The Reality of Public Choice Economics and Government Waste

Economics deals with human actions.  Adam Smith introduced the idea that the butcher does not depend for bread on his table as a gift from the baker.  What Smith wanted to have understood is that the baker makes bread for the purpose of selling it to those who would buy it;  likewise, the butcher and candlestick maker.  Smith went on to explicate the power of “division of labor” to more effectively produce goods.  If all three producers each made all three products, each unit would be more costly in time and money than if the three producers each specialized in one. Thereafter, a host of causes and effects come into play and serendipitously produce markets, consumers and transactions, and cumulatively evolve into the wealth of nations (also the title of Smith’s 1776 economics tome.)  Most people, whether producers or consumers, are assumed by economists to make their decisions primarily on concern for themselves, but admit in fewer instances to some concern for others.

Public Choice Economics emerged in the 1950s when James Buchanan and colleague Gordon Tullock applied Adam Smith’s studies of people’s marketplace principles and applied them to people’s similar actions in collective decision making.  Simply put, people are decision makers and people are seldom clean of every trace of self-interest.  For Buchanan, the people involved in collective decision making are predominantly in the political arena, and participants making these collective decisions are voters, politicians, lobbyists or bureaucrats; each displaying their self-interest in their roles as decision-makers for the public.  As a result, just as there is occasional market failure in private enterprise, say from anti-competitive behavior or unregulated monopolies; there is likewise government failure in legislation, regulation, adjudication, hiring, procurement and everything the government touches.  Public Choice Economics has disclosed government failures in abundance since Buchanan’s 1986 Nobel Prize in Economics, and those disclosed are certainly but the tip of the iceberg.  The reason this is so categorical in nature is because the public generally has no time or interest in inquiry.  Politicians depend on that!

Consider the following.  The period of the 1970s was one of deep economic troubles in the industrial East and Midwest (the latter referred to as the “Rust Belt”) and many businesses took the opportunity to relocate from the East and Midwest to the South and start anew cleansed of debt and free from unions.   Robert Crandell has shown that The Clean Air Act and its 1977 amendments were used by northern congressional members and regulators to reduce competition by curbing economic growth in the Sunbelt using tighter emission standards in undeveloped areas (the Sunbelt) than even in the more developed East and Midwest.

Another example:  Legislators are expected to pursue “the public interest” when using other people’s money.  Can we presume there is not a smidgen of “self-interest” when a member of congress votes to appropriate money for pork barrel spending?  This occurs en mass.  Passage of Pork legislation is gained by collusion among almost every member in voting for each other’s Pork.  It is good to sponsor good public-interest legislation, but it is vital to self-interest to have other congressmen owe you a favor and vote for your Pork. That, and not public interest, is what obtains reelection.  Public Choice economics recognizes an overwhelming percentage of the people who vote do not cast their ballots on the basis of last years’ roll-call votes on corrupt spending or pork-loaded bills.  The members of congressman are safe to assume the people in the state or district he serves don’t know and don’t care.

This example is positively corrupt.  Large interest groups often have trouble maintaining the support of those benefiting from their lobbying because it is easy for individuals to benefit from “free-riding” on the lobbying of others.  Farmers were organized in political lobbying groups in the 19th century.  It is a fact the Department of Agriculture maintains a “farm agent” of the Department in every one of the 5000 counties in the US.  More than knowledgeable about farming they are in reality agents of political parties.  The lobbying sponsors also sell insurance and other services to the farmers, primarily to keep the farmers interested and involved in politics.  In the 1930s, Franklin D. Roosevelt’s New Deal Brain Trust used the farm lobbies to provide subsidies to prices of farm products at a time farmers were dumping milk in ditches and plowing mature crops into the ground.  Step 1.) of the “deal” in the New Deal was that farmers were coerced to sign contracts with the Agriculture Department to reduce acreage of specified crops in the upcoming year.  Step 2.) Congress passed new taxation on agricultural processors – those who buy agricultural crops.  Step 3.) The taxes received by the government were remitted to those farmers who had signed contracts as compensation for their fallow land.  Those who didn’t sign contracts got nothing, but the normal (low) market price for their crops.  Those who did sign received low prices too for their crops, but when they received their contract subsidy, the per bushel price for the commodity equaled prices last seen during World War I shortages.

It was difficult to find an example of public servants upholding the public interest without reservation.  In the year 1790, the new government of the United States was deadlocked on two issues.  1.) Repayment of the Revolutionary War debt.  Some states in the South had incurred less debt and since the war ended had repaid some of it.  The northern states incurred more debt and had not repaid any.  Hamilton wanted the US government to assume all the states’ War debt and repay it.  Hamilton was the Treasurer of the U.S. and was willing to take on the task.  (He probably already knew what to do from studying how the Bank of England worked.)  2.) The government was still temporarily located in New York City, and for 11 months there had been no consensus on where to put the permanent location.  Jefferson invited Madison and Hamilton to dinner in New York City to discuss some issues.  There were no notes or indications of what was said, but it is likely Madison and Jefferson (both Republicans), who lived close to a possible site that would be satisfying to them personally, and particularly for President George Washington it was exceptional.  It was good to appreciate Washington in this manner.  So a deal was made to support a Potomac River site for the new federal city.  Among the three persons at the dinner, only Jefferson and Madison might have had some self-interest in the Capitol site, but no personal interest in the debt assumption except that both being Southerners, had some political reasons for gaining concession for those states that had themselves repaid some debt.  All things considered, it is likely the greatest concern was that President Washington could easily be accommodated by the proximity of Mount Vernon to the planned Presidential Residence on the Capitol grounds. It is my opinion the public’s interest was respected in the decision. For Hamilton (a Federalist) he had to face scorn from his New York political friends for the Virginia location of Washington, DC.  He did what was contrary to his self-interest.

Buchanan and Tullock also wrote another book, The Calculus of Consent, which holds the view that for collective decisions (government only), all voters should support unanimously.  That is largely unworkable in practice, but the book effectively challenges that majority decisions are inherently fair; they are not.  It goes on to conclude that prior to beginning to take up a matter, the voters should focus on their rules for passing parliamentary or legislative decisions and limit the domain of government in each occasion.

Buchanan himself used these words about economic theory; “It replaces romantic and illusory notions about the workings of governments.”  In my words, the public is being fleeced time and again. Today, federal government service is at the nadir of public choice performance                                                                                 August 12, 2021