Cronyism and public-choice problems

On occasion, when discussing another example of cronyism, I have called it a “public-choice problem.” These have included such issues as occupational licensing, film incentives, government favoritism for renewable energy, even funeral regulations.

What do I mean by that phrase? It refers to public choice economics. Here is an excerpt from Jane Shaw’s explanation:

Public choice theory is a branch of economics that developed from the study of taxation and public spending. It emerged in the fifties and received widespread public attention in 1986, when James Buchanan, one of its two leading architects (the other was his colleague Gordon Tullock), was awarded the Nobel Prize in economics. …

Public choice takes the same principles that economists use to analyze people’s actions in the marketplace and applies them to people’s actions in collective decision making. Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest. Although most people base some of their actions on their concern for others, the dominant motive in people’s actions in the marketplace—whether they are employers, employees, or consumers—is a concern for themselves.

Public choice economists make the same assumption—that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In Buchanan’s words the theory “replaces… romantic and illusory… notions about the workings of governments [with]… notions that embody more skepticism.”

In the past many economists have argued that the way to rein in “market failures” such as monopolies is to introduce government action. But public choice economists point out that there also is such a thing as “government failure.”

Here is more explanation from my report on Carolina Cronyism:

Public-choice theory yields another faulty safeguard: the voters themselves. With so little discernible impact on an election, but with so much cost in terms of time and effort to stay informed about potential legislation, regulation, and other acts of government, an individual voter often has little incentive to scrutinize government. In general, therefore, voters tend to be ignorant of government.

Furthermore it is the nature of special-interest issues and cronyist policies that the benefits are large and limited to a few, while the costs are diffuse and small per voter. So even when voters would en masse bear the brunt of the cost of a new government policy, the cost would be spread out among them all. Meanwhile, those who would measurably benefit from the new policy have a decided incentive to be involved.

Economists James D. Gwartney, Richard L. Stroup, and Russel S. Sobel described the policymaking implications of this setup:

If you were a vote-seeking politician, what would you do? Clearly, little gain would be derived from supporting the interest of the largely uninformed and uninterested majority. In contrast, support for the interests of easily identifiable, well-organized groups would generate vocal supporters, campaign workers, and, most important, campaign contributors.

Predictably, politicians will be led as if by an invisible hand to support legislation that provides concentrated benefits to interest groups at the expense of the disorganized groups (such as taxpayers and consumers). This will often be true even if the total community benefit from the special-interest program is less than its costs. Even if the policy is counter-productive, it may still be a political winner.

The rational ignorance of voters strengthens the power of special interests. Since the cost imposed on individual for each specific issue is small, and since the individual is unable to avoid the cost even by becoming uninformed on the issue, voters bearing the cost of special-interest legislation tend to be uninformed on the issue. This will be particularly true if the complexity of the issue makes it difficult for voters to think through how the issue affects their personal welfare. Thus, politicians often make special-interest legislation complex in order to hide the cost imposed on the typical voter. (Emphasis in original.)

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

Reader Comments