Exploring Public Choice: Economics and Governance
Economics is a study of decision-making. For you and I, decision-making is simple: Which movie should I watch? Should I buy a new toaster or a new book? For governments, though, the question is much more complicated: How should the government step in during Recessions? How should we address the rising costs of education without increasing public debt? The question of how government should intervene to right economic failures is ubiquitous in Macroeconomics.
Too many times, however, these questions presuppose that government acts as a benevolent entity working for the public good. It's easy to point to a failure in the economy and conclude, "The government should fix this." However, unlike traditional economic theory, Public Choice Economics views government more realistically, as just another economic agent working towards their own selfish interests. Public Choice theory studies not what government should do, as is the case in so many other subfields, but what government will realistically do, controlled by politicians, bureaucrats, and voters all acting to advance their self-interest. This is why Nobel-winner James Buchanan, the founder of the field, called Public Choice "Politics without romance".
One of the foremost insights in Public Choice Economics is concept of Rational Ignorance, which explains why so few Americans pay attention to politics and bother voting. Choices made when voting is fundamentally different from choices made in consumption or other everyday life. Most significantly, when you vote, you don’t get what you choose; you get what everyone else chooses. For example, if you like store A over store B, you will buy from A. If you like candidate A over candidate B, you choose Candidate A but still get candidate B. Because of this, it’s entirely rational for millions of Americans to be ignorant and disinterested in politics. This dynamic has significant consequences: politicians who capture the attention of these uninformed voters—often through entertainment or charisma—are more likely to succeed, even if their policies lack substance or effectiveness.
Public Choice Theory goes beyond just studying voting interest, however; it also researches the power and influence voting blocks have over the policymaking and the economy. Public Choice Economist William F. Shughart II describes how some groups are able to exert outsized influence onto the democratic process:
Legislative catering to the interests of the minority at the expense of the majority is reinforced by the logic of collective action. Small homogeneous groups with strong communities of interest tend to be more effective suppliers of political pressure and political support…than larger groups, whose interests are more diffuse. The members of smaller groups have greater individual stakes in favorable policy decisions and organize at lower cost and can more successfully control the free riding that otherwise would undermine the achievement of their collective goals. [1]
Small groups, being well-organized and homogenous, are more powerful, so politicans respond to them more than the majority and concentrate benefits with them while diffusing costs among the public, obtaining an electoral advantage. A clear example of this is the Sugar quotas, which doubles US prices compared to the rest of the world and cost consumers 4.3 billion a year. The benefits of these quotas are concentrated among a small number of producers, who, in turn, provide substantial financial and political support to the politicians that uphold these policies. Meanwhile, the $4.3 billion cost is dispersed across millions of consumers, amounting to just $13 per person—too insignificant for the majority to feel compelled to mobilize. This imbalance allows a small, organized minority to exert outsized influence while the broader public remains largely indifferent.
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| Difference between US and World Sugar Prices |
This ties into Rent-Seeking behavior, which is where special interest groups use their wealth and organization to politically lobby and influence regulators and policymakers, enriching themselves further at a cost to total welfare. Shughart goes on to warn of the dangerous these kinds of behaviors has on democracy and the economy.
Because the vote motive provides reelection seeking politicians with strong incentives to respond to the demands of small, well-organized groups, representative democracy frequently leads to a tyranny of the minority. [2]
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| Rent-seeking leads to monopoly prices and quantities, causing welfare loss equal to the shaded triangle (Tullock 2003) |
Public Choice Theory, applying economic methods to study public policy and decision-making, highlights that, like investors and business leaders, government agents act rationally and selfishly to advance their own interests over social optimality. Public Choice economics reveals a sobering truth: government actions are not always guided by the common good but often by the incentives of those in power and the pressures of well-organized interest groups. Only when we understand these dynamics will we finally be able to address systemic economic inefficiencies.
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