July 23, 2017

Canada won’t give up on supply management, for fear of Quebec backlash

Pierre-Guy Veer provides a guided tour of Canada’s supply management system, with appropriate emphasis on the role Quebec dairy producers play in keeping the anti-competitive system in place:

Spared by the North American Free Trade Agreement in 1994, the Canadian milk supply restrictions are “in danger” again. Because of trade negotiations with the US and Europe, foreign farmers want better access to the Canadian market.

However, hearing complaints from the US about unfree dairy markets comes as paradoxical. Indeed, since the Great Depression, the dairy industry has been anything but free. It profits from various subsidies programs including “the Dairy Price Support Program, which bought up surplus production at guaranteed prices; the Milk Income Loss Contracts (MILC), which subsidized farmers when prices fall below certain thresholds, and many others.” It even came close to supply management in 2014, according to the Wilson Center.

But nevertheless, should US farmers ever have greater access to Canadian markets, it won’t be without a tough fight from Canadian farmers, especially those from the province of Quebec. Per provincial Agriculture Ministry (MAPAQ) figures, the dairy industry is the most lucrative farm activity, accounting for 28% of all farm revenues in the province, but also 37% of national milk revenues in 2013. “La Belle Province” also has 41% of all milk transformation manufacturers in Canada.

As is almost always the case with “protected” domestic markets, the overall costs to the Canadian economy are large, but the potential benefit to individual Canadian consumers for getting rid of supply management is relatively small (around $300 per year), but the benefits are tightly concentrated on the protected dairy producers and associated businesses.

But even though the near entirety of the population would profit from freer dairy markets, their liberalization will not happen anytime soon.

Basic Public Choice theory teaches that tiny organized minorities (here: milk producers) have so much to gain from making sure that the status quo remains. A region like Montérégie (Montreal’s South Shore) produced over 20% of all gross milk revenues in 2016. There are 23 out of 125 seats in that region, making it the most populous after Montreal (28 seats). So if a politician dares to question their way of living, milk producers will come together to make sure he or she doesn’t get elected. Libertarian-leaning Maxime Bernier learned it the hard way during the Canadian Conservative Party leadership race; producers banded together – some even joined the Conservative Party just for the race – and instead elected friendlier Andrew Scheer.

On the provincial level, all political parties in the National Assembly openly support milk quotas. From the Liberal Party to Coalition Avenir Québec and to Québec Solidaire, no one will openly talk against milk quotas. However, and maybe unwillingly, separatist leader Martine Ouellet gave the very reason why milk quotas are so important: they keep the dairy industry alive.

July 15, 2017

Another critique of Nancy MacLean’s book smearing economist James M. Buchanan

Filed under: Books, Economics, History, Politics — Tags: , , , — Nicholas @ 05:00

In the Washington Post, a fellow Duke professor airs some concerns over MacLean’s recent character assassination attempt, Democracy in Chains:

Professor Nancy MacLean’s book Democracy in Chains has received considerable attention since its release a few weeks ago. A recent Inside Higher Ed article reports on the critical reviews and Professor MacLean’s allegation that these critiques are part of a coordinated, “right-wing” attack on her work. The book’s central thesis — summarized elegantly in the Inside Higher Ed piece – is that Nobel Prize-winning economist James M. Buchanan “was the architect of a long-term plan to take libertarianism mainstream, raze democratic institutions and keep power in the hands of the wealthy, white few.” MacLean concludes that Buchanan’s academic research program — known as public choice theory — is a (thinly) disguised attempt to achieve this purpose, motivated by racial and class animus.

As president of the Public Choice Society (the academic organization founded by Buchanan and his colleague Gordon Tullock), I am writing to respond to Professor MacLean’s portrayal. Since she believes that critiques of the book are part of a coordinated attack funded by Koch money, let me begin with a disclosure. I have no relationship with the Kochs or the Koch organization. I have never received money from them or their organization, either personally or to support my research. I have not coordinated my response to the book with anyone. I do, however, have a personal connection to Buchanan. My father was a longtime colleague and co-author of Buchanan’s. I am also very familiar with Buchanan’s academic work, which relates directly to my own research interests. In short, I know Buchanan and his work well, but I am certainly not part of the “dark money” network Professor MacLean is concerned about.

There are many things to be said about Professor MacLean’s book. For an intellectual historian, the documentary record constitutes the primary source of evidence that can be offered in support of arguments or interpretations. For this reason, intellectual historians generally apply great care in sifting through this record and presenting it in a way that accurately reflects sources. As numerous scholars have by now shown (see here, and links therein, for an example), Professor MacLean’s book unfortunately falls short of these standards. In many instances, quotations are taken out of context or abbreviated in ways that suggest meanings radically at odds with the tenor of the passage or document from which they were taken. Critically, these misleading quotations are often central to establishing Professor MacLean’s argument.


What then, of “chains on democracy”? It is true that Buchanan did not think much of unfettered, majoritarian politics and favored constitutional rules that restrict majority rule. But the foregoing discussion should already make clear that this conclusion was not based on an anti-democratic instinct or a desire to preserve the privilege of a few. Instead, Buchanan’s careful analysis, originating in his seminal work with Gordon Tullock, The Calculus of Consent, led him to the conclusion that in choosing a political framework (“constitution”), all individuals will typically have good reasons to favor some restrictions on majority rule in order to protect against the “tyranny of the majority.” As he argued, democracy understood simply as majority rule “may produce consequences desired by no one unless these procedures are limited by constitutional boundaries” (Buchanan 1997/2001: 226). In other words, what justifies “chains on democracy” for Buchanan are his commitment to individual autonomy and equality, and his emphasis on consent as a legitimating principle for political arrangements. To paint his endorsement of constitutional limits on the use of political power as motivated by an anti-democratic desire to institute oligarchical politics is to fundamentally misunderstand Buchanan’s sophisticated, subtle approach to democratic theory, which was committed above all to the idea that political arrangements should redound to the benefit of all members of a community.

July 5, 2017

“[O]dious, hypocritical, and archly anti-capitalistic 19th-century slavery apologist John C. Calhoun is the spirit animal of contemporary libertarianism”

Filed under: Books, History, Liberty, USA — Tags: , , — Nicholas @ 05:00

Nick Gillespie on Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America, by Duke historian Nancy MacLean:

This book, virtually every page announces, isn’t simply about the Nobel laureate economist James Buchanan and his “public choice” theory, which holds in part that public-sector actors are bound by the same self-interest and desire to grow their “market share” as private-sector actors are.

No, MacLean is after much-bigger, more-sinister game, documenting what she believes is

    the utterly chilling story of the ideological origins of the single most powerful and least understood threat to democracy today: the attempt by the billionaire-backed radical right to undo democratic governance…[and] a stealth bid to reverse-engineer all of America, at both the state and the national levels, back to the political economy and oligarchic governance of midcentury Virginia, minus the segregation.

The billionaires in question, of course, are Koch brothers Charles and David, who have reached a level of villainy in public discourse last rivaled by Sacco and Vanzetti. (David Koch is a trustee of Reason Foundation, the nonprofit that publishes this website; Reason also receives funding from the Charles Koch Foundation.) Along the way, MacLean advances many sub-arguments, such as the notion that the odious, hypocritical, and archly anti-capitalistic 19th-century slavery apologist John C. Calhoun is the spirit animal of contemporary libertarianism. In fact, Buchanan and the rest of us all are nothing less than “Calhoun’s modern understudies.”

Such unconvincing claims (“the Marx of the Master Class,” as Calhoun was dubbed by Richard Hofstadter, was openly hostile to the industrialism, wage labor, and urbanization that James Buchanan took for granted) are hard to keep track of, partly because of all the rhetorical smoke bombs MacLean is constantly lobbing. In a characteristic example, MacLean early on suggests that libertarianism isn’t “merely a social movement” but “the story of something quite different, something never before seen in American history”:

February 6, 2016

The most likely explanation for politicians doing what they do

Filed under: Economics, Government, Politics — Tags: , , — Nicholas @ 03:00

In his weekly column for USA Today, Glenn Reynolds distills down the essence of public choice theory:

The explanation for why politicians don’t do all sorts of reasonable-sounding things usually boils down to “insufficient opportunities for graft.” And, conversely, the reason why politicians choose to do many of the things that they do is … you guessed it, sufficient opportunities for graft.

That graft may come in the form of bags of cash, or shady real-estate deals, or “consulting” gigs for a brother-in-law or child, but it may also come in broader terms of political support and even in opportunities for politicians to feel superior or to humiliate their enemies. What all these things have in common, though, is that they’re not about making life better for voters. They’re about making life better for politicians.

This doesn’t sound much like the traditional view of politics, as embodied in, say, the Schoolhouse RockI’m Just A Bill” video. But it’s a view of politics that explains an awful lot.

And there’s a whole field of economics based on this view, called “Public Choice Economics.” Nobel prize winning economist James Buchanan referred to public choice economics as “politics without romance.” Instead of being selfless civil servants motivated solely by the public good, public choice economics assumes that politicians are, like other human beings, heavily influenced by self-interest.

Public choice economists say that groups don’t make decisions, individuals do. And individuals mostly do what they think will be best for them, not for the “public.” Public choices, thus, are like private choices. You pick a car because it’s the best car for you that you can afford. Politicians pick policies because they’re the best policies — for them — that they can achieve.

How do they get away with this? First, most voters are “rationally ignorant.” That is, they realize that their vote isn’t likely to make much of a difference, so it’s not rational to learn all the ins and outs of policy or of what political leaders are doing. Second, the entire system is designed — by politicians, naturally — to make it harder for voters to keep track of what politicians are doing. The people who have a bigger stake in things — the real estate developers or construction unions — have an incentive to keep track of things, and to influence them, that ordinary voters don’t.

Can we eliminate this problem? Nope. But we can make it worse, or better. The more the government does and the more decisions that are relegated to bureaucrats, “guidance” and other forms of decisionmaking that are far from the public eye, the more freedom politicians have to pursue their own interest at the expense of the public — all while, of course, claiming to do just the opposite. Meanwhile, if we do the opposite — give the government less power and demand more accountability — politicians can get away with less. But they’ll always get away with as much as they can.

May 11, 2015

QotD: Tariffs are generally harmful, but persist anyway

Filed under: Economics, Politics, Quotations — Tags: , , , — Nicholas @ 01:00

For another example, consider trade barriers such as tariffs. There are good economic arguments to show that we would be better off if we went to complete free trade. That seems puzzling — if we would be, why don’t we?

The answer is provided by public choice theory, the branch of economics that deals with the workings of the political market. A tariff makes the inhabitants of the country that imposes it worse off but the politicians who pass the tariff better off, since it benefits a concentrated interest group at the cost of dispersed interest groups. More concentrated interest groups are better able to pay politicians to do things for them. Trade policy is optimized, but for the wrong objective.

David D. Friedman, “Why Improving Things Is Hard”, Ideas, 2014-07-08.

January 11, 2013

Public choice theory is neither Left nor Right

Filed under: Bureaucracy, Economics, Government — Tags: , , , , — Nicholas @ 00:01

In his obituary for the late James Buchanan, Radley Balko debunks the meme that public choice theory — of which Buchanan was one of the founding fathers — is by nature anti-left:

The discrepancy struck me at the time, and has stuck with me ever since. Buchanan’s work is often seen on the right as a critique of the left’s faith in public service. He showed that like everyone else, public servants tend to serve their own interests, not necessarily the interests of the greater public good. When a new federal agency is created to address some social ill, for example, there’s a strong incentive for the employees of that agency to never completely solve the problem they’ve been hired to solve. To do so would mean there would no longer be a need for their agency. It would mean layoffs, smaller budgets, even elimination entirely. In fact, there’s a strong incentive to exaggerate the problem, if not even exacerbate it. The agency itself is never going to get blamed for the problem. So exaggerating it helps the agency argue for more staff and a larger budget. (Thus, Milton Friedman’s axiom, “Nothing is so permanent as a temporary government program.”)

It doesn’t even need to be a deliberate thing. When your livelihood, your self-worth, and your career depend on things looking a certain way, there’s always going to be a strong incentive for you to see them that way.

Conservatives have always bought into public choice theory when it comes to paper-pushing bureaucrats. But when it come to law enforcement, they often have the same sort of blind faith in the good intentions and public-mindedness of public servants that the left has for, say, EPA bureaucrats. But public choice problems are as prevalent in law enforcement as they are in any other field of government work. And you could make a strong argument that it’s more important that we recognize and compensate for the incentive problems among cops and prosecutors because the consequences of bad decisions can be quite a bit more dire.

If we reward prosecutors who rack up convictions with reelection, higher office, and high-paying jobs at white-shoe law firms, and at the same time provide no real sanction or punishment when they break the rules in pursuit of those convictions, we shouldn’t be surprised if we start to see a significant number of wrongful convictions. If we reward cops who rack up impressive raw arrest numbers with promotions and pay raises, and at the same time don’t punish or sanction cops who violate the civil and constitutional rights of the people who live in the communities they serve, we shouldn’t be surprised if we start to see a significant number of cops more interested in detaining and arresting people than in protecting the rights of the citizens they encounter on their patrols. We can certainly hope that a sense of civic virtue and veneration for justice will override those misplace incentives, but it would be foolish — and has been foolish — for us to rely on that. Incentives do matter.

Any time I link to an article, it’s assumed that I suggest you read the whole thing. In this case, it’s a very strong recommendation that you read the whole thing.

September 26, 2012

Shakespeare’s Henry V: public choice theory in the 15th century

In The Freeman, Sarah Skwire points out that the opening act of Shakespeare’s Henry V — while boring to those hoping for battle and carnage — explains the public choice economic theory of rent-seeking:

Shakespeare’s Henry V — a favorite of theater companies and movie studios — begins with an invocation of the muse of fire, presumably because only her powerful heat and light can provide the inspiration necessary for Shakespeare’s great task of bringing forth so “great an object” on “this unworthy scaffold.” The prologue promises, after all, that we are about to see the armies of two great monarchies clash at the famous battle of Agincourt. A plea for divine aid seems only reasonable.

After all that buildup, however, the opening scene of the play has to be one of the dullest stretches in all of Shakespeare’s writing. Promised a ferocious battle with knights and horses and blood and thunder, we are given instead more than one hundred straight lines of a highly technical legal discussion between the Bishop of Canterbury and the Bishop of Ely. It is historically accurate. It is important. And it is exceptionally tedious.

It is tedious, that is, unless you are familiar with one basic piece of Public Choice theory.

Gain without Mutual Benefit

One its core concepts is the idea of rent-seeking. Unlike profit-seeking, which aims at mutually beneficial trade, rent-seeking is the attempt to use the political process to capture a bigger slice of wealth for oneself. Unlike trade, there is no mutual benefit. No wealth is created. The only profit is to the rent-seeker, and possibly his cronies. With that in mind, the opening scene of Henry V is gripping. It is no longer more than one hundred lines of fifteenth-century legal trivia. It is more than one hundred lines of some of the most explicit, uncensored, behind-the-scenes rent-seeking action in literary history.

April 26, 2012

The public choice analysis of the “Jeremy Hunt affair”

Filed under: Britain, Government, Media, Politics — Tags: , , , , , — Nicholas @ 08:18

On the Adam Smith Institute blog, “Whig” explains why the Jeremy Hunt affair should be no surprise to anyone, regardless of their party affiliation:

First of all, it is salutary to remember that this is not a party political issue. As evidence to the Leveson Enquiry itself shows, politicians are drawn to newspaper proprietors and editors like flies to the proverbial. The two have a symbiotic relationship with each other, and always have done. Clearly this relationship is the result of a classic public choice style problem — politicians have power but need votes and newspaper editors can deliver votes in exchange for a chance to influence how that power is directed. Of course, this is a very reductive description of the relationship but that is what it boils down to.

Such a relationship is evidently corrupting and open to the exploitation of special interests at the expense of general ones. How should we prevent this? Whilst party politics calls for the minister to fall on his sword, such an action will hardly prevent future occurrences. The general tone of public discourse suggests the introduction of rules, guidelines and procedures on ministers with greater bureaucratic control and less personal control by the minister. In many ways this represents the general trend of constitutional developments over the past 100 years or so. Powers should be vested in ‘disinterested’ civil servants or, better yet, in ‘independent’ Quangos like OFCOM or the Competition Commission, rather than politicians.

The bureaucratic solution, however, is no more acceptable — as any fan of Yes Minister will confirm. Aside from the issues of democratic accountability such developments raise, we should remember that civil servants and bureaucrats are human beings and have a series of vested personal and ideological interests of their own. Bureaucratic rule-making is just as susceptible to corruption as ministerial rule-making. This is especially true in the case of newspapers, which are extremely well-placed to use their influence in order to promote their own interests. Again, the Leveson Enquiry shows us exactly this situation: journalists allegedly entering into corrupt relationships with police officers.

October 21, 2011

Incentives matter, police edition

Jonathan Blanks explains that the incentives provided to police officers clearly do influence their behaviour:

Last week, former undercover police officer Stephen Anderson told the New York State Supreme Court that planting drugs on innocent people was so common that it didn’t even register emotionally to him. The story is starting to get traction in the media as an egregious example of police corruption, but it’s notable only because of the admission to the practice in open court. Each year, there are hundreds of cases in which police officers are caught stealing, using, selling, or planting drugs or pocketing the proceeds from drug busts. Despite the obligatory PR protestations that any given instance of corruption is an isolated case, the systemic, legal, social, and economic incentives in every law enforcement agency in America combine to make police corruption virtually inevitable. And with no other category of crimes are these incentives stronger than with drug crimes.

Anderson testified that drugs would be seized from suspects at a given bust, divided, and then used again as evidence against other people on site (or at a time later) who had nothing to do with the initial arrest. This was, in part, due to established drug arrest quotas the officers needed to meet. As public servants, police departments face the same budgetary pressures as any other government entity and thus their officers are required to meet certain benchmarks set by the powers that be. Added to the normal budgetary justification, however, many police officers are in the position to confiscate cash and property that can be sold at auction thanks to civil asset forfeiture laws. Many departments across the country keep a percentage or the entirety of forfeiture proceeds, so pressure to maintain a certain level of drug arrests is something straight out of Public Choice: 101.

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