Recently the Telegraph had a photo of a sign outside a newsagent’s. It said: “Only two MPs at a time.” This picture perfectly encapsulates public distrust and contempt of politicians. Why do politicians behave in the way they do? One way of understanding politicians’ behaviour is more than fifty years old and is known as Public Choice, which applies the theories and methods of economics to politics. This model, which was heavily influenced by game theory, imports the rational actor model of economic theory to political analysis – politicians are driven by the goal of utility maximization, and as such are no different from people in business. Public choice provides two provocative insights into the political process:
- The individual is what you have to investigate. It rejects such terms such as “the people,” “the community,” or “society.”
- The choices made by public and private choice processes differ because of the different incentives and constraints they face when pursuing their self-interest.
You may or may not have heard of public choice but its critique of benevolent civil servants faithfully interpreting the public will infused the series Yes Minister. One of its writers Anthony Jay made this very clear:
“The fallacy that public choice economics took on was the fallacy that government is working entirely for the benefit of the citizen; and this was reflected by showing that in any episode in the programme, in Yes Minister, we showed that almost everything that the government has to decide is a conflict between two lots of private interest – that of the politicians and that of the civil servants trying to advance their own careers and improve their own lives. And that’s why public choice economics, which explains why all this was going on, was at the root of almost every episode of Yes Minister and Yes, Prime Minister.”
One of the key concepts we need to understand is rent-seeking, taking an extra slice of the cake without actually making it bigger. The name is extremely confusing but offers interesting intuitions into the political process. People are said to seek rents when they try to obtain benefits for themselves through the political arena.
They typically do so by getting:
a subsidy for a good they produce
a tariff on imports.
a special regulation that hampers their competitors.
There are many more examples: a cartel of firms agreeing to raise prices, steel producers seeking restrictions on imports of steel; and lawyers lobbying to keep regulations in place that restrict competition from unlicensed practitioners. Of course they will not admit anything as vulgar as grubby self-interest. It will be dressed up as the public good and sometimes these claims will be justified. But the majority of these activities do not create any value, and can impose large costs on an economy. A key factor here is that often the benefits are concentrated in a small minority, while the costs are dispersed. This gives people few incentives to oppose these policies. We spend much more time deciding which computer to buy than in which party to vote for. Political analyst Bryan Caplan is more pessimistic; he believes that the public actually thinks that these policies are good.
Where does all this leave us? One key conclusion of public choice is that simply changing the identities of the people who hold public office will not produce major changes in policy outcomes. A good idea is to impose limits on democratic sovereignty and have check and balances in the political system. Electing better people will not, by itself, lead to much better government. I am a little pessimistic in this sense. The one thing that does console me is that the other options are far worse. It may not seem a ringing endorsement but it’s the most you’ll get from me.