Knowledge And Decisions

This temporal bias as between existing and prospective members of an interest group is sometimes further accentuated when a new set of interested third parties is created by legislation establishing institutions to regulate, promote, or otherwise interact with the interest group in question — for example, the Civil Aeronautics Board, the Agriculture Department, and similar governmental organizations linked to given industries. They are linked not to the industry or interest group as it might evolve on its own, with an ever changing mix of organizations, people, and power relationships. They are linked to a large extent to incumbent organizations and individuals in the industry or interest group. Normal displacement of such organizations and individuals by new competitors as time goes on is therefore often resisted by them through political, governmental actions. Incumbent businesses may be saved from bankruptcy by restricting the entry of rivals, forbidding or inhibiting price reductions by other incumbents with lower costs, or holding back technological innovations that threaten the continued profitability or survival of incumbents with older technologies.

Much political discussion of competing interest groups overlooks the competition among temporally separated segments of the “same” interest group. Temporal bias affects not only the division of costs and benefits within such an interest group, but the effect on the economy or society at large of the later direction taken by such groups under constraints established to benefit the first generation of incumbents sufficiently well organized to achieve their political goals.

The bias of political decision making in favor of incumbent decision makers in nonpolitical institutions is part of a more general temporal bias of political decision making, whose time horizon tends to be bounded by the next election. Insofar as the voters’ time horizons extend further, on particular issues, the political decision may reflect long run considerations on those particular issues. However, for the voters’ time horizons to effectively control political decision making requires that the voters be able to foresee the long run consequences of current policies. For some policies this is more feasible than for others. For many policies, including economic policies, the long run consequences involve technicalities seldom understood outside the circle of specialists. Moreover, empirical feedback can correct initial understanding only to a limited extent, since individual decision makers have often gone on to other (usually higher) positions on the strength of what was once believed about their decisions, and if it was difficult for voters to understand what was done when it was done, that difficulty may be even greater when trying to recreate the initial situation in voters’ minds years later in order to reassess the options chosen. This is not impossible, however, when the initial decision involved corruption that was later exposed (Teapot dome) or a war growing out of previous appeasement (Neville Chamberlain). The point here is simply that the knowledge costs insulate long run decisions from voter feedback to some degree, and that in the absence of voter feedback, there is no institutional incentive for elected officials to take a view that extends beyond the next election. Just how short a time horizon this is may be indicated by the fact that the average time remaining before the next election is one year for an American congressman and three years for a U.S. Senator. Of course, earlier in their terms they have more time remaining before the next election, but later they have correspondingly less. Their term of office — as of the day they take office, two years and six years respectively — gives the maximum time horizon, but the average time horizon is only half of that.