Monday, February 02, 2015

Government dilemmas


Many readers of these blogs will have heard about the difficult economic situation of Greece. Most inhabitants of this country want to get rid of the austere measures taken for improving the economy and imposed by the countries of the euro zone and the International Monetary Fund. Therefore most Greeks have voted for parties that want to renegotiate the conditions for getting aid from these institutions. But what measures do the Greeks want to take themselves? Actually I don’t know so the case that I discuss here is pure fiction but it might be real.
Suppose that the Greek government wants to reform the budget and in order to balance the books it sees as options either increasing taxes or reducing spending.
To get enough support from the people, it will be up to them to decide what to do. So the government organises a referendum in which the voters can say what they prefer. A blank vote counts as a rejection of both options.
There is a hard campaign in which the government explicitly says that it will do what the majority of the voters prefer, while the opposition advises to cast a blank vote, because it wants to bring the government down, for it stands for nationalizing the most important companies and levelling the incomes. Then it is this what the voters prefer to do:

                                                       increase taxes             reduce spending

first third of the voters                      preferred                    dispreferred
second third of the voters                 dispreferred                preferred
remaining third of the voters            dispreferred                dispreferred  (blank votes)
result                                              dispreferred               dispreferred

It is clear from the referendum that two-thirds of the electorate support our fictive Greek government so it has no reason to resign. Nevertheless, whatever the government will do will be against the preference of the voters: Either when it increases the taxes or when it reduces the budget, it will be a decision that is opposed by a large majority of the people. In either case, the voters will say: The government doesn’t do what it has promised.
The case discussed is not exceptional. It’s an example of what can happen if people have to take decisions without having the opportunity to decide in consultation but when they have to cast votes as individuals. It’s a situation that often happens in politics. In this fictive Greek government case the best the government can do is increasing the taxes a bit and reducing the expenses a bit; so doing a bit of this and a bit of that. This is what we often see in the political arena.
Be it as it is, the upshot is that sometimes we have to decide to do what we explicitly have rejected.

Source: I have take the example and the main lines of my thought from Christian List and Philip Pettit, Group Agency. The Possibility, Design, and Status of Corporate Agents. Oxford: Oxford University Press, 2013; pp. 46-47.

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