Public choice is the application of economic methods to analyze political decision-making. Prior to the public choice revolution, academic and policy analysts tended to assume that once an “optimal” course of action was identified, government would follow that course of action. Public choice recognizes that government decision-makers may not have sufficient information to identify an optimal course of action, and that even if they do, they may not have the incentive to follow through on that course of action.
Instead of comparing the problems that can exist in real-world markets with an ideal conception of government, public choice uses the same methods to analyze both, and reveals that government intervention to solve problems often compounds problems rather than solving them.
As an area of academic inquiry, public choice has been very successful, and the public choice approach has carved out its own academic niche. However, when analyzing public policy, both academic and public policy analysts tend to ignore the lessons of public choice and assume that when they perceive problems, government will pursue the optimal course of action to solve those problems. The public choice revolution has been stopped short of victory because even though its tenets have found widespread academic acceptance, its lessons are not applied when real-world solutions to real-world problems are discussed. We assume that government acts as an omniscient benevolent dictator rather than taking into account the real-world complexities that characterize the implementation of government programs and policies.
The public choice revolution is 50 years old this year, and started with the publication of The Calculus of Consent by James M. Buchanan and Gordon Tullock in 1962. Scholars prior to Buchanan and Tullock had analyzed political decision-making using economic methods, but this book started the revolution because, first, it was very well accepted when it was published, and second, Buchanan and Tullock followed through to establish a research program for themselves and for other scholars with similar interests. The initial meetings they held evolved into the Public Choice Society which remains very active today, and Gordon Tullock founded the academic journal Public Choice which enjoys a solid reputation in economics, political science, and beyond. As an area of academic inquiry, public choice is well-established and very successful.
However, public choice is thought of as a niche area in academics, and its lessons are not applied by economists, political scientists, or public policy analysts when actual policy measures are being considered. When economists look at macroeconomic stabilization policy, they derive optimal policies, and then assume government will carry them out. When economists analyze tax policy, they derive optimal taxation policies and assume government will carry them out. Rarely do the academic analysts ever consider the government decision-making process to evaluate whether the actual political process can produce the policies the academics say are optimal.
This observation is not a nit-pick; it is a fundamental criticism of the way that economists and others analyze the activities of government. Economists have spent centuries developing methods for analyzing the way that incentives affect private sector behavior, and the way that the availability of information can affect economic outcomes. Public choice argues that these same lessons that economists have successfully applied to the analysis of markets also apply to government decision-making, so to ignore them is to pursue a faulty analysis of government.
Economic analysis of government without the insights of public choice is incorrect, for reasons generally known and articulated in public choice, yet most economic analyses of government retain this faulty methodology.
Why do economists and policy analysts ignore the lessons of public choice? Several possibilities suggest themselves. One is that those who hold political power would prefer to employ analysts who tell them, “Here is the optimal solution, and if you hire me as your adviser, I will implement it.” That sells better than the analyst who says “Even though there are some problems here, there is insufficient information for us to implement an improvement, and the decision-makers who would have to implement any solution would not have an incentive to do so anyway.”
People who claim they can use the force of government to solve problems will be more in demand by government policy makers than those who say government intervention won’t improve things. Will policy makers prefer advisers who say “I know how to solve that problem” or advisers who say “Government intervention will likely make that problem worse”?
Another reason goes to the methods employed in the academic enterprise. Theorists like to derive conditions for optimal solutions, and insulated by the Ivory Tower, they are prone to argue that now that they have found optimal solutions, it is really the job of policy makers to implement them.
Also, within the academic enterprise, a premium is placed on publications in scholarly journals, and scholars who are working on public choice ideas will have an easier time selling them to others with a similar research agenda. One result is that often public choice scholars write for each other, where their work is more readily accepted, rather than try to invade research areas that are hostile to public choice.
The academic marketplace does not value work the same way as economic markets, and often elegant but irrelevant (or even incorrect) articles are valued more highly than work that challenges accepted mainstream research, as this very insightful article argues.
To add a bit of concreteness to the discussion, we know that special interests have a substantial influence on public policy, steering policies to benefit them at the expense of the general public. We know that people who work in government agencies face their own personal incentives with regard to career advancement, while at the same time stand little to gain personally by furthering the public interest. They are risk averse because they get little credit for successes but can get substantial blame for failures. We know that bureaucrats want to pad their budgets, and spend everything they are allocated because if they don’t they will lose it in the next budget cycle. We know that there is little incentive to reduce costs when there is not a profit and loss test to gauge efficiency. We know that democratic decision-making does not always lead to optimal public policies for many reasons, starting with voters who are poorly informed. But yet, academics and policy analysts ignore these and other things we know about government decision-making and assume that government acts like an omniscient benevolent dictator.
As an academic enterprise, public choice has been very successful. But the public choice revolution has been stopped short of victory because the lessons of public choice are ignored by policy makers and academicians, who too often argue that government will pursue the optimal policy even when there is insufficient information to find it, and when policy makers do not have the incentive to implement it even if they know what it is.
For the public choice revolution to achieve victory, analysts need to take into account the actual way in which public policy is designed and implemented rather than, as is typical now, assume an outcome that can’t be achieved in reality.