Principles of the Economics of Public Choice
• Public choice applies the methods of economics to the theory and practice
of politics and government. The economics of public choice gives us useful
insights into the nature of political decision-making.
• Just as self interest motivates the choices people make, self interest also
motivates the decisions people make in a social context. The Fundamental
Hypothesis of Economics (FHE) applies.
• Decision making in a social context (the so-called "public sector") is
necessary for every society. But the fact that voluntary exchange markets
may sometimes fail to yield efficient outcomes — or outcomes that someone
considers fair — does not mean that government operatives will do a better
job. Governments fail, too. Political decision making is not a dispassionate
pursuit of the "public interest," if for no other reason, because nothing is in
the interest of everyone.
• What is in the "public interest" cannot be defined in a meaningful way,
because we live in a world of multiple values. Different people have
different values and different interests. We also live in a world of conflicting
values. For example, which do you prefer; greater safety or greater freedom
and opportunity? Arguments that depend on the notion of "public interest"
are fundamentally flawed.
• In the struggle between different interests, small groups with narrowly
focused interests — what we often call special interest groups — have more
influence in decision making than much larger groups such as consumers
and taxpayers. Because enormous benefits can be won using the political
process and the force of government, it is rational for special interest groups
to spend large sums of money on lobbying for special privileges — an
activity that economists call "rent seeking." Concentrated benefits paid for
by widely dispersed costs give special interest groups outsized influence in
political decision making.
• The political institution of representative government (a.k.a., a republic)
creates a political market for votes, in which legislators engage in what is
called "logrolling" on behalf of the special interest groups that support
politicians with money. Logrolling is politician A agreeing to vote for
politician B's favored bill, in return for politician B agreeing to vote for
politician A's favored bill, when in fact, neither politician likes the other's
bill. With logrolling, special interest groups that want A's and B's bills
benefit handsomely, while consumers and taxpayers absorb the cost.
• In direct democracy, using mechanisms such as referenda, the majority
voting rule that is commonly adopted allows a 51 percent majority of the
voters to overrule 49 percent of the voters, and overrule up to 100 percent of
the citizens who don't vote. In representative democracies, even smaller
fractions of the population have greatly outsized influence, due to lobbying
and the outcome of concentrated benefits received by special interest groups
at the expense of widely dispersed costs levied across all taxpayers and
slightly higher prices paid by consumers for goods and services.
• Many economists and political scientists who study public choice agree
that political decision making must be constrained by overarching
constitutional rules. But as the American experience demonstrates, even a
government that is supposed to be tightly constrained by constitutional rules
and limited powers soon enough becomes a government that ignores
constitutional rules. The power of concentrated benefits to the few, with
costs widely dispersed across the many, is evidently difficult to impossible
to impede. Regardless of written laws, we always have a government of
men, not a government constrained by laws.
