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20160917 Government Failure

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MAIN IDEA:

The main idea of this small book is to concisely present key points of the Theory of Public Choice through 3 essays of its intellectual founders. The main point of this theory is that humans remain humans and care most about their own interests regardless of whether they work in private or public sector. Consequently it makes rules of market competition applicable to public sector, providing, however, that in this case the competition is not for market share and profit from selling goods and services to consumers, but for position in political / bureaucratic hierarchy with most power to obtain and direct public resources in one’s own interest regardless of whether it is beneficial to anybody else or not.

DETAILS:

PART I: THE THEORY OF PUBLIC CHOICE Gordon Tullock

1.    People Are People: The Elements of Public Choice

Public choice is scientific analysis of behavior of individual with respect to government, which comes down to transplanting the general analytical framework of economics into political science. This theory rejects the dominant view of bifurcated human behavior that posits that when moved to political arena individuals magically forfeit their own self-interest and act exclusively in the interest of public. Instead it views politicians as individuals good at being elected into the office and stay in office generated both monetary and psychological benefits not different from any businessman on the market. Author looks at specifics of democratic versus nondemocratic government, their costs and benefits, and how politicians pursue their interest depending on the nature of political market. In the summary the Theory of Public Choice lead to conclusion that government inefficiency if not a bug, but the feature and the best way is to minimize government sector to the areas of absolute necessity where market solutions are not feasible such as military and legal systems.

2.    Voting Paradoxes

This is review of electoral systems and their paradoxes. One example of paradox is selection A over B over C over A due to sequence of binary choices. Another example is British system when parties have constantly build coalitions in order to obtain majority. Author looks in a bit more details at Proportional representation and Single-Member Constituencies systems. Finally author discusses multi-dimensional character of politics when different constituencies put different weights on issues.

3.    Logrolling

This is a very important concept for group decision-making when members of the group exchange votes conditioned on support for each other issues. Generally it results in benefits exchange at the expense of people not represented or weakly represented in decision-making group, leading to expansion of lobbying. Author refer to Reagan’s tax cut as example of victory of common interest over special interests, which happens extremely seldom, unlike multiple victories of special interest that occur practically on daily basis.

4.    The Cost of Rent Seeking

This is discussion of rent seeking (government granting of special privileges) and its cost. Author admits that we do not have adequate methods to measure cost of rent seeking, but there is plenty of evidence that it is tremendous and naturally growing with each expansion of government regulation and interference into resource distribution.

5.    Bureaucracy

This is review of Bureaucracy and its power that in such developed countries as USA and UK actually accedes power of politicians. Obviously Public Choice deny the notion that bureaucrats’ objective is public good or institutional interest as deeply contradictory to empirical evidence. Author stresses his attitude to bureaucrats as not bad, but rather just normal people whose activity is necessary for functioning of big organization public or private. He just rejects notion of bureaucracy as a group of idealists working for common good and promotes empirically valid notion of bureaucrats as self-interested individuals whose actions may or may not be in public interest, but are always in their own interest.

6. Tax “Avoision”

“Avoision” is combination of all legal and illegal methods used to decrease one’s taxes. Author goes through examples such as mortgage deduction, adjustment of corporate structure to minimize tax, cost of multiple loopholes designed to encourage individuals and entities to act in interests of bureaucracy, and even cost of underground economy that exist exclusively to avoid taxes and regulations imposed by government. The conclusion is that Avoision is quite often beneficial for society because it add goods and services that otherwise would not be created and even puts some restrains on government, which could be good or bad depending on what government does.

7. Federalism

The final chapter of this part is about interaction between local and centralized government entities and advantages of federalism: more responsive to people local governments combined with high concentration of resources in central government. Also voting with the Feet is very important feature of federalism that allows voters reward or punish local government by moving in or out of its jurisdiction. Author strongly support federalism and express some dismay that movements in recent years is mainly to centralization.

PART II: AMERICAN APPLICATIONS Gordon L. Brady

8. Protection in International Trade

This is review of application of Public Choice theory to international trade. It mainly discusses how personal interests of bureaucrats and politicians sometime support, but sometime impede free trade depending on their constituencies despite generally accepted idea of its benefits.

9. Internet Governance

This chapter reviews Internet as unusual area of minimal regulation and how bureaucratic interest keep pushing to increase in it. It is written a while before Obama’s attack against Internet freedom, but it is quite obvious it was long in coming.

10. Public Choice to Telecommunications

This is an interesting case when Telecommunications that were developed at the pick of bureaucratic power in 1930s got to be regulated to monopolistic level. The most interesting part of this natural experiment was review of benefits created by deregulation of this area. The process of deregulation, as consequence of new technology not covered by regulation and complex political logrolling, is especially interesting as an example of potential decrease in bureaucratic power by setting up various groups of bureaucrats against each other competing for higher rent.

11. Public Choice to Environmental Policy

The final chapter of this part is about environmental regulation and EPA. Created as tool to rule in externalities of industrial production, which harmful effects become obvious to population, it quite successfully put break on most obvious harm caused by emission and pollution, clearly providing for public good. However as any bureaucratic organization it immediately expanded in search of rent and power, eventually becoming a huge impediment on economic development via multiple costly regulation without and meaningful impact on improvement in environment.

PART III: PUBLIC CHOICE IN BRITAIN Arthur Seldon:

12. Public Choices or Political Sovereignty?

This is an interesting discussion about Political Sovereignty in view of the Theory of Public Choice. It stresses that ratio of individual decision making versus collective decision making has great impact on quality of live in any society. It shows in some details in regard to public goods, redistribution, and welfare how increase in collective decision-making actually means increase in decisions made in the interest of bureaucracy at the cost to population, leading to increasing reluctance of population to curry this cost.

13. Government Intentions and Consequences

This is discussion about distinction between public and private interest that author believes to be fictional. In reality the only interest that exist is always private interest and “collective” practically means interest of bureaucrats and politicians. Author also debunks myth of Collective Superiority using example from British history of welfare and public housing.

14. Overdependence on the Welfare State

This is British specific history of welfare state development and harm to population in caused.

15. The Weakening of the Family

This brief chapter is about negative impact on family from expansion of welfare state to the level when bureaucrats substitute parents. The only reasonable solution created by this expansion of government is remove bureaucrats’ power over family live.

16. Voters versus Consumers

This is about perception and actions of politicians depending on their values. It practically means that politicians consistently value voters much higher than consumers, creating condition for intentional promotion of unjustified fear and resentments so politician could use them to win election, even if in reality it causes real harm to their voters as consumers causing them for example to avoid Genetically modified food, which has much higher quality and lower price than conventional.

17 The Political Fate of Economic Federalism

This is about current centralization of government at the expense of federalism. Author reviews this process and its consequences and concludes that it leads to rejection of democratic government and attempts to escape to open markets.

18. The Escapes from Overgovemment: Political Power Yields to Economic Law

The final chapter is about future and unsustainability of infinite government growth that increasingly hurts population. Author strongly rejects an idea that the choice is between Government and Anarchy and stresses new opportunities to escape excesses of Public Choice and expand sovereignty of the public.

MY TAKE ON IT:

The Theory of Public Choice is the great achievement of political thinking that while still mainly in infancy will eventually become dominant due to the simple fact that growth of government and bureaucratic abuses of individual will, supports rent seeking on the large scale, and creates opulent political / bureaucratic enclaves such as Washington DC becoming richer, while population becoming poorer. It will inevitably force people to reject socialist / statist ideas of XX century as unworkable. The only problem here is that while correctly and wonderfully clearly describing Public Choice of bureaucrats and politicians it does not provide solution for this conundrum. I, on other hand, think that I have one: equal marketable (time limited rent only) rights for natural resources that would provide all individuals with resources and allow for automatic selection via market mechanism of individuals most capable for effective and efficient application of these resources to generate goods and services. I also think that limitation of government to its legitimate area: use of violence to prevent and/or retaliate for violence, enforcement of legitimate contracts, and acquisition of factually correct information to support individual decision making, would dramatically decrease abilities of bureaucrats and politicians to seek rent and to use other people’s resources for themselves.

 

 


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