Evan Soltas
Jan 30, 2012

Are Politicians Rational?

Exploring public choice theory, a fascinating niche field in economics

I feel quite bad calling public choice theory a "niche" field of economics. It is not so much as a niche as a rigor-seeking monster that the economic discipline has unleashed on its less disciplined cousin, political science. But the truth is that it is often overlooked--so much so that some of the most elegant and important findings in all of economics are often ignored because they don't fit neatly into the single-discipline box.

What is public choice theory, exactly?

Public choice applies the theories and methods of economics to the analysis of political behavior...But public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and, more important, that the motivations of people in the political process are no different [than the economic man]...Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics. [More from the Concise Encyclopedia of Economics here.]
Mark Pennington of Pileus has a wonderful post describing exactly what lessons the political right should draw from public choice theory. It's worth a full read, certainly, but here's my attempt at a summary:

  1. Public choice theory's understanding of power dynamics is more rigorous and insightful than Marxian analysis. Whereas the latter presumes a near-rigid split between "capital" and labor," public choice theory identifies the behavior and influence of interested parties through their concentration or diffusion. (For example, the domestic sugar industry wields disproportionate power not because of its command of capital, but because the number of firms is low and their interests are closely aligned. See the graph above, which looks at the effect of the United States' system of tariffs and quotas to protect domestic sugar producers. An extra 10 cents a pound or so might not sound like a lot, but it is when you consider that the average world price in the past decade is 13.50/pound, the mind boggles at the windfall gains that can be attained through skillful political organization even in our supposedly "limited government" system.)
  2. Public choice theory is damning to the modern Left, which would trust an increasing amount of discretionary authority to government. Pennington puts it brilliantly: "if the modern social democratic state is the major source of special interest power then by far the most effective way to reduce this power would be to dismantle the apparatus of anti-competitive intervention in markets...[this] requires a framework of limited government where inequalities which reflect superior performance and entrepreneurial ingenuity are welcomed but where those that reflect the power of crony capitalists, crony union bosses and public sector bureaucrats are reduced to a minimum."
HT: Mark Perry, who previously cited the USDA data.