocking pedophile priests, delicensing incompetent doctors, and disbarring incompetent attorneys, it’s so rare it makes the news when it happens, but the act is not rare.

  4. “a new class of privileged party bureaucracy, who enjoyed material benefits from their positions.”

    Codevilla or Djilas?

  5. The Saudi King and his favoured son seem to be taking the principal/agent problem seriously.

    Or at least using it as serious cover for whatever they are planing.

  6. In Saudi Arabia and China, the most important qualification for a corruption crusader is knowing who NOT to go after. Xi’s kids might be smart enough not to be seen driving a Ferrari but I’ll bet they aren’t living off the proceeds of the family pig farm either. Failure in this prime duty is usually fatal, see China.

    Now that the rats are leaving Hillary’s sinking ship, a number of people will find themselves in acute hazard. It should be interesting.

  7. “Your constitution is too hard to change.”

    Maybe not. I believe the 28th state is now ready for a Constitutional Convention. It requires 34 I believe. Then the whole thing is up for argument.

  8. >I believe the 28th state is now ready for a Constitutional Convention.with the approval of 3/4 approval of the State legislatures<;". Throw the bums out; Take back the credit card.

  9. software really butchered my comment. With quotes this time.

    “I believe the 28th state is now ready for a Constitutional Convention”

    There currently 12 State legislatures that have called for an Art. V Conv. of the States. Unfortunately,
    these folks are following M. Levin’s lead calling for an unspecified COS. The better idea in motivating millions of citizens in 38 States to contact thousands of State Reps., Del., Senators is to call for a COS that is committed to solving the main principle-agent problem : the US Congress. This COS should only look at two amendments: vigorous term 12 year term limits and amending Art I Sect.8 clause 2 to “To borrow money on the credit of the United States, – with the approval of 3/4 State legislatures-;”. Throw the bums out, Take back the credit card.

  10. The attempt to call an Article V convention to overrule the Reynolds v Sims “one man one vote” atrocity fell short by one state, which could be viewed as the end of anything like a federalist system, and the enabling factor for the rise of leftism in America.

  11. “The attempt to call an Article V convention to overrule the Reynolds v Sims “one man one vote” atrocity fell short by one state, ”

    The “constitutional tool” failed there. So never try using it?

  12. newrouter: Um, did I say anything like that?

    I’ve not seen any proposals for amendments that will stop the rot. NY, CA, IL, would still be sane if not for one man one vote, but I don’t think they’re saveable now. Certainly term limits won’t accomplish anything.

    One thing I’d like to see, that doesn’t require an amendment, is to have Congredd meet remotely, so our representatives have to live among us, and not bathed in the DC swamp. Once you have that done, increase the size of the House by 5 or 10 times.

  13. Brian, I would suggest moving some of the bureaucracy, such as EPA and Education, to central areas, like Detroit and St Louis. That will accomplish two important things.

    One it will weed out the DC gentry who will resign rather than live among the proles.

    Two, it just might focus some attention of the rest to the real problems in America.

    I know it’s too much to hope for but Trump is just crazy enough to do it.

  14. Moving some of the bureaucracy…it would also reduce costs…definitely real-estate costs, and potentially salary costs (if the salaries are properly cost-of-living adjusted)

  15. Mike K, yes, I like that too. Both the elected government and the unelected bureaucracy should be scattered across the country.

  16. In Sasse’s campaign, he was pictured pulling the capitol to Nebraska. That was funny but St. Louis, the gateway to the west, might have a certain appropriateness.

    What I liked about the early years was that culture as important in Boston, money in New York, and politics in Washington. Its like the kind of high school where there are crazy cliques and snobbishness, but you can often find one that works for you (well, kind of). (Band nerds, science nerds, dudes in football, art people, drama people – you get the idea.)

    When grants come from Washington for books written for New York’s best seller lists and money comes from techies who don’t understand kickers, etc. the result is probably the mess we are in now.

    What struck me was that socialism is, essentially, a moral hazard in your definition – and the fact that its temptations appear in all communist versions of politics and inevitably lead to seeing citizens as ciphers – to be molder or destroyed – and money as best spent on the autocrat and his immediate family indicates how powerful is rational.

  17. “Certainly term limits won’t accomplish anything.”

    Sure it will. But you have to view Art V Cos as a means to seize power back from DC. Including amending Art I Sect. 8 clause 2, the new principles can’t easily raise the debt beyond $22 trillion. Currently it takes 279 people in DC(218 house, 60 senate, 1 Pres) to raise the debt owed by 330 million people. You have to seize power 1st. Money is power. All the rest is wishful thinking.

  18. “Millions of college students are so terrified of loans they’re turning to ‘Sugar Daddies’ for help paying for school”


    ” The better idea in motivating millions of citizens in 38 States to contact thousands of State Reps., Del., Senators is to call for a COS that is committed to solving the main principle-agent problem : the US Congress. “

  19. Newrouter: Make no mistake, I am 100% in favor of term limits. But they won’t help, unless the system is changed. CA passed term limits for their legislature, and the system is still completely rigged in favor of public sector unions and the Democrat party.

  20. ” CA passed term limits for their legislature, and the system is still completely rigged in favor of public sector unions and the Democrat party.”

    They would only work if the limits applied to staff members. After 10 years, you have to get a real job,

    All the present version of term limits does is to turn the power over to the permanent staff. Nowadays, most legislators begin as staff members, like Paul Ryan did.

  21. “But they won’t help, unless the system is changed”

    That’s why amending Art I Sect 8 clause 2 is essential. Take the credit card away and the new bums have to make the new system work.

  22. Yes, and Zinke was unfairly attacked on the Puerto Rico power system story. Puerto Rico is hopelessly corrupt politically and only an outside organization could hope to get the job done in any reasonable time and for reasonable costs.

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