The following is a guest post by Professor Dan D’Amico, professor of economics at Loyola University-New Orleans. He is currently teaching a course at LearnLiberty Academy titled “Lessons From Mardi Gras: What New Orleans Can Tell Us About Society.” It is free and fun and you’ll learn a lot about the social effects of eating babies.
This weekend is the 51st annual meeting of The Public Choice Society, held in Charleston, South Carolina. The study of Public Choice is quite simply the application of economics to the realm of political decision-making. James Buchanan termed this applied practice “behavioral symmetry.”
Given that economists model market actors as self-interested and responsive to incentives, these behavioral assumptions should be taken seriously when analyzing the decisions of politicians seeking office, policy makers designing legislation, civil servants, and anyone else who works in the public sector. One is not sprinkled with any magical dust of altruism simply because she happens to be employed by governmental rather than private institutions.
In many ways, Public Choice is an ideal counterpoint to politically popular notions of market failure. In short, market failure theory often throws the proverbial baby out with the bathwater. Market failure narratives most often presume that governments are capable of fixing the temporal challenges of market competition.
But this doesn’t tell the whole story, largely because governments often fail as badly as (or worse) market processes. In so far as systemic failures of human interaction are the result of the behavioral norms inherent to the human condition – self-interest and responsiveness to incentives – governments and markets will suffer from similar imperfections. Governments, like markets, are operated by the same set of agents – presumably, real human beings.
Hence, many of the major insights of the Public Choice School have resulted from simply comparing the incentives and outcomes of decision-making processes as they occur in markets relative to state-bureaucracies. In markets, entrepreneurs seek profit by providing products and services that meet customers’ needs at the lowest cost.
In contrast, bureaucratic incentives encourage state-actors to seek institutional growth, increased expenditures, and expanded authority, irrespective of customer value. Whatever the majority of average voters demand will be the inclinations of elected policy makers and appointed representatives. If a market manager comes in under budget, the difference is profit, often reinvested, encouraging efficiency and high performance. If a bureaucracy comes in under budget, their next year’s account is often cut, encouraging waste.
It is worth mentioning that Public Choice is much more than just an effective libertarian retort against those aiming to fix market failure through government intervention. It’s called the theory of Public Choice rather than “Governmental Choice” for a reason. Public Choice theory is not inherently libertarian; it transcends libertarianism because it is a scientific investigation of how decision-making processes occur in particular institutional settings. That being said, those seeking to promote change towards a more free society would be wise to learn and study deeply the scientific findings of Public Choice.
First and foremost, Public Choice holds insights not just for understanding the incentives and patterns of operation within governments, but for all group and or collective decision-making endeavors. Peter Boettke is fond of saying, “economics puts parameters on people’s utopias.” Public Choice, as the economics of group decision-making, puts parameters even on libertarian utopias.
In short, not all voluntary relationships are sustainable, nor are they necessarily socially desirable from the perspective of liberalism. In other words, even though a grouping of people may coordinate their endeavors with a rhetorical and genuine intent to not advocate state expansion, the mere process of their coordination may create new incentives and opportunities wherein state expansion is more likely. Such is not a matter of ethics or intentions, but one of economic science.
The new libertarian generation is very big, very factionalized, and arguably exposed to a biased sample of social theory relative to previous generations. Most young libertarians today have learned the bulk of their social science from traditional coursework in higher education, the internet, or conferences offered by organizations like LvMI, FEE, IHS, Cato, and SFL. And arguably, there is an under representation of Public Choice insights in the learning pools that younger libertarians drink and swim in most.
This is in part because Public Choice is a bit more of an advanced field relative to other sub-topics in economics or libertarian circles. Its literature and the ideas therein are more complicated than can be given proper attention in a short pamphlet or a weekend seminar. Ironically, Public Choice theory holds critical insights for understanding how the processes of growth, division, success, and failure have and continue to occur throughout the libertarian movement.
For whatever reason, Public Choice theory has been less attended to and appreciated among the new generation of libertarians. To help redress this, here is an annotated suggested reading list and some available resources for those interested in learning more.
1. James Buchanan and Gordon Tullock’s seminal work The Calculus of Consent: Logical Foundations of Constitutional Democracy is the archetypal text for the entire Public Choice tradition. It’s a dense and difficult read so tread cautiously, but if you aim to claim proficiency in Public Choice, and areas that Public Choice necessarily informs, it’s a must read.
2. When my students express frustration or hit roadblocks in fully understanding Calculus of Consent, I suggest Mancur Olson’s The Logic of Collective Action: Public Goods and the Theory of Groups as a sort of primer. Olson’s prose is clear, precise, and a bit easier to follow than Buchanan and Tullock’s, but he is unarguably engaged in a shared research endeavor.
3. If you’re going to study Public Choice at the graduate level, you’ll need a roadmap for how to track the major theoretical insights of the tradition and where they came from. Dennis Mueller’s Public Choice III thuds like a phone book when it lands on a desk, but its usefulness as a reference tool to navigate the literature is unparalleled.
4. I think of Randy Simmons’ Beyond Politics: The Roots of Government Failure as being to Mueller’s Public Choice III as Olson was to Buchanan and Tullock. In other words, it’s a more comfortable and guided tour. Beyond Politics is a great read for motivated undergraduates to get a lot of surveyed material without feeling like they are reading a boring textbook.
5. Gordon Tullock deserves a Nobel Prize. This should need no elaboration, but it is largely because of the insight found in his seminal 1967 article “The Welfare Costs of Tariffs, Monopolies and Theft,” published in the Economic Journal 5(3): 224-232. His larger text The Rent Seeking Society in The Selected Works of Gordon Tullock, Vol. 5, published by Liberty Fund, is a sort of autobiographical reflection on his theory, subsequent research applications, and the professional responses it inspired.
6. William Niskanen‘s Bureaucracy and Representative Government is a similarly critical text, in which Niskanen outlines and identifies the unique incentives and operations of bureaucratic decision making. It is comparable in importance to Ronald Coase‘s, “The Nature of the Firm” for the public sector. If you’re out to lunch on Coase, be sure to also check out “The Problem of Social Cost.”
7. I tell my students, if your parents doubt if your college economics classes are actually instilling any insight in you, read James Buchanan and Richard Wagner’s Democracy in Deficit: The Political Legacy of Lord Keynes before your next visit home and see who has a more interesting and probable understanding of our contemporary fiscal issues.
8. When released, Bryan Caplan’s The Myth of the Rational Voter: Why Democracies Choose Bad Policies, was named the best political book of the year by The New York Times. Enough said.
7. Where the asymmetric costs and benefits driving Caplan’s idea of rational irrationality end, Geoffrey Brennan and Loren Lomasky’s framework of expressive voting, explained in Democracy and Decision: The Pure Theory of Electoral Preference, complements nicely. Even without tangible or pecuniary cost-benefit paradoxes, stupid voters can still vote for stupid things, and will do so, especially when they feel good about it.
8. Public Choice’s most recent Nobel starlet is Elinor Ostrom. She was a super nice lady who will be sorely missed by all who had the pleasure to meet her. Her Governing the Commons: The Evolution of Institutions for Collective Action shows how real civic processes hold a serious and necessary potential for effective resource management.
Daniel D’Amico is the William Barnett Professor of Free Enterprise Studies and Assistant Professor of Economics at Loyola University-New Orleans. He received his Bachelor’s degree from Loyola and his Ph.D. in Economics from George Mason University. He is currently teaching a course at LearnLiberty Academy titled “Lessons From Mardi Gras: What New Orleans Can Tell Us About Society.”