The topic of this episode is, “Does Congress still suffer from Demosclerosis?”
My guest is Jonathan Rauch, the author of the classic book, Demosclerosis: The Silent Killer of American Government (Times Books, 1994). Jonathan is a fellow at the Brookings Institution, and the author of numerous books, including The Constitution of Knowledge (Brookings Institution Press, 2021), and Kindly Inquisitors: The New Attacks on Free Thought (University of Chicago Press, 2014).
I first read Demosclerosis nearly 30 years ago, when I was a graduate school student. I was rifling offerings outside the Strand Bookstore in Manhattan, and the book’s title grabbed me. Once I cracked it, the writing got me hook, line, and sinker. Rauch had taken social scientific insights to explain the mounting federal government dysfunctionality. Whereas pundits and politicos blamed Washington’s foibles and corruptions on bad people, Rauch showed that the trouble was caused by people within the Beltway rationally pursuing their own interests.
I recently re-read this book and think it is absolutely on to something important about Congress, and I am delighted to have Jonathan here to discuss it.
Kevin Kosar:
Welcome to Understanding Congress, a podcast about the first branch of government. Congress is a notoriously complex institution, and few Americans think well of it. But Congress is essential to our republic. It is a place where our pluralistic society is supposed to work out its differences and come to agreement about what our laws should be.
And that is why we are here: to discuss our national legislature and to think about ways to upgrade it so it can better serve our nation. I am your host, Kevin Kosar, and I’m a resident scholar at the American Enterprise Institute, a think tank in Washington DC.
Jonathan, welcome to the program.
Jonathan Rauch:
Happy to be here.
Kevin Kosar:
Before we dig into the substance of the book, what were your motivations for writing it?
Jonathan Rauch:
So this is the younger version of me. It was the early 1990s and by that point, I had been a journalist in Washington for around eight years, covering budgets and Congress and farm bills. A few things were happening in those days. One is we had seen a real collapse over the previous 20 to 30 years in people’s confidence in government’s ability to solve problems, and we were seeing growing frustration among policymakers that it was so darn difficult to get things working. (Of course, it’s much worse today.) Those things had me scratching my head. And then I read the work of a great economist named Mancur Olson, and a light bulb went on , and that’s when a grand theory of everything emerged that I called “Demosclerosis” and published in National Journal magazine in 1992.
Kevin Kosar:
Other close observers of the government had their own takes on what was wrong. But you came up with this idea of demosclerosis, a sort of clotting up of the arteries of government that progressively renders it less and less capable of doing what the public demands. In my introduction of you, I told the listeners to this podcast that you had drawn upon social science to come up with this analysis of government’s ills. Who was Mancur Olson, and what did you learn from him?
Jonathan Rauch:
To start, I should mention that people today complain about gridlock and Congress’s inability to act. And yes, it is worse today, but it is a different kind of thing today. Today we see partisan gridlock—it is very difficult to get anything at all past intense partisans, especially obstructionists in the Chaos Caucus, for example. What we were seeing 30 years ago was different because in those days there was lots of bipartisanship. There were lots of committees that still met and markups and legislation that moved through. And yet, despite all that activity, it seemed like the wheels weren’t getting traction, like stuff , wasn’t making a difference, or wasn’t getting through. So it was a, different kind of problem.
Mancur Olson was an economist who wrote two seminal books in a field called public choice. The first one, in the 1960s is called The Logic of Collective Action. And what he showed with mathematical demonstrations is that It’s very hard to organize groups for collective action in a society because there will be free riders. Suppose there are a hundred people living on a street and you need to repave it and you do not have a government to do it. You need to get contributions, but a lot of people do not contribute because they figure other people will, so it is very hard to get people to join together. But he points out that over time those collective action problems can be overcome through the formation of groups for collective action. And once they form, they start operating as groups to collect social resources for themselves—they become a kind of special interest or lobby.
In a second book, published in the 1980s, The Rise and Decline of Nations, Olson applied that idea more broadly and examined why the growth of major industrialized countries slows over decades. It happened in the U.S., where economic growth rates were much lower than they had been after World War II. The same thing was happening in Japan and Europe. Olson argued that it is because over time, these collective action groups gradually form, but once they form, you cannot get rid of them. Each one of them is guarding its own subsidies or cartels—any special programs and provisions it can get. And it leads to societies becoming flooded with all these special interests, which distorts their economy and slows growth. It tends to be a one-way process that only gets reversed with war or revolution, which are cures worse than the disease.
I am looking at this and it occurs to me that I am seeing the same thing happen in Washington, but in a slightly different way. We have got all these lobbies forming over time. They are hard to form, but once they form you get more and more of them, and they are doing everything from representing labor unions, to teachers, to social security recipients, farmers, maritime subsidies, etc. And then as they accumulate over time, they lock in subsidies and programs.
This locks out innovation because these special interests colonize resources—you cannot shake them loose in order to do new things. Government becomes stuck with programs that go back to maritime subsidies in the time of the Revolutionary War. That means that over time, government ages and loses the flexibility to adapt and solve problems. I call that demosclerosis.
Kevin Kosar:
It is easy to think of the special interests you just described as bad or greedy people, and think the solution to the problem is to get rid of them.
But your book argues that that would not be helpful.
Jonathan Rauch:
Right. It is not a “them” situation. It is an “us” situation.
Every single American is represented directly or indirectly by many of these groups. If you are a student, if you have had a student loan, you are represented by a group. If you are a Medicare or Social Security recipient, you are represented by a group. Many people directly join these groups, others indirectly benefit from them. We are all covered by these organizations for collective action. And many of them are idealistically motivated. They are trying to do the right thing—all of them say they are. I have never met a subsidy claimant who did not claim to be benefiting all Americans, not just themselves.
This problem—this issue of sclerosis—is a side effect of a healthy society, because it happens in societies where people are free to organize and petition their government. You can get sclerosis in a place like the Soviet Union or China, but it is a much worse sclerosis because it is the direct corruption of an all powerful government. That is much worse. But the kind we get here is a natural government aging process. You cannot get rid of it without getting rid of freedom. What you have to do it to manage it.
Kevin Kosar:
To some extent, what is happening is a game. People are responding to others’ actions, which foments more and more action.
One of the examples you use in the book is that there was an effort to make a new policy that essentially would have a deleterious effect on the owners of small automobile rental businesses. Big automobile rental businesses—I believe Hertz and Avis were the ones you cited—were in favor of this thing. So a guy who had no desire to become a lobbyist suddenly stands up an association to protect these small players, and it just bubbles up because once somebody starts moving on something, that cost is being shifted to somebody else who feels the desire either to imitate them or to defend against them.
Jonathan Rauch:
Yeah, the subsidy game—whether it is tax breaks, direct subsidies, or some special provision that gives you a monopoly of some part of the market—is zero sum, because what you are trying to do is capture a piece of the pie using the federal government. If I go out and claim a chunk of tax money, you are not getting it. And in the example you referred to, this was a kind of regulation that the big car rental companies favored because they could easily afford it, so passing the regulation would have benefitted them by putting smaller rental companies at a competitive disadvantage.
So what happens? All these small rental car companies—which never spent a dime on lobbying—wake up one morning and they realize they are being sucked into the game. And as they say in the lottery business, “if you don’t play, you can’t win, but you sure can lose.” The small auto rental companies organize a lobbying group to protect themselves against the lobbying of the big rental car companies. And suddenly you see a guy who has been in business his whole life is now switched over working as a lobbyist. It is not necessarily his first choice, but he feels he has to. So when you think about this at a social level, you can see where this leads. The more some people play, the more other people have to play, and the more they play, the more yet other people have to play. And we gradually pull ourselves more and more into this business of what is sometimes called rent seeking—which I call transfer seeking—which is either grabbing pieces of each other or protecting ourselves from others who are trying to grab those pieces off of us.
Kevin Kosar:
In the book, you try to give readers a sense of the sheer number and diversity of niche interests. You reference the Association of Old Crows, the National Paint, Varnish and Lacquer Association, the Possum Growers and Breeders Association of America, the American Association of Sexuality Educators, Counselors and Therapists, the Bowtie Manufacturers Association, the Association of Metropolitan Sewage Agencies, etc.
Listeners might think that this has got to be very expensive, and there is thus some sort of natural limit, but you point out in the book that upfront costs were going down, even before the age of the Internet.
Jonathan Rauch:
This too is part of this strange dynamic, that is really is a side effect (albeit unpleasant) having a healthy society where people can organize.
In principle, in a large society like ours, Olson shows that there is no limit on the extent to which more and more of these special interests—or what he called organizations for collective action—can form. And more form in response when others form, so society can just get more and more riddled with more and more of these groups.
Now, in practice, it has turned out, since I wrote the book, that part of what happens is there are budget limitations that can put some constraint on the payoffs to lobbying for new stuff because you cannot get any new stuff when the old claimants have locked up their share of the budget and there is no money to spend. So I thought that would limit it in practice—if not in principle—because the pie is not growing.
What I did not foresee—you saw this coming, Kevin—is a much higher tolerance for deficit spending than I thought would be the case. And by tolerance, I mean first, political tolerance, the amount the public would put up with, which appears to be pretty much infinite at this point. Second is economic tolerance. I would have thought that the rate at which we were accumulating national debt would have proved unsustainable well before now. But I was wrong about that. The appetite of foreign investors for dollars means that we have been able to continue to go deeper into debt.
The result of that has been to pile new stuff on top of old stuff, and put it on the credit card. That has put off the kind of day of reckoning that I thought would have come by now. Now, we need to discuss whether that is a good thing or a bad thing, because there is a day of reckoning out there somewhere.
Kevin Kosar:
One thing I would add is that this rent (or transfer) seeking behavior can be aimed toward the budget (e.g., spending, subsidies) or tax policy (e.g., tax exemptions, lowering tax rates).
Another important rent seeking behavior is toward regulations. We have seen an explosion of the number of regulations over the past 50 years, and that follows the same trend line you were describing with these other factors as part of demosclerosis.
Jonathan Rauch:
Yes, that is right. There are multiple avenues to pursue if you want to get into the transfer seeking game. One of them is to go out and try to get a subsidy—a direct payment from the government—but that gets difficult as the budget becomes limited. Often you find yourself in a conflict with another group that has already got a claim or has an advantage.
Another way to go about doing this is through the regulatory code—get a regulation and put your competitors out of business, for example. One of the peculiarities we see in the world of tech regulation is, Meta wants to be regulated by the federal government. And they cite some legitimate reasons for doing that. They say that the scene is just too chaotic, and we do not know what the rules are supposed to be so we are not exposed to constant congressional haranguing—tell us what to do. But a lot of people point out that they have a second reason for wanting to regulate, which is they have got huge legal departments and they can comply with these regulations. But a startup that wants to compete with Facebook or Instagram, they are not going to have a budget for a huge regulatory compliance department. That goes on as well.
Kevin Kosar:
It reminds me of what has been occurring in recent years in the alcoholic beverage industry, where we have got these new products like hard seltzers, cocktails in a can, etc. that do not fit easily into categories of beer, wine, or spirits.
Those categories are basically policed by the US Treasury’s Alcohol and Tobacco Tax Trade Bureau (TTB), which makes the regulations and decides which is which. This has a consequence because different types of beverages are taxed at different levels, so the companies involved are pushing back on one another and trying to get beverages classified as different things for the sake of tax advantage, which will lower the price and possibly lead to a larger possible market share.
Jonathan Rauch:
That is right, and when you think about that, there are some problems with that, including that it is just burning up resources. It is just expending money and talent on these zero sum wars to try to get stuff from the government.
But let’s not kid ourselves. This is not just about small groups of commercial interests. A lot of this stuff is driven by ordinary human beings. One of the biggest and most destructive forms of rent seeking in the country today takes the form of what is called NIMBYism—regulating housing by existing claimants in ways that keep new housing scarce. It is driving up housing prices and creating a crisis for young people trying to get into the housing market.
But if you ask why it happens, it is not because of the construction industry or the real estate industry—they would love to have more to sell. It is because of Americans organizing in their communities around the country who want to keep their property values up and do not want to see high density and a lot of cars in their neighborhoods. If you ask them, they will tell you that they are protecting their way of life. That is what this is about, so it is about much more than just naked self interest. In fact, this would be easier to deal with if it were just naked financial self interest because then you could buy people off.
Kevin Kosar:
And in some cases, many of us sign up to become members of special interest organizations for the benefits.
When I was a kid, one of the first things you did when you got a driver’s license was sign up with the American Automobile Association (AAA). Why? Because they offered free towing if your car broke down, and they would offer you maps so you could figure out where to go back before GPS existed. Yet at the same time they are very much a presence in Washington, D. C. and take positions on all sorts of policy issues that their members may be very well be unaware of.
Jonathan Rauch:
That is known as the principal agent problem, and it is another important strand of public choice theory. And then you have the further issue where lot of these bigger, more well established interest groups like the AARP and National Association of Manufacturers are looking at the budget as a whole and actually interested in constructive reforms that put their programs on a more sustainable footing. They are willing to talk, but they are worried that if they start negotiating about anything that would reduce their benefits in any way, other more radical groups are going to swoop in. So they are under competitive pressure as well. And that makes it more difficult, if anything, to begin negotiating and managing among all these conflicts.
Kevin Kosar:
So, DC policymaking is greatly affected by what you term the “parasitic economy.” Are there any signs that things are getting any better?
Jonathan Rauch:
Well, there is good news and there is not-so-good news. The not-so-good news is that the processes we have been talking about are inherent to all stable democracies. They are one of the consequences of having a free and stable society. You would not want to abolish this phenomenon through a reset of society, which is what Japan and Germany did. Let’s not do that.
The better news is that over time, the United States has been actually relatively good at managing the problem. So what do you do if you have got this situation of sclerosis? Well, there are a bunch of things, but the most important is to find ways to expose your special interest to competition.
Competition can take the form of new technology, it can take the form of trade (i.e., competition from abroad where you bring in new competitors), it can take the form of new people (i.e., immigration who come in and bring new ideas), and it can take the form of competition between states. If California becomes so sclerotic with overregulation, people begin moving to Texas. (Texas) Governor Abbott would be more than happy to tell you that that is what has happened.
The U.S. has been relatively open over time to competition and relatively friendly to innovation. What worries me is that in recent years, we have seen those forces under increasing attack, especially from the right. We have always seen opposition to trade, for example, from the left, but now we see it even more from the right—opposition to immigration, the desire to protect industries that are deemed especially important.
So I am concerned that the reasonably good job that we were doing managing this—which is what I would have told you 15 years ago—is giving way to something more like the relatively more closed economies of places like Japan and parts of Europe.
Kevin Kosar:
And not long ago, President Biden announced some new tariffs for the sake of protecting some American industries from competition.
Jonathan Rauch:
Yes, that is right. Some of that is defensive because the Trump wing of the Republican Party is promising draconian tariffs and crackdowns on immigration.
Kevin Kosar:
The version of the book I have is titled, Demosclerosis: The Silent Killer of American Government. You later revised the book. What was the new title and how was it different?
Jonathan Rauch:
Well, the new title—Government’s End: Why Washington Stopped Working—was different because people could not pronounce the old title, and if people cannot pronounce it, they will not buy it.
But I also saw in the seven years between the first and second editions that I got the prescription wrong the first time around.
The first time around I argued that the way you deal with this is through grand bargains. You cannot pick off interest groups one at a time. They have far greater incentives to protect their programs than anyone else does to get rid of them. We have got subsidies for sugar. The sugar lobby invests tens of, millions of dollars in that every year. If we got rid of those, you would save a few dollars every year. No one is going to spend a lot of money to save those small amounts as individuals. So I argued that you need to rope everyone together into big packages, like the tax reform bill that the U.S. did under President Reagan, a landmark bill.
I still favor those kinds of deals when they can be done. And they can be, but only about once a decade. In the second edition, I argued for a combination of big reforms and incremental changes—to trim, prune, and steadily work away to make such changes as they can to rationalize. It turned out that we were actually fairly good at that. I just read in Reason that finally—after almost three decades of trying—the U.S. is putting its tea tasting commission out of business. It actually turned out that when Congress functions in a normal way—the give and take of passing legislation, having committees act—it does an okay job of managing when programs get really dysfunctional and need to be reformed. It can do that.
So today, the problem I worry about is the problem that you, Kevin, spend your days worrying about. When Congress is really not functioning—no longer in the business of doing the everyday work of routine legislating, passing appropriations, holding the subcommittee hearings, understanding what is going on in the administrative departments and doing that oversight on a bipartisan basis—it cannot trim the hedges and pull out the weeds. I fear that is where we are right now.
Kevin Kosar:
Yes, and perhaps one fine day, we will be able to hoist a glass and celebrate the permanent end to the mohair subsidy, about which you—dear listeners—can read when you pick up Jonathan’s book, either the version Demosclerosis, which I first read or the subsequent version, The End of Government.
Jonathan, thank you so much for talking with me today.
Jonathan Rauch:
Thank you. It was fun.
Kevin Kosar:
Thank you for listening to Understanding Congress, a podcast of the American Enterprise Institute. This program was produced by Jaehun Lee and hosted by Kevin Kosar. You can subscribe to Understanding Congress via Stitcher, iTunes, Google Podcasts, and TuneIn. We hope you will share this podcast with others and tell us what you think about it by posting your thoughts and questions on Twitter and tagging at AEI. Once again, thank you for listening, and have a great day.
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