Privatize the Independent Counsel!

How the dismal science applies to your life.
Sept. 4 1998 3:30 AM

Privatize the Independent Counsel!

Tired of Kenneth Starr wasting your money? Then give him the right incentives.

Kenneth Starr, as you're surely aware, has spent about $40 million on his investigation of the president. That comes to roughly 15 cents per American. If there's an American who hasn't got 15 cents worth of entertainment out of this affair, I've yet to meet him. On that basis alone, the Starr investigation might be one of the best bargains the taxpayers have ever had.

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There is, however, a larger issue. Independent counsels are not punished for overspending, so in general they'll have a tendency to overspend. Over the past seven months or so, a lot of people have made that point, but few have placed it in its proper context. Overspending due to bad incentives is not a problem with independent counsel investigations in particular; it's a problem with government undertakings in general.

To address that problem by tinkering with the independent counsel statute--or even by abolishing the office altogether--amounts to a failure of perspective. No matter how deeply you believe Starr has egregiously misspent your 15 cents, it would require extraordinary naiveté to imagine that he's dealt you the most devastating financial blow you've suffered at the hands of an overzealous public official.

So instead of obsessing over a minor symptom of a major ailment, maybe we should devote more attention to the underlying disease. If the disease is incurable, we can at least think about how best to alleviate entire clusters of symptoms.

To that end, abolishing the independent counsel's office is not terribly useful. Maybe that office should be abolished--but it would be a shame if that was the only insight we gained from this episode. Applying the same insight to more serious instances of spending run amok, we'll end up making recommendations like "abolish the Pentagon" or "abolish the Department of Health and Human Services"--recommendations that are surely unrealistic and possibly unwise. We'll learn more if we ask questions like this: Assuming that we're going to have an independent counsel, how can we adjust his incentives to make him more fiscally responsible? By thinking about that question, we might learn something about how to encourage fiscal responsibility more generally.

Here's an idea: Make the independent counsel finance his investigations out of his own pocket. At the same time, reward him handsomely for results, such as convictions or impeachments. That sets up two good incentives. First, when there's good reason to suspect provable wrongdoing, the prospective reward encourages prosecutorial tenacity. Second, when investigations devolve into nothing more than political or personal harassment, the prospective expense encourages prosecutors to shut down sooner rather than later.

There's another advantage to this system. Once the independent counsels become independent contractors, it will be relatively easy for legislators to adjust their activity levels. If a prosecutor is too lax, Congress can either raise the bounty for convictions or subsidize the counsel's expenses--say, by making him pay only some percentage of those expenses; the percentage can be fine-tuned at will. If he is too inquisitorial, Congress can do the opposite. So legislators retain control of the prosecutor's overall fervor while inducing him to concentrate that fervor where it's most warranted.

Similar schemes might improve the performance of any government agency that has clearly defined goals. For example, the Food and Drug Administration is charged with keeping dangerous pharmaceuticals off the market. Here the potential problem is not so much excessive spending as excessive caution, which creates unwarranted delays in the introduction of safe and effective new drugs. But that's not a different problem--it's the same problem in a different guise. Just as a prosecutor is tempted to overprosecute when he's spending other people's money, so also is a regulator tempted to overregulate when he's playing with other people's health. If the problems are fundamentally the same, then so are the solutions. The regulator, like the prosecutor, should bear the costs of his actions. One way to accomplish that is to pay FDA officials not in cash but in pharmaceutical company stock, which ought to introduce an appropriate sense of urgency to the drug approval process. Unfortunately, it will also discourage diligence--but we can correct that by levying large fines against the regulators whenever a deadly drug slips through to the marketplace.

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T he net result could be an FDA approval process that is either more or less stringent than it is today, at the option of the legislators who determine the size of the stock grants and the size of the fines. But either way, it would give regulators an incentive to focus their attention more precisely on those drugs that are most likely to be problematic.

Rewarding people for good outcomes and punishing them for bad ones is relatively easy when the quality of the outcomes is easy to measure. But it's harder for officials with broader portfolios of responsibility. Take the president, for example. How do we know when the president had done a good job? Should we reward him for keeping us out of war? What if he keeps us out of war through policies that make the world more dangerous for our children? Should we reward him for prosperity? What if that prosperity is a temporary illusion? And who should decide?

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