Episode Transcript
[00:00:00] Speaker A: Hello, everyone. Welcome to the 269th episode of the Atlas Society. I'm Laurence Alibo, senior project Manager here at the Atlas Society. This week, Jennifer Grossman is off, but I'm excited to have with me Atlas Society senior scholars Stephen Hicks and Richard Salzman for a special webinar discussion exploring public choice theory and the politics of self interest.
So those of you who are watching, whether it be on YouTube, Instagram, X, feel free to ask your questions in the comment section and we'll get to as many of your questions as we can near the end of today's show. But first thing, I want to start things off by passing it over to Stephen first. Stephen, thank you so much for joining us.
[00:00:44] Speaker B: Thanks.
I'm hoping Richard and I will be a good teamwork on this because Richard's a professional economist and political philosopher and I'm a philosopher by training. So I. I'm going to lead off, though, with what I take to be a philosophical take on what public choice is now. Public choice most came to prominence through the work of James Buchanan. He won the Nobel Prize for his work, and he was closely associated with Gordon Tullock, Richard Wagner, and several other people in this school. But he was like the first among equals here, starting off as a professional economist. The idea is that we want to figure out how the economy works, and then hopefully, once we figured out how the economy works, we can then move on to some normative claims about how we might improve the economy or what kind of politics or culture we need in order to support the economy working at its best.
But how do we start off doing economics? And then I think the natural thing is to say, well, economics is studying people when they are producing stuff and then when they are trading with each other.
So a natural thing to say, what we're trying to study is people, how they will produce things and how they will trade with each other, supposing that there are no coercive institutions or individuals involved. So if you're a thief or if you're some sort of a bandit or you're kidnapping people and just stealing their stuff, you're not functioning as an economic agent, you're doing something else. And this also then initially seems to apply to the government because we think, well, if economics is studying production and trade, well, the government doesn't really produce things and it doesn't trade with people.
It's an agency of coercion. So we would then set the government to the side, and at most we might then say, once we figure out how an economy actually Works we might bring the government as a. And it is a supporting role to make sure that the market is in fact free so that people can get on with their economic business.
So then we say, well, the science of economics, or the social study of economics is looking at individuals and the institutions they develop for production and trade.
Government is what we're studying when we are doing politics. And so economics is over here and politics is. Is over there.
One of the initial insights Buchanan had and wasn't necessarily original to him, but he is one who brought it to the fore and then went seriously to work on it. To say, as we get into the 20th century, we have seen significant growth in the size of government.
What the government is doing is not merely taxing people, say at 2 or 3% and having a few rules here and there.
Rather, taxing rates are sometimes 40, 60, 80% or so. And at the same time, the government is expanding the number of things that it is spending those tax revenues on. The government in many cases is spending way more than its tax revenue, so it's taking on debt. So if you step back and then you look at the government not just as a political agent, but as a. As an entity is significantly intermeshed with the economy.
It seems a little weird then to be saying, well, we're going to try to figure out how the economy is working without really looking at the government. We're only looking at private producers and private traders and so on. But if in fact, the government, in terms of its taxation power or in terms of, you know, the government also functions as a consumer, it purchases stuff. If the government, say, is 50% of the economic activity in a society, then just on good descriptive social science grounds, we then have to include the government as one of the agents in the economy and then study how it interacts and how it affects the economy.
So what we then need to do is to say the government is an economic agent just like all of the other economic agents out there in many respects. Now, of course, the government is different in some respects. It's not necessarily motivated by profit. It's a. Is motivated by, say, power.
So there's some of the incentives are different for this particular institution. And so part of what we have to do is study the institution and its incentives. It is more of a coercive institution instead of all the other institutions that are supposed to be private and voluntary. So what we then need is to maybe not think about, there's economics over here and politics over there. We need to start studying, say, political economics, economy with A mix of kinds of institutions and kinds of individuals who are involved in that. And that then means that our economics, if it's going to be more realistic, has to become more complicated.
So what we then want to do also, though, is to say that by the time we get to the middle part of the 20th century, economics, perhaps more than many of the other social sciences, like, say, sociology, seems to have been making progress in being able to figure out lots of things and has developed all sorts of sophisticated methodological tools that it can apply. What we now want to do is apply those that learning, that set of methodological tools to studying not only private agencies and private institutions, but also government institutions. So we will look at politics through an economics lens or set of lenses and so on. And that's a descriptive motivation for what we call public choice. We have to understand how public institutions like governments make their choices and act in the market, so to speak, as part of our economics.
There's also a normative edge to public choice right from the get go.
And James Buchanan pointed out a kind of asymmetry in how people, particularly in the 20th century, when many economists and other social scientists were leaning left and leaning hard left in some of the biases, or maybe more gently, preconceptions that they were bringing to their analysis of how private individuals, corporations, other businesses act in the market. And then the same set of preconceptions, or different set of preconceptions, but the same being preconceptions, when they talked about governments. So one approach to this issue is to talk about the concept of market failure. Now, there's a. This is going to be a side. There's a whole side discussion about whether there really are such things as market failures. But suppose we just take for granted a standard analysis. That is to say we look at markets and we want markets to be able to accomplish certain things for buyers and sellers, for society at large, whatever our, our unit of value is. And we say that markets, you know, do some things well, they do other things not very well, and some things they seem to do badly. And so whatever things we think the market does not accomplish but we would like it to have accomplished, then we're going to call that a market failure. So then we say, well, you know, people are imperfect, markets are imperfect. So maybe what we should do is turn to institutions outside of markets in order to correct for the failures of markets, or to supplement free markets in some ways in order to achieve more optimal results. And so then we see this very common pattern of argument that emerges particularly on the left, where the left comes in with an already jaundiced eye, or at least a skeptical eye toward free markets and capitalism and so on. And they are hypervigilant, looking for anything that they don't like happening in the economy and then saying, oh, see, there's not government regulation here, there's not laws, it's unregulated, it's anarchy or something like that. And it did not achieve optimal results or had achieved these bad results. So the market is a failure, capitalism is weak or not optimal in this case.
So that's the description.
Therefore what we should do is have the government step in and solve this problem, fix the problem. And so the government then becomes a general purpose. Mr. Fix it for any perceived market failure. And then the economists then will leave it at that. We'll just say, well, you know, there's a market failure here and our recommendation is that the government passed some regulations and maybe they'll sketch out some general regulations, but then they will turn it over to the political analysts, the policy people and the politicians themselves to then just solve that problem and then they go on to do something else. Now Buchanan is pointing out quite rightly and importantly that there is then an asymmetry in how, how these economists and these policy people are treating markets as an institution and governments as an institution.
So they are subjecting to scrutiny markets, how they are actually working. But then in more afterthought, almost just saying, well, we'll just turn it over to the government, the government will fix the problem somehow without applying the same level of attentive scrutiny to how governments work and how governments then might fail.
And there's a, a story that Buchanan likes to tell about a competition between violinists. So you imagine some king or some Roman emperor or whatever, and he wants some entertainment. So he says, you know, let's have a violin competition. And there are two well known violinists who, who show up.
And so the first violinist gets up and plays the violin and plays the song. And as soon as the violinist stopped the, the king declares the contest over and declares the other violinist, the one who has not yet played, the winner of the competition.
And Buchanan points out that's obviously absurd. It might be then. So how can you say that this, you want the other violinist to be the winner of the competition when you haven't even heard that guy play yet. And if all you do is just say, well, I heard the first guy play and he made some mistakes, so I'm going to therefore say, or just assume in some sense that the second guy must be better. That's faulty methodology.
So by analogy, then it's not enough to say, here I am looking at markets and markets are not achieving optimal results, whatever my standard for optimal results are. Therefore I'm going to declare the markets a failure and just assume that somehow this other institution, the government, is, whatever it does, going to do a better job. Before you can do that, you have to do your comparative institutional analysis. You have to say, this is how the markets work and these are the results it's achieved. And I don't think those are optimal. But we've also studied how governments act when they try to do the same sort of thing. And here are the actual results that governments achieve or fail to achieve when they try to, to do those things. So what we cannot do, to put it negatively, is have an imaginary or idealized understanding of how government is supposed to work, that somehow it's just going to solve all problems. But compare that idealized set of assumptions about government with realistic empirical investigations of how markets work. We have to do the methodological symmetry and we have to assume that another part of this symmetry is going to be to say, well, somehow we think that in some of our market analyses that there are bad people in corporations or some individuals are frauds, or they cheat in various ways.
And so the market outcomes are always going to include the results from these bad actors. But we don't have the behavioral symmetry and assume that governments also are going to have their share of bad actors and maybe those are going to be predominant. So we have to have the behavioral symmetry and the psychological or motivational symmetry before we can reach a conclusion. So what we have to do if we're going to do political economy seriously is do a realistic study of how markets work, a realistic study of how government institutions work on the same kinds of kinds of problems, and then make a judgment call. Do we think markets are better at achieving these results or governments in whatever the case may be?
Now, a big part of it then has been also to say that somehow on the incentive side of things, I think this will bring us closer to what I think Richard Salzman's remarks will be, that we somehow will assume that obviously most people in markets are acting on self interested motivations. I want to make stuff, I want to be more productive, I want to trade, I want to make profits, I want to become rich. And so the primary incentive, psychological and behavioral driver is the incentive motive. And many people then, when they are talking about the role of governments, will say, well, actually politicians is not about profit seeking and money making and that kind of self interest. And sometimes there's an additional pejorative built into the assumptions about what self interest is. You know, it's a lower order of things. But people who are going into government, they're going into public service, they're concerned with the common good or the, the, the public interest, they're not motivated by money, so we can trust them more. And so we then have an asymmetrical understanding of, and confidence based on that understanding about how we're going to treat those two agencies. So then if there are bad actors that pop up in government was oh yeah, governments sometimes have bad actors, but we're always going to then from that assumption see those just as bad actors, a few trying to spoil the whole lunch, but we're still going to default to.
In general, government actors are motivated by better motivation innovations than people in the private sector. So we'll be much more unforgiving of bad actors in the private sector and much more forgiving bad actors in the government sector. And Buchanan is pointing out that's another asymmetry that should be blown up and set aside. We have to recognize, of course in the private sector there are going to be some people who are acting on their self interest, some people who have altruistic motives, some people who, who are outright predators.
And that same distribution of motivations and behavioral sets we should expect to find those in government, some people who are acting on healthy self interest, some people who are more motivated, and some people who are more explicitly predatory.
And so again, this becomes a matter of deep empirical study in both sectors and not just easy assumptions one way or another or one way or the other.
Now the idea then is if we take this approach to an empirical, fully robust understanding of how governments and private sectors act in an economy, we will then have a more robust and accurate understanding of what we are actually dealing with. If the facts on the ground are that we don't have a market economy purely and we don't have a socialist economy, we have an intervention to some sort of mixture. Our best social scientist has to figure out realistically what kind of mixture we have so that we know, we know what we are dealing with. And then a follow up thing. Just let me take a couple more minutes, more than I was initially allotted. Sorry, Richard, I'll make it up to you in some minutes form. A little bit down the road here there are distinctive patterns. Just so that we can start talking about in a free market, there's supply and demand and then that there's the law of supply and demand, or there are diminishing returns and marginal utility.
When we start studying governments as economic agents, there are patterns of behavior that start to emerge. We can figure out why bureaucracies act the way they do, why budgets tend to grow and hardly ever shrink, why lobbyists perform certain kinds of function, and why one almost needs to participate in the lobbying process if one is going to survive in business and so forth. And one of them, I just wanted to just mention one of them in each of these. Then we can say these are consistent patterns of behavior. We'll assign them social science e labels and they can be then useful tools, tools of analysis. But then also when you are an economic agent yourself, you can then know what you are dealing with. So the example I want to use is the idea of concentrated benefits and dispersed costs. So one of the things that we want to say is typically in a society, if you're a private agent, you bear all of the costs of production, all of the transaction costs, and if you are effective in the market, then you will get a certain number of benefits. And the difference between the benefits and the cost is your profit. But there's a different mechanism at work in the political sector. To the extent that the politicians and the government more generally are involved in the market, there's this phenomenon called concentrated benefits. And despite dispersed cost, that is to say the costs, the economic costs tend to be dispersed among a large number of people, tens of millions or even more people, while the benefits are disproportionately concentrated in a, in a few hands, this is a persistent pattern in government managed or government intervening economies that we all need to be aware of. So let me just give you one, one example of this, and it's a semi fictional example. I'll use my own discipline of philosophy as, as an example. So there's a government agency that's the National Endowment for the Humanities. I'm going to just slightly fictionalize this. And every year Congress appropriates or gives to this federal agency some millions of dollars to spend on the humanities, part of cultural enrichment. It's good for society for us to have the humanities, philosophy, history, art and so on. And just to make up some numbers here, in that National Endowment for the Humanities budget each year there is $100,000 for philosophers and say there's 10 grants of $10,000 each that will go to philosophers who are going to do some sort of philosophy research program.
Now I'm going to call this program in unprofessionally or informally, the philosophers European Vacation Fund. And the way it works is that we philosophers have a professional association. I'm just going to make up a name, the association of Professional Philosophers App.
And suppose we have a couple of thousand members and each member pays a hundred dollars a year. Year. Then we've got a $200,000 a year annual budget. What we will do as professional philosophers in this association is take, say, $20,000 of that, go to Washington and give that to a lobbyist who pays very close attention to and has connections with the National Endowment for the Humanities. And we will tell that lobbyist that he or she has one job. That one job is to make sure that that $100,000 in the, that line item in the budget of the NEH stays in the budget for next year. We will pay you $20,000 a year to make sure that that hundred dollars stays in there. And of course, the lobbyist will take our money, make the phone calls, go to the mixers and so on, and make sure that the $100,000 is appropriated to US philosophers.
So what that then means is that we spend $20,000 a year to get a $100,000 benefit. And then what we can then do as philosophers is then choose ten of us each year, give that philosopher a ten thousand dollar grant over the course of the summer to go and do some research project. And of course, you know, we philosophers will say, well, I need to go to England or I need to go to Germany or France or Italy for the spirit summer in order to do this very important research project on some philosophers. And we have access to the archives and so on. Of course I might go to the archives and at some point, but I also will take my family along and we will get a free $10,000 vacation. Now the point of this is that this is a kind of corruption and everybody knows that it's going on. But even if it gets out, suppose it's widely publicized that, hey, the philosopher are getting $100,000 a year to send their people off on European summer vacations. That's kind of, kind of, kind of bad. Why are we spending all of this money?
Chances are good that people will say, well, you know, it's only a hundred thousand dollars in the grand scheme of things. That's a drop in the bucket in the big federal budget.
And also for my, you know, my taxes, you know, if I as an individual, you know, it's like the two cents a year out of my taxes that are going toward this is not worth my time. In order to protest about this or to try to get rid of this line item in the. In the NEH budget, and certainly worth my time to get together a whole bunch of taxpayers who are outraged by this and form some. So a coalition to go after this philosopher's things in the budget. So people are just going to shrug it off, continue to pay the taxes meanwhile. So that's them to say, even though they are paying the cost, it's all dispersed among them, so it doesn't really matter very much to them. On the other hand, the benefit is concentrated. It really matters to the philosophers, and we're going to look after that. Now, that's just one example, one line item, but you multiply that. The historians are doing it, the art associations are doing it, the political science, all of the academic people are doing it, and then of course, all of the other budgets as well. So it's a universal phenomenon. And that explains largely why budgets then tend to grow to the point of their being out of control, and it's almost impossible to get anything done by way of reform. All right, so that's a quick and dirty introduction to some of the themes in Public Choice. I'll draw a line for myself there and turn things over to Dr. Salzman.
[00:24:25] Speaker C: Professor Hicks, thank you. I love that. It was excellent. I thought I would.
[00:24:32] Speaker B: Re.
[00:24:34] Speaker C: Revisit this from a higher perspective, maybe 30,000ft. I wanted to tell people, and this is really good news, why Public Choice began, the context in which it began, under the rubric that is now a dirty word, neoliberalism, which just means the new liberalism, which is not the welfare state, but the revival of the argument for capitalism, free markets, in the last century with names including people like Rand, Hayek, Friedman, Buchanan is in there.
Nozick. This has bothered the other side to no end, of course, especially when it ended with the end of the Soviet Union. They'll never forgive the neoliberals for that. But Buchanan is interesting. He writes in 1962 with Tullock, the calculus of consent. And that's the beginning of the.
The public choice revolution, so to speak. And here's what it is. They are economists, but they're very interested in political economy. So they're interested in what we call the intersection between politics and economics. And Professor Hess is absolutely right. The real innovation for these guys was to say if self interest guides markets, we can't say it doesn't guide politics as well.
They adopted what they call the uniformity of behavior principle.
In other words, they said, up to now, what we've had and this feeds into what Professor Hicks called the market failure paradigm. Up to then, they said the idea was markets are driven by greed and self interest.
Adam Smith has taught us that beginning in 1776, right with the wealth of nations, wrote a lot about self interest. Didn't really think it was moral, but it was definitely practical in the sense that it helped create the wealth of Nations.
So they're leveraging off of that, but then they're also saying, and this gives a more skeptical angle, or you could say more cynical angle toward government.
So are government officials public interested? They are not these angels, these what they call public servants who are slaves to you? No, it's the other way around. And I think this probably could not have happened unless you were in the middle of the 20th century when government was brutal.
And after two world wars and Nazism and socialism, it was pretty easy for people to say, wait a minute, these aren't angels. And not even in the FDR years or New Deal or other things like that, or during Vietnam or during Watergate. You think of all these cases where people would say, yeah, I get it. But here's the thing. Notice it is not a rejection of the idea that self interest is immoral.
It's just an extension of the idea that those are bad guys too, that they too are driven by self interest.
Now, they're mostly free market economists, the public choice economists. And so what they'll say is that self interest is more innocent and pacific, if you will, peaceful in voluntary exchange, but not so with government. So they do recognize to some degree the distinction between political power and economic power. Now, here's another way of thinking about it. Smith long ago had said, self interest operates in markets, economies.
And then Buchanan and Tullock come along and say yes, also in politics, just as an aside, there's a third economist who said yes, in your private affairs, in your home, choices of who to marry, how many kids to have, what careers to choose, and even in issues of crime and whether you'll do crime or not. So that's Gary Becker. So there's really. So here's the idea that self interest is ubiquitous, that it's everywhere. And then the only question is whether it's whether it's devious or not leads to good results or not. But that was the paradigm. Now I just wanted to. To say also that the whole issue of cronyism and whether capitalism is uniquely cronyist, you know, when you see here cronyism, they always say crony capitalism. They never say crony socialism. Ayn Rand before And during this Buchanan move in the 60s, was herself writing a lot on this problem.
And she said, listen, not that lobbying and cronyism and paying for favors doesn't happen, but her view was it's elicited by the call it the supply side of favors.
So Buchanan does look at it this way. It's the supply side and the demand side for favors.
The technical phrase they use is called rent. Rent is just a special favor from government.
It's not renting an apartment. It's a weird term, and I'll just use the word favors. But their view is there's rent seeking, there's favor seeking, and that's the main problem. And it's selfish to see the problem here. They're putting the onus on business people or anyone who is lobbying the government for special favors. Or it could be the other way around, for tax breaks, say, or to sic the antitrust department on rivals. You see the idea now, Ayn Rand's idea, and she got it, I think, largely from Isabel Patterson, who writes about this in the God of the Machine.
Patterson said, listen, only government can provide these favors, create these favors, and they're notice how they're basically eliciting bribes.
But the bribes would be the demand side. She said, this is extortion. This is, I have power over you now. Pay me for the subsidy or pay me not to inflict the tax. You see how it goes. So there's this issue of, is it chicken and egg? Is it the supply that's creating the demand? Randon Patterson and I would agree with this. Say yes, that there would be no demand for influence, or there would be no influence peddling, say, if there weren't gargantuan government influence.
So take away the government influence, restrict government to its constitutional limits, and there would be no lobbying. Right. There wouldn't be any sense in it, so to speak, but one of the weak. So one of the good things about public choice is it took away this utopian, kind of angelic view of public officials, especially in the welfare state, where government is doing wrong things, and at least made people more skeptical about government. But that didn't necessarily, we know, restrain the size, scope and growth of government. It has grown enormously since 1962, when this literature began. It's grown enormously since he got the Nobel prize, Buchanan, in 1986, I think it was. Here's another thing I want to stress, and this is where Buchanan and the public choice people are good.
They're weak on the idea that 90% of their literature is about favor seeking.
So the blame goes to business people and lobbyists, not to the politicians. But one of the good things they note, and which Ayn Rand, and we would agree with entirely, is the following.
If you seek as a public policy goal, which egalitarians do, equality of result, and you take with that the fact that people are actually not equal in their talents and their ambitions and their career choices and a whole bunch of things, right? So left alone, there will not be equality of result. And there's all sorts of things in economics and prizes and beauty pageants, whatever, right? But notice, if that's your goal, you have to fight against equality of treatment, equality before the law. The tax system is a perfect example of this. If you're bothered about unequal income, you attack some people at 75% and other people at 50% and other people at 25%. You see the idea that is unequal treatment, which violates the equal protection clause of the US Constitution.
So equality of result, okay, excuse me, equality before the law would pretty much eradicate favors, right? The very essence of treating people differentially, favorably or disfavorably is the essence of throwing out equality before the law. But if you know that equality before the law is being eroded because people want equality of result, there you go. There is like the beginnings of why government starts governing in a differential way and why it starts inviting lobbying for better treatment in that differential system. So I hope you get the sense of that. And the Buchanan public choice people do believe in equality before the law.
Their principle, they call it, is generality, which just means that no law should be passed unless it has general effects on people. It can't have specific effects. And by the way, even from the Latin root of privilege, what is privilege means private law.
In other words, special carved out law for special particular individuals. So I wanted to stress that point because there's the good and bad of what they're saying there as well.
Now here's another way of looking at why does this even matter? What are the important implications of this?
If you focused on the supply side and said, well, the real source of this cronyism and this favoritism is on the supply side, namely the government doing differential things. The solution is a constitutionally limited government and equal protection before the law. That would be your focus, to stop the supply side.
And once you stop the supplies coming out, you wouldn't get the demand for it right.
Now notice if it's the opposite, as the public choice people unfortunately stress, if it's the opposite, if the real problem. And the real source of all this is the demand side from the lobbyist. You would have anti lobbying legislation, you would have campaign finance reform.
You might even violate the first Amendment's provision of often forgotten to petition the government for a redress of grievances.
What is to petition the government for a redress of grievances mean a right to lobby. But it very interestingly worded by the founders because the founders did not say you have a right to lobby for, you know, subsidies and favors from the government. Of course they weren't giving those for a redress of grievances. In other words, you're being aggrieved, the government is punishing you in some way.
You should be able to complain to government. You should be able to walk into the halls of Congress and say stop.
So that's very interesting. But if it's a demand side thing, notice how that would be restricted. And there is has been from McCain Feingold in the early 2000 onward increasing restrictions on whether people can lobby. Of course there's still enormous lobbying because of the supply of favors is coming. But that's important to note that if the focus is on the wrong thing, not on the cost, but on the effect, not on the creation of favors, but on the seeking of them, you're going to have more illiberal policies, you're going to have people being restrained more in what they can do and. And you'll take the focus away from restraining government.
I hope that makes sense.
Another thing I wanted to say. Oh, there is a strain. I'm not saying the Buchananites are libertarians. They're more but they definitely believe in constitutional capitalism. And by the way they are big critics of unlimited majority ruled democracy, which is one of the reasons they're despised in academia and elsewhere. Because academia genuflex before not just democracy but unlimited democracy. But it is interesting that there's a libertarian strain and I got about five minutes. I want to stop, I want to leave time for questions. There is an interesting libertarian strain that's feeding this. If you go back and look at the early works of Rothbard and some of this is in more current literature as well, there's a blame on business that they're the cause of the welfare state, that they're the cause of the warfare state.
And it has a kind of leftist Marxist twinge to it. Because it was Lenin, right who said capitalism is imperialistic.
And it was Lenin who said the capitalists will sell us the rope with which we hang them.
Notice that. So the idea is These people are so myopic and they're so selfish and they're so greedy that they'll ruin themselves.
And that's very common in the libertarian arguments today. There are books out there saying, is capitalism sustainable? By people who love capitalism, by the way. And their answer is no, because businessmen are greedy and in a welfare state setting they will lobby for more and more government intervention. And of course that's the death knell of capitalism. We go more and more that way. So you can see how they want to extend the self interest motive to the political realm, but they have not dropped the suspicions of what self interest amount to. So it still ends up with a very cynical take on the whole thing. I wrote a paper that talks about this in relation to public choice called Common Caricatures of Self Interest.
And the common caricatures are that it's automatic, that it's atomistic, that it's myopic, that it's hedonistic. You know, all these things we hear about, that it's just about money, materialistic, that it's certainly that it's antagonistic or sadistic, all these crazy things if it's not enlightened, if it's not driven by rationality. And basically the public choice people accept all those caricatures.
They don't reject the caricatures, they just kind of accept them and then just say, well, the politicians have that as well.
I want to end just with the rent selling and the issue of corruption and wealth creation.
I have an essay I want to recommend to you. You can get it through the Atlas Society. It was originally published elsewhere and the title of it is Rent Selling. Countries are More Corrupt and Less Wealthy. So to the extent people care about prosperity and to the extent people care about corruption, and there are measures of corruption, it comes from the mixed system. It comes from this unwarranted, unjustified mixing of politics and economics where it should not be done. And notice my emphasis is on rent selling, not on rent seeking. So I have measures of those. There's some empirics and quantitative measures that go with it. But it's an essay that explains not only the theory of this, the public choice view of it, the counter to the public choice view, and then some numbers by country about the extent of government intervention in the economy, measures of corruption, they all correlate very highly. And then measures of the economy stagnating. So I'll stop there. There's much more to say, but I'll stop there.
[00:39:15] Speaker B: All right, nice, Richard. Thanks for that.
[00:39:18] Speaker A: Perfect thank you both. Now we've got about 20 minutes left for Q and A.
I've been looking a lot of questions coming in, so I do apologize in advance. We probably won't get to them all. But if either of you have anything you particularly strike out, just let me know. But I'm going to pull one here from a long time viewer, my modern Gault. He says markets have profit and loss signals to check behavior. What mechanisms of any exist in politics to play the same role and why do they often fail?
[00:39:51] Speaker C: Yeah, go ahead, Stephen.
[00:39:53] Speaker B: You want to try to start? Yeah. Well, on the politics side, the aspiration is that we're a democratic republic. That is to say we have Republican checks and Democratic checks, as Republican checks are to say ahead of time there are certain sorts of political behaviors that are not supposed to be in place.
And politicians are supposed to check their own behavior with respect to those as part of the system. But then we know that they're not necessarily going to do that. So we divide the powers up and we have different branches of government that will check other branches of government when they are abusing their power in various ways. So the Supreme Court will be a check on executive abuses and et cetera, et cetera.
Now, on the Democratic side, part of the check then is supposed to be elections that are regular and frequent. So if politicians start abusing their powers, then the electricate is electorate rather supposed to be paying attention and will call them on it and their rivals in the next election competition will also call them on it. And then the politicians who do it and get caught are supposed to be voted out.
So those are at least are in principle what the two kinds of checks are supposed to be. And then the question is whether they are effective enough.
And one thing we can say is, well, for whatever reason, 250 years almost into the experiment, they don't seem to be very effective. So maybe we need something else.
[00:41:37] Speaker C: Yeah, I want to tie this into Doge, which is kind of fading off into the nothingness department of government efficiency.
Waste, fraud and abuse is the language, right. Which in business hurts your profits. So you want to get rid of waste, fraud and abuse all the time, constantly in business, or you'll go out of business and to maximize profits. So this is a very good question because if you own the means of production, which is what capitalism is, and then you have this profit and loss statement where you can monitor whether you're creating wealth or destroying wealth. Yes, it's a natural check on doing the wrong thing and eliminating as fast as possible.
That is not true in government. It's certainly not true in unlimited government. They don't have the same thing. They don't own things. They just run these agencies. They're not really benefited if they save money and they're not really harmed if they overspend money. And Mises pointed this out in a beautiful book, if you want to read about this, called Bureaucracy 1944. Everyone should read that, where he goes through why the incentives are so different and why it doesn't mean no government, it doesn't mean anarchy. It means once government gets beyond its basic purpose of individual rights protection and gets beyond these three basic functions of police, courts and military, once it gets involved in things like the Department of the Interior, energy, agriculture, transportation, everything, right? That it's engaged in the economy without capitalistic standards and it's a disaster.
So the differences are great, but it's an argument for government not getting into business.
[00:43:19] Speaker B: Let me just add one more, one more thing on this.
Another aspect of it is to say, well, what is motivating the agents in each context, whether it's in a more pure market context or in a. In a government context, you say, as the questioner rightly points out, right. Profit is both a motivator, but it also brings with it checks on certain kinds of behaviors. And there are institutional checks that markets develop.
So profit and loss regulates out certain kinds of behavior. But when we turn to the government side of the equation, the profit motive is not the primary incentivizers. Instead, the coin of the realm, so to speak, is not money, but rather power.
[00:44:03] Speaker C: Right?
[00:44:03] Speaker B: And if one is motivated in a government context, in a self interest, it needs to be unpacked more, then your motive is to get more and more power. And that's symmetrical too. In the market context. Your motivation is to get more and more money, but power does not bring with it the same kinds of institutional checks with it.
And so, as you say, you get rewarded in the market. If you engage in effective cost cutting measures, you get punished in the public sector. If you have an annual budget, but you bring your budget in 70% under, you end up getting your budget cut, you have fewer people, your power gets cut.
What you want to do is in effect be wasteful in order to increase your power.
So that's just another way of slicing the slicing the slicing the problem.
[00:45:02] Speaker C: It's interesting you say that, Stephen, because in the wake of Buchanan and Tullock writing these things in the 60s, others who were skeptical of their views tried to do exactly what you said they Tried to do a one column. This is what markets do, this is what businesses maximize a profit. And by the way, the profit motive is the commercial manifestation of self interest. You know, self interest is this ethic, but the ethic of it is that. And so if his self interest is detested, so will the profit motive be detested. But, but many of them started coming up with models of well, what. Okay, we agree with you. The politicians are maximizing and their self interest, but what is it? And they sometimes would say power, but sometimes they would say something as cynical of just get elected and reelected for no reason whatsoever other than getting elected and reelected. Sometimes they would say policy, sometimes they say they really care about policy. But then they would say no, they only adopt policies in order to get elected. So you see the cynicism of it. The other times they would say sometimes legacy, I want to be known as attached to the New Deal or the Great Society, you know, and so if you want to call that legacy, notice those are all non monetary things. Here's what I find interesting though, on the issue of corruption. In the beginning they never included money.
And more recently the literature says it's got to be a way to make money as well. Because if you can become a senator or you can become a president and get your book sold, I mean there's massive documentation now that one of the best ways to get wealthy is to get into politics. Not so much on the bureaucracy side, but there are many, many cases. And AOC and others are showing this now all of a sudden they're multimillionaires. How did that possibly happen when they were only making 67,000 a year as congressman?
So this kind of stuff goes on all the time. So in the models now, it includes for politicians, their self interest includes, I may make a fortune doing this, especially if I'm in it a long time. So that's just corruption that's not being paid, that's being bribed. And they're motivated to come up with stuff that people would bribe them about. It's awful.
[00:47:10] Speaker B: Great.
[00:47:11] Speaker A: And then I think that answers your question, which is a follow up. I saw the aliation. So we're going to go next to Jackson Sinclair who asks what role do ideas, altruism, collectivism or the public good play in encouraging policies that public choice economists predict will fail?
[00:47:29] Speaker B: Yeah, well another thing that comes out of public choice is the idea that politicians might be motivated by their low grade self interest. If we can just use that phrase, they're more predatory, they just want more power. They want to use politics to get rich.
And so they know once they are in the system, there are ways for them to achieve those power or monetary goals.
But at the same time, they know that in a democracy they can't publicly state that that's what their motivation is.
They need to have public relations, and that is to. Then they say that to themselves. This is what I know is motivating me. This is my value set.
But if I'm going to get election elected, rather I have to appeal to a value set that is widely popular.
So what this will lead to is an ingrained hypocrisy in the system where if broadly speaking, the public is in favor of the government redistributing goodies in some sort of altruistic fashion or using more collectivist language about the public good. If a politician can sell a program that he or she knows is really going to line his pockets or increase his power in a way that is appealing to the general public, then he or she will get that program passed and so forth. But to make the connection to the issue of ideas that then turns on what kind of moral and political ideas are prevalent in the culture such that the politician can tap into those and use those as the COVID story for his or her real agenda.
[00:49:27] Speaker C: It's a really good question. Let me just recommend a source that, that I think you can easily get online. It's just because Professor Hicks mentioned earlier that the old paradigm was markets fail. They're not perfect by some platonic standard. The government comes in and fixes the market failure and somehow, surprise, surprise, that leads to a gargantuan growing market, regulatory state and subsidization state and stuff like that, right. The public choice people have come back with government failure.
So if you look up on the Internet. Gordon Tullock Government Failure A book or another one highly recommended by former colleagues of mine Munger and Keech K E E C H they wrote a paper you can get on the web called the Anatomy of Government Failure.
So they take the. They take standards that are accepted on the other side and hold the government up to scrutiny to see whether they pass. And now here's the three tests. Ready?
Government is all knowing, it's really smart and they have experts and the premise, not the premise that the public choice people are accepting. This is the one they're ridiculing. The other premise is and they're omni benevolent, they care for you, they're altruistic, they're trying to do you good. And then the last one they're all powerful.
Not only do they know a lot and not only are they trying to benefit you, but they have the power to actually execute these policies and benefit you. You know, Obamacare.
So they go through chapter and verse saying government is none of those things, especially gargantuan government, what I keep calling gargantuan government. They go through each step and say really? Are they really that smart? Do they really know how to do things? Covid the food pyramid wars that take forever and they lose them and hand it over to the Taliban. I mean there's just so many cases, riots in the street.
Aren't they supposed to be providing law and order? There are so many cases of government failure. And then the question is why?
And the answer usually is it's doing something it shouldn't be doing. It's not doing those three basic functions. And then the omni benevolent thing obviously is questioned. You guys are not altruists.
You are not what James Madison called in the Federalist Papers angels. Remember if people were angels, he said we wouldn't need government.
What does angels mean? You know, Christian, angelic, altruistic, non sinning people. Now if you said to Madison does that include the politicians which the public choice people will tell us later? Madison would say yes, yes, it includes, includes me. Includes us. That's why I'm giving you a constitutional straightjacket.
Because we believe all none men are angels. They're kind of devils.
And that last one, powerful. They'll say yes, government is getting more powerful, but notice literally how incompetent it is. So it seems to have all this power and it can't do infrastructure and it can't rebuild bridges and it can't balance the books with Social Security and it can't deliver sound money from the Fed. So it's powerless even though it's gaining more and more power. See the paradox?
[00:52:33] Speaker B: So on this issue about the importance of philosophical, I want to say especially moral ideas, just piggybacking on Richard's point there, the, the symmetry point. If you study markets and how people behave in them, and you study governments and how people behave in them, then exactly those three issues that Richard just laid out have to be studied empirically. So then we take the assumption, is it the case that government agents or officers are more knowing than people in the private sector? And my, my sense initially is going to be there's lots of smart people and lots of ignorant people in the market. There's also lots of smart people and lots of ignorant people in the government sector. So you're Going to have a mix of, of each, which ones are, are better motivated.
And you say, well, some people are motivated by self interest. Some people are real, properly understood. Some people are more altruistic, some people are predators. But that's going to be true on both sides, whether you're talking about government actors or market actors. So there's going to be lots of good and bad behavior on, on, on both sides. And then the issue of power. Yeah, you know, government people have a lot of power and they are more or less competent at exercising that power. But we can say the same thing on the market sides. People have power in the market. Some people have a million dollars and a billion and people are more or less competent at spending that money. There's a very high failure rate in the private economy as well. So then at the end of all of that analysis, you're going to say, well, we just have a mixture of knowing and ignorant people. We have a mixture of people motivated by good and bad things, and we have a mixture of competent and incompetent people on both sides of the equation.
So how are we going to decide what things should be done in the market and what things should be done in the, by the government? I think at that point you do have to make a value judgment. And this is where the, the ideas of altruism or the ideas of egoism or the ideas of predation and your judgment call about what, what is property, human beings becomes decisive here and there. You're making a judgment call that based on markets are going to be voluntary institutions.
And so it's a judgment call about what things should be done on a voluntary basis. And government is a coercive institution. And so it's a normative call about what things should be done by coercion. And so we're right back to the questioner's initial question about the role of those kinds of ideas. I think they become decisive in the final analysis.
[00:55:16] Speaker C: Many years ago I gave a speech at a Republican convention or something in the time, and then it was republished in my book. But it captured the essence of what we're trying to say here on the supplies, on the rent selling and rent seeking and corruption. And the title of it, everyone was worried at the time about campaign finance reform. So the title of it was To Get Money out of Politics, Get Politics out of Money making.
See, the idea, it's embedded in the idea that to get rid of this demand, to pour money into politics, get government out of money making.
And so that's one way of thinking of it as well. That theme is growing a little bit in the literature, but it's still a minority view.
[00:55:57] Speaker B: We're running out of time, but I want to give a little bit of an ending plug for the importance of Ayn Rand to all of this. James Buchanan, his co author, published the Calculus of Consent. I think it was 1962, the first edition.
[00:56:10] Speaker C: Yeah.
[00:56:11] Speaker B: But Rand's Atlas Shrugged, published five years earlier in 1957, is in one of its major sub themes, almost a textbook on public choice.
[00:56:20] Speaker C: Yeah.
[00:56:21] Speaker B: So if you look at the actions of James Taggart Boyle, the anti dog eat dog legislation, the Equality of Opportunity Acts and various legislations as well, they're almost textbook examples of the difference between the market entrepreneurs, Dagny and Reardon and Francisco and others. And then on the other side, the people who are political entrepreneurs, that is to say they are supposed to be or at least nominally on the private side of the equation, but really they are rent seeking in a seriously sophisticated fashion. So that's in a way one of the founding texts of Public choice right there.
[00:57:02] Speaker C: Well put.
[00:57:05] Speaker A: Excellent. Thank you, Stephen. Thank you Richard, so much for doing this webinar and thank all of you who watched and asked your questions. I hope you enjoyed this. If you did enjoy this, you can always support the Atlas Society and what we do with a tax deductible donation. Atlas society.org donate be sure to join us next week. Jennifer Grossman will be back and she's going to be sitting down with bail attorney Ken W. Good for a discussion on border enforcement and violent crime in in America. So we'll see you again next week. Take care everyone.
[00:57:42] Speaker C: Thanks all.
[00:57:43] Speaker B: Thanks all. That was good.
