0066 The Problem With Term Limits MP3

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The Problem With Term Limits

by Ben Stone

I haven’t heard much about term limits lately, so while emotions are low and logic has a chance, I thought I would toss this out for your consideration.

Jerry and Bob were twin brothers.

Jerry inherited the Happy Day apartments from his eccentric uncle. The conditions of the inheritance stipulated that Jerry would have complete ownership of the apartments for exactly 30 years to the day. During that time he would have full ownership of the apartments and could collect as much rent as he was able, but at the end of the 30 years the apartments would become the property of the uncle’s favorite country club.

Bob inherited the Long Run apartments from the nutty uncle. The only stipulation to Bob’s inheritance was that after 30 years, if Bob chose to sell the apartments, the country club would have an opportunity to buy the Long Run apartments at the current market value as assessed by an independent auditing firm. If, on the other hand, Bob did not want to sell the Long Run apartments to the country club, he could give them to his children as an inheritance.

So what we have, no matter the titles involved, is Jerry the temporary caretaker and Bob the property owner.

Bob has short-term incentives that include making as much rent as possible, but Bob also has a long-term incentive to maintain and even improve the property so as to get the best price possible when the country club considers buying the property. So when Bob receives the rent payments from his tenants he is inclined to consider what he can do in the short term to insure the tenants stay happy and continue renting, but he will also think of how he can preserve the integrity of the property and perhaps even increase its fair market value. So not only does Bob keep the grounds clean and attractive, he has the roof inspected and begins a preventative maintenance program to fix problems before they occur.

Jerry has a different set of incentives. Jerry is inclined to get as much rent as possible and only do what has to be done to preserve that income flow for the period of 30 years. He may do some repairs if he absolutely has to in order to maintain his flow of rent, but he has no incentive to do anything but loot as much of the value as possible from the property before he loses it at the end of his term of stewardship.

Now lets project ahead and surmise the condition of the two properties in 30 years.

Jerry has systematically extracted as much of the value of the property as possible. In the last year of his stewardship he evicted the remaining tenants and stripped the apartments of furniture, appliances, plumbing, fixtures, even the wiring was torn from the walls and sent to the scrap yard for cash. Two months before the exchange with the country club was to take place, a mysterious fire broke out in the Happy Day apartments and burned them to the ground. Fortunately Jerry had the building insured and collected that fire insurance payment just six days before the whole burned out mess was transferred to the country club.

Jerry was acting consistent with logic.

Bob, on the other hand, frequently reinvested a portion of the rent into the property and improved its fair market value. When the assessor appraised the property and audited the records at the end of the 30 years, The Long Run apartments were valued 80% higher than when Bob inherited them.

Bob was acting consistent with logic.

So Jerry sucked almost all the value out of his apartments while Bob not only preserved the value of his apartments, he increased their worth. Each man’s actions were perfectly predictable and each man acted in a logical way, all morals aside. Bob had both short-term and long-term incentives to preserve the value of his apartments while Jerry only had short-term incentives. But what does this tell us about term limits and government? Nothing yet, just stick with me and I’ll bring this together.

A different example can be used to show the same model providing the same results if one carefully looks at public housing in the US. The notorious Cabrini-Green housing development in Chicago was an example of people living in a situation where there was absolutely no long term incentive to take care of the property. Therefore living conditions on the property got worse and worse until the government was forced to demolish the structures after only about 50 years. Had the buildings been privately owned and maintained, one could have expected double or even triple the life span of the structures. Of course the do-gooders in government and in “action groups” fail to see the critical connection between ownership and respect of property and they blame the problem with Cabrini-Green on the poverty of the residents. So as of the writing of this article, these socialist tools are busily planning “mixed income communities” rather than realizing the folly of all their good intentions.

The examples above are modified versions of the model that Hans Hermann Hoppe uses to explain why a hereditary monarchy is a superior form of government, in the long run, to a representative republic. The parliamentarian or congressional representative, like Jerry above, is simply a caretaker and has no ownership in government. He has every incentive to loot as much as possible within the term of his appointment. Whereas the hereditary monarch considers the country, its assets, and its citizens as his property and his inheritance to his children. The good king, like Bob above, has an array of incentives to preserve and improve the value of his property. Of course this doesn’t guarantee the monarch will always maintain and improve his property, just like it doesn’t guarantee the representative will always loot a government. But it shows that the bulk of the incentives urge specific behavior.

Of course we all realize that any elected official who holds office for a specific term will spend a good portion of that term taking actions directly related to assuring a re-election to maintain their position. This is one of the appeals of term limits. As the theory goes, if the politician is freed of the burden of seeking re-election, he may then concentrate his efforts to the job he was elected for. The fallacy here is the belief that the actions of a politician could ever produce a desirable result. In fact if government was structured in such a way that every politician’s time were completely consumed with re-election campaigns so that he could never spend one moment legislating, then perhaps the State would be rendered somewhat benign. But the bigger appeal of term limits is that it will stop “career politicians” from getting elected, then using their position to continue getting elected over and over no matter their actual performance as a legislator. The longer the politician stays in office, the more powerful they become and the harder they are to get rid of if/when they turn bad.

If we apply Hoppe’s model of ownership to the term limit question, a very interesting twist appears in the narrative. Exchanging apartment caretaker Jerry for career politician Jerry, we can see that the incentive remains in the model for Jerry to loot as much as possible for the 30 years of the term. And we understand that there is absolutely no inherent incentive for Jerry to preserve anything good in government during his term. If we then fill a congress or a parliament with Jerrys the result will be a mob of scrap men tearing down everything of value and selling it off to the highest bidder. However, if we limit Jerry’s term to 29 years or 28 years, are we to assume somehow that the incentives have changed? How about if we limit Jerry to 12 years or 8 years, have any incentive producing conditions changed? Of course not.

Hoppe’s theoretical model applied to term limits can and has been tested. The office of the presidency of the US suffered a looting version of our friend Jerry, in the form of Franklin Roosevelt and the knee jerk reaction was to implement a two-term limit on the office. What we observe now is each president spends his first term attempting to assure his re-election and his second term looting the nation and handing out fat contracts, presidential pardons, and other rewards to his accomplices.

It is possible to look back to Hoppe’s model for the solution. Government cannot be operated effectively while preserving the integrity and wealth of a nation so long as temporary caretakers manage it. Property ownership is the key to prosperity! This is a foundational truth that has been demonstrated over and over in history, yet it is ignored in government. So is the solution to be found in a hereditary monarch? Of course not. A hereditary monarch would be a monopoly of government and would lack the market forces that keep players fair in the absence of coercion. However competition and property ownership are the key aspects of a free market that drive innovation, keep prices fair, and produce more wealth than is consumed in the process. Therefore a system of competing free market governments owned by individuals would satisfy Hoppe’s model by denying an opportunity for caretaker looting while entirely eliminating the need for term limits.

Term limits, in the long run, simply produce more efficient short-term looters. But private free market governments competing for customers will provide the path to prosperity.

Ben Stone

2011