More on Public Choice: Decisions are made by human beings

Last week I wrote a post on “Cronyism and public-choice problems.” I had realized that I kept discussing the term without providing much background on it.

Especially for the issues I work in, public-choice economics plays a feature role, so I thought it wise to provide more information about it.

Today, the Twitter account for The Library of Economics and Liberty highlighted a discussion of Public Choice by William F. Shugart II, the F. A. P. Barnard Distinguished Professor of Economics at the University of Mississippi and editor in chief of Public Choice, the field’s leading scholarly journal. I commend it to anyone interested in the subject.

Here’s a snippet:

The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. In the conventional “public interest” view, public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” In tending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial concerns. …

But public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and, more important, that the motivations of people in the political process are no different from those of people in the steak, housing, or car market. They are the same human beings, after all. As such, voters “vote their pocketbooks,” supporting candidates and ballot propositions they think will make them personally better off; bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics.

Two insights follow immediately from economists’ study of collective choice processes. First, the individual becomes the fundamental unit of analysis. Public choice rejects the construction of organic decision-making units, such as “the people,” “the community,” or “society.” Groups do not make choices; only individuals do. The problem then becomes how to model the ways in which the diverse and often conflicting preferences of self-interested individuals get expressed and collated when decisions are made collectively.

Second, public and private choice processes differ, not because the motivations of actors are different, but because of stark differences in the incentives and constraints that channel the pursuit of self-interest in the two settings. …

From there the discussion gets rather involved. Those interested, by all means check it out.

‘They are the same human beings, after all’

Simple as it sounds, that insight is surprisingly profound. As  Johnson & Wales associate economics professor Adam C. Smith recently demonstrated, it’s important to bear it in mind when the discussion is about empowering human beings in government to make decisions for human beings in the private sector on the thinking that human beings don’t always make rational decisions.

In my discussion of Smith’s research, I wrote:

Last year, President Barack Obama issued an executive order requiring federal regulatory agencies to use behavioral economics and psychology in designing their policies. The idea is to address the fact that people often make the “wrong choices” — a “behavioral market failure.” It is to rectify flaws in the “private choice architecture.”

As Smith explains it, “policymakers are increasingly operating under the assumption that people consistently fail to make rational choices.”

What should be glaringly obvious at this point is that, to accept that premise, one must realize that policymakers are people, too.

A syllogism (which otherwise needs not to be stated) would then emerge:

Major premise: People consistently fail to make rational choices
Minor premise: Policymakers are people
Conclusion: Policymakers consistently fail to make rational choices

Someone laboring under the “benevolent public servants” view, however, would not be able to reason their way to the proper conclusion. Here, however, the strength of the conclusion lies in the strength of the major premise.

Another way of saying that is, to the extent that people fail to make rational choices, policymakers will fail to make rational choices to which they will subject other people. As we all make mistakes, policymakers’ mistakes tend to be more dangerous as they affect so many more people than any private citizen’s screwup.

So the optimal (or least bad) approach is limited government, to keep private citizens subject to as few potential policymaker screwups as possible.

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...

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