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Broadly Representative, Narrowly Captured

June 23, 2009

I’m a big fan of public choice theory, especially the work of Mancur Olson, and ever since Bryan Caplan’s The Myth of the Rational Voter came out, I’ve been wondering how to resolve an apparent contradiction between public choice and Caplan’s work.

The public choice perspective is that legislators are driven by incentives, like everyone else, and so craft policies which benefit them and their special interest backers.  Thus policies reflect narrow interests.  Caplan’s claim is that policies broadly reflect public interest – that we have trade barriers because most people are protectionist.  He goes even further and says that politicians (being more educated, economically literate, and wanting to produce good results) give us better policies than we’d get in a Mencken-style democracy where the common people know what they want – and get it good and hard.

So what’s the deal?  Do policies reflect broad interests, or narrow ones?  I suspect the answer is that it depends on your scale.  Looking at policies in a broad sense, they reflect broad interests – people want trade barriers, we have trade barriers.  Looking at the specific details, we see specific interests – we don’t have general tariffs, we have very specific tariffs which help the specific industries and companies who have the most political clout.

Thus the voters get their desired policies, while the politicians earn their kickbacks by arranging for special interests to benefit from the implementation details.  It is very difficult for voters to control this sort of thing, because most are not aware of how the details can cause lossy transfers from broad interests to concentrated ones.  Even if they were, they wouldn’t have time to read the details, and even if they did, it takes economic education and specialized knowledge about the industry to understand who is getting screwed and who is getting a handout.  Lobbyists have that knowledge, voters don’t.

I don’t want to claim that this resolution is uniquely mine, so I’ll quote a couple of pieces that I am fond of that mention this same idea.  First, Russ Roberts in Pigs Don’t Fly connects this phenomenon to the idea of “Bootleggers and Baptists” coalitions:

When the city council bans liquor sales on Sundays, the Baptists rejoice—it’s wrong to drink on the Lord’s day. The bootleggers, rejoice, too. It increases the demand for their services.

The Baptists give the politicians cover for doing what the bootleggers want. No politicians says we should ban liquor sales on Sunday in order to enrich the bootleggers who support his campaign. The politician holds up one hand to heaven and talk about his devotion to morality. With the other hand, he collects campaign contributions (or bribes) from the bootleggers.

Yandle points out that virtually every well-intentioned regulation has a bunch of bootleggers along for the ride—special interests who profit from the idealism of the activists and altruists.

If that’s all there was to Yandle’s theory, you’d say that politics makes for strange bedfellows. But it’s actually much more depressing than that. What often happens is that the public asks for regulation but inevitably doesn’t pay much attention to how that regulation gets structured. Why would we? We have lives to lead. We’re simply too busy. Not so with the bootleggers. They have an enormous stake in the way the legislation is structured. The devil is in the details. And a lot of the time, politicians give bootleggers the details that serve the bootleggers rather than the public interest.

Second, David Friedman (my dad) says that, even if you agree that government sucks because incentives matter, ideas can still influence the world by influencing what policies are broadly requested:

I see democracy as equipped, like a microscope, with a coarse control and a fine control. The fine control is special interest lobbying, the coarse control is majority voting. It is coarse because of rational ignorance. Voters know their vote has a negligible effect on outcomes and so have no incentive to acquire the information they would need in order to do a good job of making sure that governments do good things instead of bad things. The result is that how they vote and the outcome of their voting are largely driven by free information—what everyone knows, whether or not it is true.

Or consider the longstanding issue of free trade vs protectionism. All economists know that tariffs, as a general rule with perhaps some exceptions, injure the country that imposes them as well as its trading partners. Everyone who isn’t an economist “knows” that tariffs help the country that imposes them by protecting its industries from the threat of foreign competition and are bad only because other countries are likely to retaliate with tariffs of their own.

Part of the reason people believe that may be the same hard-wired hunter/gatherer mindset that Patri discusses in a different context, this time taking the form of a view of almost all issues as us against them. But another and perhaps more important part is that the wrong analysis of foreign trade is easy to understand, the right analysis is hard to understand, which is why the right analysis was not discovered until the early 19th century when David Ricardo worked out the theory of comparative advantage. One result of the mistaken popular understanding is to lower the political cost of passing tariffs and so to lower the cost to industries of buying such legislation.

Since political outcomes are in part driven by the free information that affects the political cost of alternative policies, one way of influencing outcomes is by influencing that free information.

This is a great point, and it means that education and culture matter.  Unfortunately, the progression of culture in past decades in the West has been for increasing government intervention, which gives special interests more opportunities to exert influence.  Crises are inevitable, and with every crisis, government expands its scope.  The Iraq War and the credit crunch/stimulus/bailouts are the latest examples, and they have led to enormous expansions of government power – and thus of special interest power.

To stop this culturally, we would need a culture of unresponsiveness – of believing that the best thing to do is usually nothing.  And “Crisis!  Do Nothing!” is a tough sell.  So while I applaud the efforts of cultural activists, I prefer to find ways to reset government (to clear the sclerotic growths of special interests), and increase competition (to squeeze some of the inefficiency out of regulation).

Let A Thousand Nations Bloom!

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4 Comments
  1. June 24, 2009 2:53 am

    Unfortuantely…

    Ron Paul? [x’d]
    ABCT? [x’d]
    Crisis? Do Nothing! [lolololololol]

    Tough sell indeed.

  2. June 24, 2009 5:49 am

    The microscope analogy is interesting. It would be a wonky microscope indeed. The fine control would be unpredictable, with seemingly small, sensible movements leading to outrageous, completely unpredictable results.

  3. Peter St. Onge permalink
    June 26, 2009 5:36 am

    The voters are the jury, the politicians are the trial lawyers.

    The verdict’s in the hands of the jury, but an incompetent (or disinterested) jury is in the hand of the trial lawyers.

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