















Questions:



1. What is rent seeking?



2. What are concentrated benefits and dispersed costs?



3. What is the case for a balanced budget amendment to the US Constitution? Ben Powell on Public Choice [Audio]: Professor Ben Powell gives a clear and thorough overview of public choice theory at a FEE seminar in 2009. Public Choice [Article]: “Electing better people will not, by itself, lead to much better government,” writes William Shughart. Read Shughart’s concise discussion of public choice theory, and what it means for politics in the real world. James Buchanan [Audio]: James Buchanan grew up poor in rural Tennessee, and would later go on to become a Noble Prize winner. Listen to the founder of Public Choice theory discuss his life and ideas. Bootleggers and Baptists [Article]: Bootleggers and Baptists don’t agree on much, but they join forces to make sure that selling alcohol is banned on Sundays. Public choice theory seeks to explain why politics makes for such strange bedfellows.1. What is rent seeking?2. What are concentrated benefits and dispersed costs?3. What is the case for a balanced budget amendment to the US Constitution?

So let’s look at James Buchanan, Gordon Tullock, and the public choice school. James Buchanan, a Nobel Prize winner. Buchanan and Tullock wrote a lot of works together, probably the most famous one is The Limits of Liberty. Their approach to the question, how do we decide what the role of government, is they look for social contract. They say, supposing you’ve got rational individuals together and they had to decide what they would do, how would they set up a form of government, what would they universally agree? The American Constitution is an example of something like a social contract. They start with the questions what would happen if we had no state at all, there was no government? They believe it would be the Hobbesian state of nature after the ideas of the English philosopher Thomas Hobbes.



Hobbes said that life without a government is “nasty, brutish, and short,” and not as one student wrote, “nasty, British, and short.” Nasty, brutish, and short. It wouldn’t be very pleasant to live in such a society. So if we don’t have a government, there are three things we can do: we can produce things, we can steal other people’s things, or we can spend time protecting our own things. Suppose if we got together, it would be in the self-interest of everyone to create a body that would protect the things that we produce. Because we didn’t have to worry about things being stolen from us, we didn’t have to worry about protecting our own property, we can spend a lot more energy producing things. We would be wealthier; we could give some of that wealth to government, which would then prevent stealing. We wouldn’t need to spend so much resources into protecting ourselves; everyone in that society would be better. So it’s argued that rational individuals thinking about what sort of government they would want would agree on creating a government whose responsibility was to protect our life and property.



Why should government be limited? Well, they say that when we try and understand what goes on in economics, we assume that people are motivated by their own self-interest. That they are, to use economist language, utility maximizers. The public choice school people say people behave exactly the same way in the political realm as they do in the economic realm. They’re the same human beings. What their self-interest may be may not be the same. In economics, we tend to look for income and wealth to identify people’s self-interest. Self-interest in the political realm may be somewhat different. So, for example, if you’re a politician, your self-interest is getting elected, getting reelected, being in public office. How do you do that? Well you do that by promising goodies to particular groups. Vote for me; I will protect your Social Security. Vote for me; I will reduce your student loans. Vote for me; I will support your farms. So it’s in the vested self-interest of politicians to promise goodies to particular groups within society.



Bureaucrats, which I think is an underresearched area in terms of explaining what happens to government, it’s in the interest of bureaucrats to have a bigger government. The more government there is, the more income they probably have, the more power they have, the bigger their offices there are. It’s better for bureaucrats to have a bigger government than a smaller government. And for most interest groups, the way they look to government is, how can we manipulate government to work to our benefit? They are, again to use an economic term, rent-seekers. How do we get the rules written in such a way that prevents it more difficult, for example, to a competitor to enter into the market and compete with us? So it makes it more difficult to import goods from abroad. So the problem for the public choice school is that most political actors have a vested interest in growing government well beyond what people agree on in the social contract. So that’s why they think government needs to be limited, to prevent it going well beyond what the proper role of government should be.



So what should be the role of government in that context? It’s often described as the public goods state, that the state and the public choice has two responsibilities. The protective state: it should protect individual rights, especially our property. And it should be a productive state: it needs to provide the public goods, deal with the sorts of externalities that we’ve talked about before. It is not the responsibility—public choice argues—to have any form of welfare state; that goes well beyond the social contract. So a lot of public choice is interested in the question how do we limit the role of government? For example, should we amend the U.S. Constitution to ensure that there would be a balanced budget?



So why does government grow far beyond that which people would reasonably agree under the social contract? For example, why does the federal government in the United States do so many more things than the limited and enumerated powers that was established in the U.S. Constitution? The public choice school explains this by the concept of concentrated benefits and disbursed cost. That is, the benefits of a government program concentrate in the hands of a relatively small number of people while the costs of those programs are spread much among the larger group of people. Let’s take agricultural policy for example. Agricultural subsidies, agricultural tariffs that make it difficult to import food from outside the United States.



Only about 3 percent of the population in the United States is engaged in agriculture. And 97 percent, we’re not. But when it comes to deciding agricultural policy, these 3 percent, they really, really care about it. It would determine who they vote for. It would determine who they campaign for. It would determine who they will give money for.



They will throw cow manure over politicians who don’t support these agriculture subsidies and tariffs. How about the rest of us? The 97 percent of us? Well, we all lose by this. We lose because we pay higher taxes to subsidize this. We lose because of the tariffs, that means we pay more for the food we buy in the supermarkets. So you would think, in a democracy, here is a policy, it is in the interest of 3 percent and against the interest of 97 percent. Obviously you would think in a democracy a policy would fail, and every attempt to do away with these agriculture supports have failed. How do we explain that? Well, those who really care about it, they really care about it. They’re active on the issue.



The rest of us, the population who loses by it, for us, we don’t even think about agricultural policy. But even if we did think about it, for each one of us, it’s only a couple of dollars a week. We’re not going to get politically active on that issue. So when it comes to debating agricultural policy, it’s the small 3 percent that determine what those policies should be. According to public choice, this is true of most government laws and programs. It is driven by the small number of people, concentrated beneficiaries of that policy, and almost no influence from those who pay the costs—consumers and tax payers. That’s public choice.