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.
May 11, 2015
QotD: Tariffs are generally harmful, but persist anyway
January 11, 2013
Public choice theory is neither Left nor Right
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”
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.
