Public choice theory provides an economic analysis of which of the following subjects?

journal article

Public Choice

Vol. 140, No. 3/4 (Sep., 2009)

, pp. 503-538 (36 pages)

Published By: Springer

https://www.jstor.org/stable/40270935

Abstract

Public choice economists began studying anarchy in the 1970s. Since then, the amount of research on anarchy has burgeoned. This article surveys the important public choice contributions to the economics of anarchy. Following early public choice economists, many economists are researching how individuals interact without government. From non-public-interested explanations of the creation of government to historical studies of internalizing externalities under anarchy, public choice scholars are arriving at a more realistic perspective of human interaction with and without government. Although the economics of politics receives more attention, the economics of anarchy is an important area of research in public choice.

Journal Information

Public Choice deals with the intersection between economics and political science. The journal was founded at a time when economists and political scientists became interested in the application of essentially economic methods to problems normally dealt with by political scientists. It has always retained strong traces of economic methodology, but new and fruitful techniques have been developed which are not recognizable by economists. Public Choice therefore remains central in its chosen role of introducing the two groups to each other, and allowing them to explain themselves through the medium of its pages.

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Springer is one of the leading international scientific publishing companies, publishing over 1,200 journals and more than 3,000 new books annually, covering a wide range of subjects including biomedicine and the life sciences, clinical medicine, physics, engineering, mathematics, computer sciences, and economics.

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Dr. Tibor R. Machan is Professor of Philosophy at Auburn University, Auburn. Alabama, Senior Fellow of the Reason Foundation and author, among other works, of Human Rights and Human Liberties.

ln October 1986 Professor James M. Buchanan was awarded the Nobel Prize for economics. He received the award for his pioneering work in public choice theory, a branch of economic analysis that studies the behavior of politicians and bureaucrats, especially in a representative democracy such as the United States.

Professor Buchanan, who now teaches at George Mason University in Fairfax, Virginia, developed his theory in cooperation with several other economists, most notably Professor Gordon Tullock. (During the development of public choice theory both of these economists taught at the Virginia Polytechnic Institute and State University, Blacksburg, Virginia.) Their book, The Calculus of Consent (University of Michigan Press, 1962), pioneered this new application of economics. Since its publication, other books and journals have followed, including the scholarly journal of the Center for Study of Public Choice, Public Choice, which published extensive and complex studies on a great variety of topics of concern to public choice theorists. Professors Buchanan and Tullock also have inspired numerous other economists, philosophers, political scientists, and legal theorists to explore various implications of the public choice approach.

What do public choice theorists claim? Essentially they hold that when people enter government and become “public” servants, they act on the same motives they would if they were agents in the marketplace. “Public” servants are motivated no less by private interests than are men and women in business. As Buchanan puts it, “Politicians and bureaucrats are seen as ordinary persons, and ‘politics’ is viewed as a set of arrangements, a game if you will, in which many players with quite disparate objectives interact so as to generate a set of outcomes that may not be either internally consistent or efficient.”[1]

Public choice theory also implies, in Buchanan’s words, that “The bureaucracy can play off one set of constituents against others, insuring that budgets rise much beyond plausibly efficient limits.”[2]

To appreciate adequately why public choice theory delivers its paradoxical conclusions concerning what our public servants actually do—namely, further their own private or vested interests—one needs to know the basic postulates of contemporary economic science. Mainstream economics today assumes that we always behave so as to maximize our satisfactions or wealth. As another Nobel winner in economics, Milton Friedman, put it,

. . . every individual serves his own private interest. . . . The great Saints of history have served their “private interest” just as the most money-grubbing miser has served his interest. The private interest is whatever it is that drives an individual.[3]

Or as another influential economist, Professor Gary Becker, put it as he spelled out the fundamental tenets of his social-scientific approach to understanding human affairs, “The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach as I see it.”[4]

What this view means in common parlance is that economic science assumes that we are all driven by our desires. These are ranked in order so that some of us prefer sweet things, fresh air, excitement, music, sports, in that order, others don’t. It is such desires to have or do various things that motivate us and there is nothing from the economic point of view that needs to be said about whether these are good things or bad. And in the more extreme scien-tistic versions of economics, there is nothing anyone can do about what will motivate people. Our motives are simply what explains what we do, period. And if we wish to understand people’s behavior, we need to pay attention to the fact that they are motivated by their desires.

Of course, there are various nuances in economic theory which are not captured in the above general statements. But the main point is that we must do what we desire to do. And public choice theorists take this view into the special area of understanding the behavior of public officials by asserting, as a corollary of general economic analysis, that not only do we do this as shoppers, bankers, merchants, corporate executives, brokers, and the like, but also as “public” servants.

Revising Common Sense

There would be little interest in public choice analysis if it did not serve to modify our non- technical understanding of how public servants behave. That is why Professor Buchanan was honored with the Nobel Prize. He points out something that we normally were not aware of—indeed, something that we very likely would have missed without him.

Ordinarily we take it that politicians, bureaucrats, diplomats, and other “public” servants are devoted to the public interest, not to what they privately desire. At least, we take this as their professional responsibility, something they ought to be doing, at least when they carry on in good faith. A public servant is not supposed to be a profit maximizer, one who wants to satisfy himself in a competitive marketplace. Put plainly, such as person is supposed to pursue the public interest.

Yet public choice theorists deny this common assumption. What they say by way of economic analysis may be put in more familiar terms: They believe that people in public positions really try to advance their own lot before anyone else’s. But is this the whole story?

Public versus Private Service in the Welfare State

Governments of welfare states get involved in all sorts of activities to pursue particular goals that various individuals and groups of citizens seek to achieve. They further the lot of artists (via the various arts councils and endowments), farmers (via subsidies and price support programs), various professions (via licensing requirements), auto workers or high-tech industries (via trade policies), and so on. The welfare state expects a great deal of its government and even if officials conscientiously tried to fulfill their duties to their con-stituencies, they would go astray in their assigned tasks. It is not surprising, furthermore, that “public servants” who serve special interests are not able to keep their minds on what the public interest happens to be.

Virtually no meaningful distinction betweeen the public and the private interest is possible when government promotes the same ends that are pursued in the private sector. Indeed, as soon as some people are dissatisfied with how the private sector achieves some private purpose, governments are quickly approached to promote that same purpose. Too many examples come to mind to pick the most appropriate one, but a very apt recent case is day care centers. Although hundreds of private companies and other agencies fulfill the task of serving single or working parents with child care facilities, there is constant support from various segments of the public for government to expand its involvement in this activity. From AIDS research to trade restrictions, the bulk of contemporary legislation comes to little more than government helping people with their private or vested interests, misnaming it all as the pursuit of the public interest. There appears to be no public interest distinct from the varied private or special interests the government now serves.

Here is a case that is familiar to me. The federal government recently started the Jacob J. Javits National Graduate Fellowship Program (NGFP). People from various branches of the educational establishment were appointed to a board of overseers. Colleges and various groups devoted to undergraduate education beseech the board to conduct an effective program, one that really helps deserving undergraduates. At the same time, of course, other people are asking the government to work toward other goals.

In this example the public choice theorist would find a clear application of the assumptions of his view. Indeed, this is one way of describing what happens in cases such as the above that conforms to what public choice theory would predict: To wit, those on the overseeing board eagerly promote the efficient administration and ample funding of the program in question. They select the appropriate panels and panel chiefs, they encourage the supporting staff, in this case from the Department of Education, and they report back to Congress with requests of further and more abundant support for the program.

Vested versus Public Interest: A Meaningful Contrast

But there is another way to describe what is going on here, a way that may be compatible with public choice theory yet does not cast the situation in the same conceptual light. And it may be important to try to do this because the public choice theory idea is rather pessimistic—if we really are all just trying to gain our own advantage, even when we swear that that is not what we will be doing in our role as politicians or bureaucrats, what’s the use of even pointing this out? Those assigned to fix the situation, even at the institutional level (as Buchanan suggests), would be simply carrying on in the same hopeless way as have all the other “public” servants.

In a case such as the NGFP, the appointed overseers and administrators are asked to do a good job. And they are asked to report to Congress about how well they are managing to do what members of Congress have decided on doing. And in most of these cases these people see that the money they have to administer is not enough to do the job as well as they can conceive of doing it. After all, if the program is to be carried out, it should be done right, shouldn’t it?

As described above, this does not seem to be a case of politicians and bureaucrats simply wishing to fulfill their desires, nor of being driven by private interest. Not quite, although that is clearly part of it, especially when we focus on the staff hired to administer the programs in question, that is, “those persons,” as Buchanan describes them, “who actually supply the goods and services that are provided via governmental auspices.”

Modifying Public Choice Theory

Some friendly critics now make a point against public choice theory that seems to take into account the above understanding of what goes on in public administration. They seem to be aware that referring merely to the private or vested interest of those involved in carrying out the project fails to give full justice to the situation. They contend that in order for public choice theory to be an adequate explanation of how politicians and bureaucrats behave one must also consider the belief system that motivates them—e.g., whether they are conservatives, liberals, libertarians, socialists, whatnots, and whether they have a bona fide commitment to the programs involved or are merely advancing their private roles in the administration of such a program. They may even have a bona fide public service orientation, albeit somewhat unorthodox in what this means.

Professors Joseph P. Kalt and Mark Zupan, of Harvard’s Kennedy School of Government and the University of Southern California, respectively, have argued that an “ideology” variable must be added to the public choice or “economic man” model so as to explain what members of the U.S. Congress and other bureaucrats do as they approach their various projects. In particular, they studied what the United States Senate did in the case of coal strip mining. Their statistical analysis shows that the “ideology” variable explains the voting patterns of the Senate on the Surface Mining Control and Reclamation Act (passed in 1977) better than does the public choice model. In short, in addition to considering the desires of the legislators to be re-elected, the bureaucrats to continue on and expand their jobs, etc., we need also consider the broader political ideals of public agents.

Some people, of course, will suggest that adding the ideological variable does no damage to the economic man model. They will say that the urge to follow an ideology is no less a case of utility maximization than the urge to seek a vacation in the Bahamas or to increase one’s income. But this simply makes shambles of the explanatory value of the economic man model. Any factor or model that explains anything whatever—e.g., self-defeating as well as self-serving conduct—simply explains nothing much! If economic man explains the bank robber as well as the banker, what can we learn from the explanation? In no science would this kind of approach be admitted.

In order to avoid this vacuousness, the ideological variable has to be seen as adding a dimension-namely, what kind of conduct human beings take to be proper, what they see as binding on them quite apart from what they may prefer. This is how we can make sense of self- control, restraint, integrity, etc., not by lumping them all together and thereby wiping the human world clean of meaningful distinctions.

Indeed, Professor Buchanan himself has focused his attention on some of the broader philosophical issues concerning public choice, finding the pure economic explanation of human behavior insufficient. The following passage from Buchanan will shed light on just how his thinking differs from the pure economic man approach to understanding political behavior:

. . . once the body politic begins to get overly concerned about the distribution of the pie under existing property-rights assign-ments and legal rules, once we begin to think either about the personal gains from law-breaking, privately or publicly, or about the disparities between existing imputations and those estimated to be forthcoming under some idealized anarchy, we are necessarily precluding and forestalling the achievement of potential structural changes that might increase the size of the pie for all. Too much concern for [distributive] “justice” acts to insure that “growth” will not take place, and for masons much more basic than the familiar economic incentives arguments.[5]

In other words, focusing on the behavior of public servants within the current political and legal framework is not sufficient for understanding what alternatives face us in understanding and conducting public affairs. It can serve to block basic reform which is itself not impossible despite the motivations of public servants.

Ideas Can Have Consequences

Basic reform may emerge as part of the ideology that public servants themselves can infuse into their conduct in the public realm. If public servants were to become convinced that the promotion of some popular project is indeed not a proper government activity in the first place, then despite what they might do in circumstances which are not governed by this “ideological” consideration, they could come to behave very differently from what public choice theory predicts.

In particular, suppose that a politician or bureaucrat came to understand that as the government is conceived under the welfare state, its operations must produce the famous tragedy of the commons—the overuse of the public realm (which in this case is public funds). This is a genuine tragedy in that something is morally amiss, yet given some of the structural features of government, it is not possible to remedy matters. Indeed, the problem of balancing the budget versus promoting worthwhile goals is just the sort that characterizes this tragedy—everyone conscientiously aims to serve worthwhile goals, yet in the process a general shortage of the means to support such goals is created throughout the community.

Once this is understood by public servants, it could turn out that they will discipline themselves to focus on the appropriate reforms. There are in our time ample cases of such realignment of public behavior. Despite the fact, for example, that the Jayits Program serves a valuable purpose that no one can fault, there are those involved in it who regard it as not the proper function of government to serve this purpose. This idea may be unusual these days and indeed such people are sharply resisted by many of their colleagues and those who come to “testify” before board meetings of the administrators of the program—i.e., supporters and lobbyists. Pleas about how similar projects, aimed at helping the sciences, are receiving so much more funding, so why not carry forth with this little bit for the humanities are often met with: “This is where I can do public service and if I had the chance to do it elsewhere, I would.”

The realignment may, of course, come from a different understanding of public affairs, so the particular “ideology” that may lead to the reform must be carefully scrutinized, apart from the analysis of public conduct itself. But clearly the “ideology” of the public servant, not simply his or her vested interests, has a bearing on the development of public affairs. The reason this is obscured and why public choice theory is only now adjusting itself to the insight is that the welfare state is structurally incapable of facilitating the serving of a distinct public interest when it implies by its scope that no distinction between public and private concerns exists. This (socialist) notion can cause much confusion.

Conclusion

There is reason to think that while economic analysis is crucial for understanding virtually any area of human behavior, it is not sufficient for such an understanding. There are, for example, politicians who buck trends, who see that the fulfillment of their responsibilities lies with remedying, as best as possible, the consequences of the special interest hustling that dominates the politics of the welfare state. Some of these support—incidentally, with the advice of Professor Buchanan—the Balanced Budget Amendment movement. Others support appointments to various government bodies knowing that those whom they will appoint are not going to ask for more support for these pro grams. They will, instead, urge greater and greater restraint so as to solve the broader problem of creeping statism, holding that the special problem the program had been established to solve should be handled by people outside the scope of politics.

Professor Buchanan taught us that when government extends beyond its proper scope, it is very hard to limit its expansion. Yet we can still rely on the convictions of a few brave public servants who will try to resist the advances of statism and on the James Buchanans of the world to tell us that government must be limited to genuine public service—the maintenance and preservation of justice as spelled out in the Declaration of Independence.

1.   James Buchanan, “Why Governments ‘Got Out of Hand,’” New York Times, October 26, 1986.

2.   Ibid.

3.   Milton Friedman, “The Line We Dare Not Cross,” Encounter, November 1976.

4.   Gary S. Becker, The Economic Approach to Human Behavior (University of Chicago Press, 1976), p. 5.

5.   James Buchanan, “Boundaries on Social Contract,” Reason Papers, No. 2, 1975, p. 27 (my emphasis in last sentence).

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