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Public Choice Theory: it’s an Actual Discipline!

October 28th, 2010 · No Comments · Economics

beatnik.jpgFor many (collectivist) armchair economists it’s great fun to sit back and talk about examples of “market failure” while cherry-picking examples where government proves oh-so efficient in providing services. This exercise is generally used to “prove” how it would really be better for all of us if we just ask the really smart people in government to take more control of how we allocate goods and services. I mean after all, those CEOs are paid “too damn much!”

These are often the same types who believe “the government is us” and hold other romantic misconceptions that were refuted by Public Choice Theory scholars long before these wordsmiths were born. (Also quickly refuted by spending a little time in Olympia watching how the sausage is made…)

Public Choice Theory? What the heck is that?

Wikipedia offers a solid definition (emphasis mine:)

In economics, public choice theory is the use of modern economic tools to study problems that are traditionally in the province of political science. From the perspective of political science, it may be seen as the subset of positive political theory which deals with subjects in which material interests are assumed to predominate.

Public choice theory is often used to explain how political decision-making results in outcomes that conflict with the preferences of the general public.

They even offer classes in it! Here are the two (recent incarnations) of the courses I took when getting my Econ degree at the University of Washington:

ECON 490 – Comparative Economic Systems (5) IS
Study of resource allocation, growth, and income distribution in capitalist, market socialist, and centrally planned economies. Prerequisite: 2.0 in ECON 301.

ECON 450 Public Finance: Expenditure Policy (5) I&S
Application of normative microeconomic theory to analysis of government expenditures. Rationale for government economic activity, collective choice, public goods, and externalities, income redistribution, public sector pricing, and specific expenditure programs. Prerequisite: 2.0 in ECON 300.

They have textbooks they make you read and everything. You can even get a PHD in it if you want to(?!)

I’m no expert, a rank amateur really, as I only dedicated about 200 hours to this — and it was many years ago. That being said, here is the kind of passage I remember encountering over and over again from those courses and texts (emphasis mine:)

The key question raised by this discussion is whether goods and services are provided more efficiently by the public or the private sector.

For the production of purely private goods and services, such as steel, telecommunications, or banking, it seems abundantly clear that private production is more efficient. Correspondingly, a large literature finds that when state-owned companies are privatized, efficiency improves dramatically, and a smaller company is required to produce the same level of output. Mueller (2003) lists 71 studies that compared the performance of state-owned companies: in only 5 of these studies did state-owned companies outperform their counterparts in terms of efficiency.

And regarding the “Government is us” thinking:

In reality, government doesn’t simply aggregate people’s preferences; rather, the governing is done by politicians, judges, bureaucrats, and so on. These players have their own objective functions.

I can go on all day with passages like these. Or — you could just read the texts too. It’s full of the accepted models and theories that often fly in the face of what the collectivists “know” as they sit hunched over their keyboards.

As you can suspect, with this kind of education, I tend to yawn and look at my watch when I attend the beret-laden discussions in the Seattle lofts and the conversation turns to how the government could do much better than the market at providing “just” outcomes and prices. Plus the bongo drums drive me nuts.

Naturally the Government is better at providing some things like public goods, and worse at others, like providing iPods. But let’s be real here. When you go to a supermarket, you pick what you want off the shelves one-by-one, and put things back when you discover their price is too high (or quality too low.) When you elect a politician you are choosing between two gigantic shopping carts full of different stuff, and many/most of the items are obscured. Price? You have little to no idea. Gee, I wonder which system is better at providing “Public Choice”?

Two things going on here that come straight out of the pages Thomas Sowell’s book A Conflict of Visions.

One is how Unconstrained/Utopian thinkers tend to believe they have unique knowledge/insights and historical (old) thought is less relevant. This is exemplified by a quote from William Godwin cited by Sowell (p81):

…in order to decide the course before them, to no code but the code of reason. They would feel the absurdity of other men’s teaching them what they should think and pretending to understand the case before them before it happened, better than they who had all the circumstances under their inspection.

In that instance, Public Choice thought from scholars in 1948 may be only slightly more relevant than say, a dusty old Constitution from 1787. That is to say, not relevant at all in today’s “modern world.”

The other is the thought that evolved systemic coordination by the unintelligent masses (markets) is easily trumped by the specifically articulated rationality of our wise politicians. Constrained thinkers–on the other hand believe:

The special wisdom or virtue of moral-intellectual exemplars is far less important than the mass experience of the generations (embedded in traditions) and the current experiences and economic preferences of the many (embedded in prices).


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