from The Library of Economics and Liberty, How We Failed Our Economics Students and Caused Low Government Approval Ratings by Russell S. Sobel:
These shortcomings happen when individuals in the public sector (voters, bureaucrats, legislators, government employees, etc.) face a structure of incentives that leads them to take actions in their personal interests that are not aligned with the public interest. For example, government agency budgets are often given as fixed amounts for each fiscal year. At the end of the year, any remaining money in the budget is usually taken back and next year’s funding is likely to be reduced because the agency did not need all the money it was allocated. To avoid this outcome, managers in government agencies are notorious for rapidly spending their remaining budgets on questionable items at the end of each fiscal year. After all, why let the money go to waste, and have your future budget cut? The point is that a person who was very careful and frugal with their money at home, or at a job in a private corporation, would behave differently under this different set of incentives that are present in the government sector.
From public choice theory, we also know that government actors have an incentive to pursue shortsighted policies that create highly visible benefits to voters now and impose uncertain costs at some point in the future. After all, voters want things now, like ‘free’ college education or ‘free’ health care, and if you can deliver it to them by running up a national debt that won’t come due for a generation and that some future politician will have to raise taxes to fund, why wouldn’t you? That’s how you win elections. And, for those of you reading this who had the Mankiw or Krugman textbooks, now you know why our national debt is huge and keeps growing uncontrollably. It’s an easy way to push the costs of providing these special interest group benefits into the future to win elections now by providing voters with what appears to be a ‘free lunch’. This is precisely why both Republican and Democrat controlled Congresses (and Presidents from both parties) have continued to run up the debt and will continue to do so unless stronger constitutional constraints are imposed upon their actions. Contrary to what your textbook likely told you, debt isn’t something that real-world political actors run only during recessions to properly conduct ideal Keynesian counter-cyclical fiscal policy. Over the past 60 years, the U.S. federal government ran deficits in 90 percent (or 54) of those years, despite the economy only being in a recession 13 percent of the time during that period. We are even currently running near record-high deficits in the middle of a sustained economic boom with record low unemployment! Again, it is simply an inexcusable failure to not provide students with the tools to understand the real-world budget and debt problems so that we may work to solve them.
An excellent piece covering several aspects of public choice theory. Read the whole thing.