Washington: A Commons Problem

Dan Rostenkowski has had a rough time recently. Not only did six Democrats on his House Ways and Means Committee defect and vote for a capital gains tax cut, but Rostenkowski found himself one of the few voices pleading for the Catastrophic Care Act, which, for all his protestations, the House voted to repeal 360-66.

"The House is in full retread, " Rostenkowski sniffed. He said that the repeal effort was supported by only a minority of seniors. Yet Congress's mail suggested otherwise. Rep. Steve Gunderson (R–Wis.), for example, received 2,172 letters urging him to get rid of the program. Only one person wrote asking him to vote to keep it. Rep. Bill Paxon (R–N.Y.) received 3,807 letters, all asking for repeal. Rostenkowski argued that the tide of battle would turn, that the majority of seniors would speak up in favor of their benefits. But when he left the: House, he, too, was in retreat. He was met by a phalanx of seniors who surrounded his car, blocked his escape, and heaped abuse on him.

Rostenkowski's difficulties aside, the vote on catastrophic care was astounding: It was the first time a major entitlement program was dismantled. That the political will existed to end the program even before it had really begun ought to be no surprise, however.

Though the package was to protect seniors from the overwhelming cost of a major illness, it did not protect them from the overwhelming cost of paying for the program. Here the act was significantly different from other entitlement programs. Most programs give benefits to a subsection of the population and are financed broadly by all taxpayers. The catastrophic care program would have given benefits to a subsection of the population—seniors. But it would have financed the benefits with taxes on a portion of that subsection—wealthy and middle-income seniors. This rare approach was the idea of the Reagan administration, which demanded that the program be self-financing. As Congress added to the benefits originally proposed by the administration, the costs of the program exploded, and seniors were given the bill for an expensive program that many did not need.

Most of the discussion of the catastrophic care repeal has focused on the conflict of interests between poor seniors and wealthy ones. Rostenkowski argued that the poor outnumber the rich and simply needed to be mobilized for the program to be reinstated. "Mark my words," Rostenkowski said of the supposed majority of seniors who would benefit from the program, "their voices will be heard in this chamber in the very near future."

He may be right. But more illuminating than the conflict between the rich and the poor or the question of how long it will take to mobilize the poor is the change in the interests of wealthy and middle-income seniors.

Those seniors who lobbied for repeal argued that they already have pension plans and private insurance that quite adequately protect them, and they resented paying up to $800 apiece each year for benefits they already have. But is there any question that had the program been funded through general revenues most of these seniors would have heralded the plan and promptly signed up for the benefits? The question of whether private or public insurance is more cost-effective would have never been raised by them. When a program is financed by everyone, self-interest compels each of us to take as many of the benefits as possible.

Unfortunately, most government programs are set up this way. We each have an incentive to grab as large a share of the public pie as possible, even though we know that our taxes must go up to pay for these services. This is a classic example of what economists call a commons problem.

The term comes from Garret Hardin's account of overgrazing on public, or common, pastures. Each farmer could put as many cows as he wanted on the commons and would own the milk that his cattle produced. But the cost of maintaining the pasture was divided equally among all farmers. Each then had an incentive to put as many animals on the commons as he could. A farmer received the full benefit of his animals but paid only a fraction of the cost of their upkeep. The pasture was soon overgrazed, and the value of all the animals fell as they lost weight; but there was no incentive for a farmer to remove any cattle because the benefit would be shared with everyone, including farmers who removed no cattle.

Commons problems, similar to that described by Hardin, are all around us: air pollution, highway traffic, littering. And it appears that with government money, too, its the model—like an all-you-can-eat buffet at which we eat more than we want or need because we've paid the price of admission. Unlike most entitlement programs, however, catastrophic care did not fit that model. Rather, at least for wealthy and middle-income seniors, there was some link between costs and benefits.

The structure of catastrophic care, albeit unwittingly, reflected the kind of solution economists usually suggest to solve commons problems—bring costs and benefits together. For example, we may want to make our buffet a cafeteria, where we each pay for as much as we eat. The solution for the farmers was for each to own the land on which his cattle grazed.

These are solutions based on the assignment of property rights. It is unclear how similar rights can be assigned to break the logic of the entitlement commons. Perhaps the best that can be done is to tie costs to benefits as the catastrophic care program tried to do. That, however, is unlikely to happen any time soon. Congressional leaders, burned by the catastrophic care revolt, are already talking about a revised program in which funding would be "fairer." In other words, next time, they'll keep costs as far away from benefits as possible.

Pundits often point to the deficit and say it shows that Americans want expensive government services but are unwilling to pay for them. Usually, their conclusion is that taxes should be raised to cover the costs of the programs that we appear to want.

But our seemingly insatiable appetite for government services may not reflect the amount we really want, or, at least, the amount we want badly enough to pay for. Our appetite may simply be a function of the logic of the commons. Until we pay directly for the services we receive, we will never know how many government programs Americans really want. As long as government money is treated as a cormmons, we will all overgraze.

Eric Felten covers Congress for Insight magazine.