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					Too Much Of A Good Thing | The New Republic                                                                                              9/28/11 7:15 PM




  Too Much of a Good Thing
  Why we need less democracy.
   Peter Orszag      September 14, 2011 | 9:46 pm   31 comments         |    More



  FACING THIS PROBLEM is crucially important because our current legislative gridlock is
  making it increasingly difficult for lawmakers to tackle the issues that are central to our country’s
  future—issues like climate change, the hard slog of recovering from a financial slump, and our
  long-term fiscal gap. It is clear to everyone that a failure to act will lead to undesirable outcomes
  in these areas. But polarization means that little action is possible. This is why I believe that we
  need to jettison the Civics 101 fairy tale about pure representative democracy and instead begin
  to build a new set of rules and institutions that would make legislative inertia less detrimental to
  our nation’s long-term health.

  Let me be more specific in the context of fiscal policy, which was at the heart of the debt-limit
  debate. Virtually all responsible economists agree that we should be aiming to reduce the deficit
  in the long-term but not in the short-term. We need an even larger deficit in 2011 and 2012, to
  support a weak economy—but a much smaller deficit in 2020 and 2050, to put the nation back
  on a sustainable fiscal course. Yet our polarized political system has proved incapable of reaching
  a consensus on this common-sense approach.

  What we need, then, are ways around our politicians. The first would be to expand automatic
  stabilizers—those tax and spending provisions that automatically expand when the economy
  weakens, thereby cushioning the blow, and automatically contract as the economy recovers,
  thereby helping to reduce the deficit. A progressive tax code is one such automatic stabilizer.
  The tax code takes less of your income as that income declines, so after-tax income tends to
  decline less in response to an economic shock than pre-tax income. Since spending is based on
  after-tax income, the impact on the economy is cushioned. Alan Auerbach of the University of
  California at Berkeley has found that, as a result, the tax code has, over the past 50 years, offset
  about 8 percent of the initial shock to GDP from economic downturns. For the same reason,
  making the tax code more progressive would strengthen its role as an automatic stabilizer.
  Unemployment insurance is another automatic stabilizer; as the economy weakens,
  unemployment insurance expands, providing a boost to demand right when the economy needs
  it.

  Other automatic stabilizers are possible as well. For instance, rather than simply extending and
  expanding the existing payroll-tax holiday, as President Obama has proposed, policymakers
  should permanently link the tax to the unemployment rate. Consider a system under which the
  payroll tax would be reduced by 6 percentage points whenever the quarterly average
  unemployment rate exceeded 7.5 percent or increased by more than 2 percentage points over
  the previous year. Since a cut in the payroll tax is a powerful form of stimulus, this would be a
  built-in way to ensure a quick and effective government response to an economic downturn.

  Beyond automatic stabilizers, we also need more backstop rules: events that take place if
  Congress doesn’t act. In this sense, the fiscal trigger created as part of the debt-limit negotiations
  is a good step forward. It leads to automatic spending reductions if Congress doesn’t enact
  measures to reduce the deficit; in other words, it changes the default from inaction to action.

  Finally, a significant part of the response to polarization and gridlock must involve creating more
  independent institutions. A good model for this was the process of closing military bases that
  began in the late ’80s and involved several rounds. To deal with the political difficulty of shutting

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Too Much Of A Good Thing | The New Republic                                                                                              9/28/11 7:15 PM


  down bases, Congress empowered a commission of nine independent experts to come up with a
  list of bases to close. If the president accepted the list, Congress had 45 days to enact a joint
  resolution disapproving of the entire list—or else it went into effect.

  That final point is the key: The commission’s recommendations took effect unless Congress
  specifically disapproved. Thus, unlike most commissions, this one had a guarantee that its
  recommendations would not sit on a shelf collecting dust. On the other hand, even though this
  process favored action over inaction, it was not completely undemocratic: Congress still had
  oversight and could, if it wanted to, reject the commission’s ideas.

  Proposals abound for expanding this type of process. In the late ’90s, economist Alan Blinder
  proposed shifting responsibility for tax policy to a Fed-like institution of experts. Stephen Flynn
  of the Center for National Policy has proposed a similar process for infrastructure decisions—
  and, indeed, creating an infrastructure bank, as President Obama has proposed, would
  accomplish much the same goal. Such a bank would be empowered to select individual
  infrastructure projects, thereby removing some decision-making power from Congress.

  Perhaps the most dramatic example of this idea is the Independent Payment Advisory Board
  (IPAB), created as part of the recent health care reform legislation. The IPAB will be an
  independent panel of medical experts tasked with devising changes to Medicare’s payment
  system. In each year that Medicare’s per capita costs exceed a certain threshold, the ipab is
  responsible for making proposals to reduce projected cost growth. The proposals take effect
  automatically unless Congress specifically passes legislation blocking them and the president signs
  that legislation.


  THE PROBLEM WITH such commissions is that, like automatic stabilizers and backstop rules,
  they reduce the power of elected officials and therefore make our government somewhat less
  accountable to voters. Larry Diamond of the Hoover Institution at Stanford puts it this way:
  “There is something undemocratic about entrusting the formation of big policy decisions to
  expert commissions.” And yet he also goes on to note that “the process is not less democratic
  than having nine unelected justices with lifetime tenure and no political accountability to anyone
  but themselves decide such basic questions as when a woman can have an abortion and where a
  child can go to school.” He concludes that, despite the risks, rising polarization justifies the
  increased use of these types of commissions.

  As the debt-limit experience vividly illustrated, by polarizing ourselves, we are making our
  country more ungovernable—and no one has come up with a practical proposal to deal with the
  consequences. I wish it were not necessary to devise processes to circumvent legislative gridlock,
  but polarization isn’t going away. John Adams may have been exaggerating when he
  pessimistically noted that democracies tend to commit suicide, yet, as we are seeing, certain
  aspects of representative government can end up posing serious problems. And so, we might be a
  healthier democracy if we were a slightly less democratic one.

  Peter Orszag is vice chairman at Citigroup and an adjunct senior fellow at the Council on Foreign Relations. This
  article appeared in the October 6, 2011, issue of the magazine.

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Too Much Of A Good Thing | The New Republic                                                                                              9/28/11 7:15 PM


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