Government Failure

A Primer in Public Choice

Gordon Tullock, Gordon L. Brady, Arthur Seldon

• Publisher: Cato Institute
• Year: 2002
• Print ISBN: 9781935308003
• eBook ISBN: 9781935308003
• Topic: Politics & International Relations
• Subtopic: Conservatism & Liberalism
• Index: Politics & International Relations

When market forces fail us, what are we to do? Who will step in to protect the public interest? The government, right? Wrong. The romantic view of bureaucrats coming to the rescue confuses the true relationship between economics and politics. Politicians often cite "market failure" as justification for meddling with the economy, but a group of leading scholars show the shortcomings of this view. In Government Failure, these scholars explain the school of study known as "public choice," which uses the tools of economics to understand and evaluate government activity.

Gordon Tullock, one of the founders of public choice, explains how government "cures" often cause more harm than good. Tullock provides an engaging overview of public choice and discusses how interest groups seek favors from government at enormous costs to society. Displaying the steely realism that has marked public choice, Tullock shows the political world as it is, rather than as it should be. Gordon Brady scrutinizes American public policy, looking closely at international trade, efforts at regulating technology, and environmental policy. At every turn Brady points out the ways in which interest groups have manipulated the government to advance their own agendas. Arthur Seldon, a seminal scholar in public choice, provides a comparative perspective from Great Britain. He examines how government interventions in the British economy have led to inefficiency and warns about the political centralization promised by the European Community.

Government Failure heralds a new approach to the study of politics and public policy. This book enlightens readers with the basic concepts of public choice in an unusually accessible way to show the folly of excessive faith in the state.

PART I:

THE THEORY OF PUBLIC CHOICE

Gordon Tullock

1. People Are People: The Elements of Public choice

Homo politicus and homo economicus are the same. The critical implication of this assumption of universal self-interest is that the observed differences between public choices and private choices emerge not because individuals adopt different behavioral objectives in the two settings, but rather because the constraints on behavior are different. Different outcomes emerge not because public choices are guided by motives different from those guiding private choices, but rather because in private markets self-interested voters and politicians make choices that mainly affect themselves, while in political markets self-interested voters and politicians make choices that mainly affect others.

—F. S. McChesney and W. F Shughart II,

The Causes and Consequences of Antitrust:

The Public Choice Perspective.

Political Actors and the Public Interest

Public choice is a scientific analysis of government behavior and, in particular, the behavior of individuals with respect to government. Strictly speaking, it has no policy implications except that in some cases a particular policy might be demonstrated to be impossible or extremely unlikely to achieve its stated policy goals. For example, students of public choice would not be particularly impressed with a policy of “maximizing the public interest” and would recognize the inherent difficulties of obtaining free trade or achieving a balanced budget in seven years. They would regard these policy objectives as rather like telling the pilot of a Boeing 747 to get to London faster than the Concorde.

Until the days of Adam Smith (1723–90)¹ most social discussion was essentially moral. Individuals—whether they were businessmen, civil servants, politicians, or hereditary monarchs—were told what was the morally correct thing to do and urged to do it. All these people were implicitly assumed to be, and perhaps were, engaged in maximizing the public interest. Machiavelli (1469–1527)² and Hobbes (1588–1679)³ were major exceptions to this rule; nevertheless, in both cases their influence was much less than their readership might suggest. They were taken by most of their readers as wickedly arguing against morality rather than as producing a scien-tific system that was essentially amoral.

David Hume (1711–76)⁴ was the first to make significant cracks in this monolithic approach. He took the rather obvious view that most people pursued their own interest in their behavior rather than a broadly based public interest, and in several essays applied this line of reasoning to economics. Forerunners to his work can be found in European and, indeed, non-European thought. But, until the time of Hume and his friend, Adam Smith, the prevailing view of human nature and government was that the moral or public interest approach was dominant. Adam Smith developed modern economics by assuming that individuals were very largely self-interested and by working out the consequences of that assumption in the realm of economics. In The Nature and Causes of the Wealth of Nations, Smith devoted three chapters to government, while retaining the moralistic or public-interest model.

From the time of Plato (428–347 B.C.)⁵ and Aristotle (384–322 B.C.)⁶ political science was viewed simply as a matter of producing morally correct policies. The claim by Leo Strauss (1899–1973)⁷ that political science was “the science of right action” was extreme, but not untypical. There was no formal theory of how government works outside such moral and ethical foundations.

Throughout the 19th and well into the 20th century, economists assumed that individuals are primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. Thus, individuals who enter a supermarket and purchase items of their choice are assumed, when they enter the voting booth, to vote not for the politicians and laws that will benefit themselves, but for politicians and laws that will benefit the nation as a whole. People in the supermarket mainly buy the food and other goods that are, granted the price, found to benefit themselves and their families.⁸ However, when individuals become politicians, a transformation is assumed to occur so that a broader perspective guides them to make morally correct decisions rather than follow the course of behavior that pleases the interest groups that supported them or the policies that may lead to reelection.

The Bifurcated View of Human Behavior

Economists changed this bifurcated view of human behavior by developing the theory of public choice, which amounts, in essence, to transplanting the general analytical framework of economics into political science. The statement that the voter in the voting booth is the same person as the customer in the supermarket does not seem radical, but it is nevertheless a very dramatic change from the political science literature. Indeed, the author of this Part I has often been denounced with great vigor at professional meetings by conventional political scientists for expounding this view.

This bifurcation of the individual psyche is particularly impressive when it is remembered that the economic system based upon self-interest assumptions can be demonstrated to produce a result not totally out of accord with the classical ideas of the public interest. Until very recently, however, no proof existed that the government would generate an output in accord with the classical ideas of public interest. Indeed, the first demonstration that the government might tend to produce an outcome that was optimal in any sense came from people who adopted economic assumptions about political behavior.

Given that the same people engage in market activities and in politics, assuming that their behavior has the same motivation in both of these areas seems simpler. Indeed, understanding how the bifurcated view of individual behavior has been maintained is rather difficult. Nevertheless, it has been and remains the dominant view. Of course, empirical confirmation of any theoretical proposition is more important than analytical elegance. When considering the behavior of any individual politician, most people realize that the politician behaves in a self-interested way; similarly, when considering the factors that affect votes, most people assume that personal gain is certainly an aspect.

The politician in a democratic society makes a living by winning elections. This rather simple and obvious observation seems to have escaped the early students of government. To quote an American aphorism: “In order to be a great senator, one must, first of all, be a senator.” In other words, those people whom we elect to office are there because they are good at being elected. This characteristic of periodic reassessment makes them similar in many ways to businesspeople. Just as a businessperson designs, let us say, the latest automobile so as to attract customers, the politician selects policies with the idea that the customer, who is the voter, will reward the politician in the next election. No one considers this activity as absolutely wicked, but it is, in general, not an exercise in the application of some high-level moral principle. Politicians and businesspeople will sometimes pay a price (lost constituent support) in order to do what they think is good, but on the whole they can be expected to act in such a way as to maximize their own well-being in terms of reelection prospects. Stated in different language, politicians as businesspeople pursue policies that they think the people want because they hope the people will reward them with votes. To say that the voters actually rule under this scheme is not a bad approximation. Nor is this, from the standpoint of democracy, particularly undesirable.

Politics and the Information Problem

In considering the consequences of this simple view of government, one special problem exists: economists have based their predictions on the notion that purchasers in the market are perfectly informed.⁹ Unfortunately, in the case of politics the information problem is much worse than it is in the market. Consider the following example of individual behavioral incentives in a private market choice. In purchasing an automobile I invest a certain amount of time and resources in learning about new cars, for the simple reason that I know a mistake will directly affect me and my wallet, convenience, and comfort.

But, when voting for the president of the United States, my vote will be one of 70 million cast and is highly unlikely to affect the final outcome of the election. This realization can be expected to affect the valuation that I place on my vote and the resources that I will invest to collect information to make a “correct” choice. This set of incentives means that politicians trying to select policies that will attract voters know that the voters will put much less energy into trying to make a correct choice than they would when purchasing an automobile or some other item whose shortcomings and advantages will accrue to them alone. The voters are, therefore, likely to be badly informed and may favor a politician or policies that are directly contrary to their interest. From the standpoint of the individual candidate, what is important is what the people want given their perception of the value of their vote on the outcome and the cost of becoming informed, not what they would want if they were better informed.

The same is true for designers of automobiles, but they know that their customers will be, if not perfectly informed, at least better informed than the voter. Putting it briefly, I get a positive return on additional information when I am buying a car because it will improve my choice. Frequent and costly repairs and the inconvenience of being stranded on a cold and lonely highway waiting for a tow truck are in my self-interest to avoid. Automobile designers know this, and hence they design cars with the intention of attracting reasonably informed customers. But when I vote I am aware that my vote will have almost no effect on the kind of policies I will get. This result occurs because the policies and politicians chosen will be determined to a much greater extent by the votes of other people. Politicians know this, and hence they attempt to design policies that will attract ill-informed voters.

This limited information on general topics contrasts with the much greater knowledge most people have about specific policies. Consider the following examples: farmers know a great deal about farm subsidies and acreage limitations (in the United States and in Europe); workers and management are well informed about import restrictions on goods that directly compete with those they manufacture. This asymmetrical information bias leads to the emergence of special-interest groups and encourages politicians to pay attention to them.

Democratic versus Nondemocratic Government

A special note of warning is important. In this Primer we will discuss at length the defects of the government in a democratic process; however, this discussion does not mean that we know a better way to deal with these problems. Air pollution is normally handled ineffectively by the government, but whatever one can say about the defects of the air-quality management controls that now exist, they may be better than leaving air pollution to the market. Further experimentation with nondemocratic forms of government indicates that they produce outcomes that are less desirable than democracy. As a consequence, we have a form of government that is far from what we would really like, but until a new and better one is invented, we had better keep the one we have despite its shortcomings. Nevertheless, we should be fully aware of the difficulties and inefficiencies that are to be expected from the government. The objective of this Primer is more limited: We ask, what is public choice and what difference does public choice make in understanding democratic processes?

Leaving Everything to the Market?

Are students of public choice different and, if so, why? To begin, we might ask why we have government at all. The market produces many things with remarkable efficiency, but why not have the market take over everything, as recommended by economists such as Murray Rothbard (1926–95)? The standard answer to this argument goes back to Hume, but in modern times it is associated with the names of economists such as A. C. Pigou (1877–1959) and Paul A. Samuelson (Nobel laureate in economics 1970). The problem is essentially technological. The market requires some system of property rights under which individuals are allocated power over various aspects of the real world. Individuals holding “property” see opportunities for improving their well-being by entering into various types of agreements with each other (as well as, of course, by their individual labor), thus achieving improvements in their well-being. Unfortunately, under any known allocation of property rights, occasionally the number of people who must agree is very large and, further (and this qualification is very important), the particular group that must agree is not given at the outset of the analysis.

The importance of the last criterion is fundamental. If we propose to establish a new corporation and sell stock on the stock market, we may require the concurrence of a very large number of people (buyers, sellers of other stock, regulators). But the number of people we require is a small part of all potential investors, and hence the people who will become stockholders are not prespecified. If we are proposing to improve police protection in Tucson or London, however, the number of people who are directly concerned is determined at the outset. If we permit individuals to decide whether they will pay for the police department, and given the technological conditions under which additional police protection is delivered, we would anticipate that very little police protection would be purchased. The only way out of this dilemma, assuming we have complete private property, would be to arrange a unanimous agreement under which each of us put up a certain amount of money in return for the agreement of all the others. Clearly, the bargaining costs would be immense. The role of government, under the modern view, is to permit us to gain this type of an advantage, to enter into this kind of an agreement—without requiring unanimity—and hence to obtain much lower bargaining costs.

The Costs and Benefits of Government

obviously, without unanimous agreement we must have some other method of making decisions, and it may clearly impose costs upon at least some members of the community. Thus, we would adopt government decisionmaking only if we anticipated that the costs to us of the bargaining eliminated were higher than the potential of being victimized by whatever decision process we chose. In this sense, government becomes a market surrogate for obtaining economic profit in areas where bargaining is costly. Looked at in this way, there is no obvious reason why the “public interest” must be served by the government, but one can at least imagine that decisionmaking processes could be designed so that an outcome in a sense equivalent to the classical public interest might be achieved. It would, in other words, be somewhat like market provision. In both cases, one could argue that the system provided something most people would want simply because the motivating force of the organization is individual desires.

The student of public choice, in dealing with the government, does not expect that it will efficiently achieve the “classical goals” of government. It does not follow that government cannot efficiently achieve other goals or, indeed, that with appropriate redesign, it might not achieve some of the classical goals, such as efficient enforcement of the law against assault and battery. Indeed, we can find many cases in which that goal of government has been carried out quite efficiently in the past or in the present. In the past, Washington, D.C., had safe streets, as does Zurich today.

Government and the Pursuit of Private Interests

We must accept that in government, as in any form of commerce, people will pursue their private interests, and they will achieve goals reasonably closely related to those of company stockholders or of citizens only if it is in their private interest to do so. The primacy of private interest is not inconsistent with the observation that most people, in addition to pursuing their private interests, have some charitable instincts, some tendency to help others and to engage in various morally correct activities.

However, the evidence seems fairly strong that motives other than the pursuit of private interests are not ones on which we can depend for the achievement of long-continued efficient performance. Consider two groups, federal judges and college professors. Both groups have been granted substantially guaranteed employment with no risk of being fired. In both cases, a great many of them take advantage of this tenure, not to maximize the production of truth, truthful research, or correct decisions, but to maximize their enjoyment of leisure. There are tenured professors and judges who work hard, but, in both cases, the average is fairly low.¹⁰

Most students of traditional political science would regard such remarks as not only w...

Table of contents

• Acknowledgments
• Introduction: About Public Choice
• PART I:
• PART II:
• PART III:
• References
• The Authors