By Richard Stroup
The fact of scarcity, which exists everywhere, guarantees that people will compete for resources. Markets are one way to organize and channel this competition. Politics is another. People use both markets and politics to get resources allocated to the ends they favor. Even in a democracy, however, political activity is startlingly different from voluntary exchange in markets.
People can accomplish many things in politics that they could not accomplish in the private sector. Some of these are vital to the broader community’s welfare, such as control of health-threatening air pollution from myriad sources affecting millions of individuals or the provision of national defense. Other public-sector actions, such as subsidies to farmers and restrictions on the number of taxicabs in a city, provide narrow benefits that fall far short of their costs.
In democratic politics, rules typically give a majority coalition power over the entire society. These rules replace the rule of willing consent and voluntary exchange that exists in the marketplace. In politics, people’s goals are similar to the goals they have as consumers, producers, and resource suppliers in the private sector, but people participate instead as voters, politicians, bureaucrats, and lobbyists. In the political system, as in the marketplace, people are sometimes (but not always) selfish. In all cases, they are narrow: how much they know and how much they care about other people’s goals is necessarily limited.
An advocate of the homeless working in the political arena typically lobbies for a shift of funding (reflecting a move of real resources) from other missions to help poor people who lack housing. The views of such a person, while admirable, are narrow. He or she prefers that the government (and other givers) allocate more resources to meet his or her goals, even though it means fewer resources for the goals of others. Similarly, a dedicated professional, such as the director of the National Park Service, however unselfish, pushes strongly for shifting government funds away from other uses and toward expanding and improving the national park system. His or her priority is to get more resources allocated to parks, even if goals espoused by others, such as helping the poor, necessarily suffer. Passionate demands for funding and for legislative favors (inevitably at the expense of other people’s goals) come from every direction.
Political rules determine how these competing demands, which far exceed the government’s ability to provide them, will be arbitrated. The rules of the political game are critical. Is the government purely democratic or a representative democracy? Who can vote? Over what domain of issues can the government make decisions? How much of the society’s output is available for diversion to political allocation? The rules provide answers to these questions, influencing not only who gets what from society’s product, but also how big the product itself will be and how much of it is diverted from the production of goods and services and devoted instead to influencing the political game.
Why do individuals and groups often seek their aims in the political sector rather than in markets? The motives range from public spirited to narrowly selfish:
• Political solutions can compel people, on threat of prison or worse, to financially support politically chosen goals. This solves the financial “free rider” problem caused by the fact that with solely voluntary provision, even citizens who do not pay for national defense or for, say, a sculpture in the town square can potentially benefit from the expenditures of those who do.
• Imperfections in the legal protection of one’s rights, such as one’s right to be safe from harmful air pollutants, or even one’s civil rights, can be addressed politically.
• Even in a democracy, political action can allow one group to benefit at the expense mainly of the rest of society. Except for gifts and unintended spillovers, this does not happen in a free market with protected property rights, where those who pay are the ones who benefit, and transfers such as gifts are strictly voluntary. (Political victories, however, are often costly to those who win them; lobbying is not free.)
Some aspects of the political process, however, work against those who pursue their goals via the political route:
• One Congress or legislature cannot bind the next, and so a political solution, other than the grant or sale of private rights, lasts only as long as the political muscle of those who push it. Any political program, land allocation, or treaty can be reversed as political pressures change. In other words, a political solution cannot be purchased: it can only be rented. A political act is inherently less secure than a private purchase or trust arrangement, if property rights are secure.
• Truly innovative activity is often difficult to sell to the majority of the political group, such as the Congress or a specific committee, which must agree to the proposed action. In the free market, on the other hand, innovations typically are funded when only a few entrepreneurs and capitalists believe in them because only their capital, not that of all taxpayers, is at risk.
For ordinary citizens who are not politically active, political activity has very different consequences from market activity. Although such citizens may benefit from political action that others take, they are bound by all and must pay for some political outcomes, whether in their own interest or not. Ordinary citizens are outside the political process except when they vote and when they have concentrated, or special, interests and are politically well organized. Dairy farmers, for example, typically know little or nothing about how much they pay to operate the national park system or whether the parks are well managed. However, they are keenly informed about the federal milk program, which restricts milk production and keeps milk prices high. Thus, they do not have an incentive to act politically to control the costs of the national park system, but they do have an incentive to act to expand the milk program. Their counterparts, such as conservation advocates eager to expand the national park system, know little about the costs they are bearing to support the milk program and concentrate instead on expanding the park system and its budget.
Although political activity has benefits as well as costs, political behavior causes some predictable problems for citizens in general:
• One-to-a-citizen ballot votes, the currency of the formal democratic marketplace, do not allow voters to show the intensity of their preferences, as dollar votes do when citizens focus their budgets—some spending more on housing, others on entertainment, education, or their favorite charity.
• The voter purchases a large bundle of policies and cannot pick and choose. In a representative government, the voters select a single candidate (the “bundle”) to represent them on many different issues. Voters cannot vote for the position of one candidate on issue A, the position of another on issue B, and so on, as they do routinely when shopping for thousands of items in the marketplace. In a representative democracy, fine-tuning one’s expression at the ballot box is impossible.
• An individual voter has virtually no chance of casting the decisive vote in an election. Even among the more than four thousand elections held each decade to fill the U.S. House of Representatives, a race decided by less than one hundred votes is newsworthy at the national level, and a recount is normally conducted. Moreover, the cost of an uninformed or mistaken vote that did make a difference would be spread among other citizens. This differs from the cost of a mistaken personal purchase, the full burden of which the buyer pays. People thus have little incentive to spend valuable time and effort learning about election issues beyond their narrow personal interest, monitoring politicians’ overall performance, or even voting. Instead, voters are “rationally ignorant” on most issues. Thus, it makes sense for a politician to pay attention primarily to special interests on most issues, and to use the financial support of special interests to campaign on “image” issues at election time.
• Because politicians do not sell their interests to their successors (the way the owners of companies, farms, and houses do), they have an incentive to provide current benefits while delaying costs into the future whenever possible. They have less incentive to invest today for the benefit of the future. Future voters cannot affect elections now, but will simply inherit what current voters leave to them—both debts and assets. In contrast, private assets can either be sold to benefit the owner directly or given by bequest. Only charitable instincts among voter-taxpayers (and perhaps the lobbying of special interest groups such as weapons system suppliers or owners of real estate that may go up in value if a project is built) will push for a costly project with benefits mainly in the future. Charitable instincts toward the future are present in the private sector, too (especially in private charities), and are reinforced by the fact that future productivity and profits are reflected in today’s asset prices, including the stock price of a corporation.
One special interest that has gained at the expense of consumers and taxpayers is wool and mohair producers. During World War II, military planners discovered that U.S. wool producers could supply only half the wool the military wanted. Partly for this reason, and partly to give added income to wool growers, Congress passed the National Wool Act in 1954. Mohair, produced by Angora goats, had no military use but was included as an offshoot of the wool industry. Although wool was removed from the military’s list of strategic materials in 1960, the program survived and continued to grow.
Under the Wool Act, growers were given subsidy checks to supplement what they received in the market for their wool. In 1990, the wool subsidy rate was 127 percent, so a farmer who got $1,000 for selling wool in the market also got a $1,270 check from the government. The subsidy rate for mohair was a much larger 387 percent. The subsidies were paid for by tariffs on imported wool. Thus, consumers were paying more for imported wool, which also drove up the market price paid for domestic wool, a close substitute. The economy operated less efficiently because less wool was imported, even though the imported wool would have cost less to produce and to buy. The subsidy program, together with the higher price caused by the wool tariff, meant that domestic land, labor, and capital resources were applied to the production of wool and mohair instead of to more valuable goods.
Nevertheless, political support for the program was strong, and Congress continued it. Thousands of very small checks were sent to small growers in every state. Almost half of the 1990 payments were less than $100. Many of those receiving them were willing to write letters and to vote for those who support the program. Nearly half of the money, though, went to the 1 percent of the growers who were the largest producers. The largest checks, nearly three hundred of them, averaged $98,000 and accounted for 27 percent of the program’s 1990 cost. Recipients of these large checks could be counted on to contribute to organizing costs and to give campaign donations to members of congressional committees critical to the subsidy program. By contrast, because American taxpayers paid only a few dollars per family (Wool Act subsidies were $104 million in 1990), most taxpayers were unaware of the program and of how their elected representatives voted on it. Even though taxpayers were numerous and the Wool Act cost them a lot as a group, each taxpayer lost so little that none had an incentive to become organized or knowledgeable on the topic. Thus, the Wool Act, which harmed the interests of the great majority of voters, survived until 1996, the last year of a three-year phaseout of the program mandated by Congress in 1994. But organized interests are resilient. A subsidy program that effectively set minimum prices for both wool and mohair was part of the 2002 Farm Act and seems likely to persist for years to come.
Although such special interest groups are sometimes in line with more general interests of the citizens, there is little to confine their actions when they are not. For example, the general public wants national defense, and weapons contractors have an interest in providing the means to obtain defense. But the contractors and the government’s military itself will push for far more elaborate, extensive, and costly means of defense than would a knowledgeable citizen with broader interests.
Political activity is often seen as a way to solve problems not handled well by the private sector—sometimes including everything from pollution problems and national defense to the redistribution of income to the poor. Clearly, private-sector results in each of these areas are unsatisfactory to many, and there are massive, growing political programs aimed at each of these goals. But the problems just described reduce the ability of the political system to reach the sought-after goals—or to reach any goal in a least-cost manner.
Pollution control programs, from the Clean Air and Clean Water acts to the Superfund program, have received great political support. The cost to the economy of environmental programs is generally agreed to be more than $100 billion per year. Yet political manipulation of each program is widely recognized to have led to large imperfections in handling these problems. A classic case has been the political uses of the 1977 amendments to the Clean Air Act. Bruce Ackerman and William Hassler showed that by requiring the use of expensive scrubbers on coal-fired power plants, the amendments effectively protected eastern coal interests while harming both the health and the pocketbooks of millions of Americans. Robert Crandall of the Brookings Institution showed that eastern and midwestern manufacturing interests used the same amendments to stifle competition from new Sunbelt factories. Jonathan Adler has since documented a number of similar cases in which environmental policy initiatives have produced private benefits at public cost.
Bureaucratic performance in achieving the voters’ goals is also a serious concern. Leaders of government agencies make strong, consistent attempts to gain larger budgets and more regulatory authority to further their programs. They often can achieve their ends with a “can’t do” stance in place of the “can do” attitude needed for market success.
A perennial case in point is the “Washington Monument strategy” of the National Park Service. At budget time, the service frequently threatens to curtail visiting hours at its most popular attractions, such as the Washington Monument, if its budget request is not met, and it threatens to blame Congress and the budget process when tourists complain. Other agencies use this and similar tactics to seek more support for their narrow programs. In doing so, too often they impose enormous costs on society. It is hard to imagine a private firm—even a large, bureaucratic one—responding to hard budget times by curtailing its most popular product or service. The private firm would lose too much business to the competition.
Political behavior in a democracy has both prospects and problems that differ from those of private, voluntary activity. Political action can force all citizens to comply with decisions made by their elected representatives. Because these political decisions are supposed to be for the benefit of all, the support of all is commanded. But because no single citizen’s ballot is decisive, voters are not very effective at monitoring the intent and the efficiency of political action. Voter turnout is often low, and even very intelligent voters are notoriously uninformed on policy issues. Americans of voting age cannot, on average, even name their congressional representative. Such results are not as strange as they may sound when the impact of political rules on individual incentives is examined.
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