Wednesday, December 1, 2010

"Public Choice Theory: A Good Idea", or "Matt Yglesias, Paul Krugman, and Brad DeLong are viable public choice theorists"

Ghandi was supposedly once asked what he thought of Western civilization. His response was that he thought it would be a good idea. I often have the same feeling about public choice theory in economics. In theory, it's great to model and think about the decisions of public actors in the same terms that we think about private actors. Most modern economists take public decision makers to be exogenous and leave the task of describing their behavior to political scientists. But public choice theory suggests (I think rightly) that we can say some things about their behavior because public figures respond to incentives just like anyone else.

The problem is, it's as hard to nail down what the preferences of a public official are as it is to nail down the preferences of any other individual. In fact in a lot of ways its harder because there are complex principal-agent dynamics associated with public official behavior, to say nothing of non-pecuniary motivations (patriotism, the public good, etc.). Public choice theory is right to say that self-interest motivates public officials, but that's very different from claiming that self-interest is the only thing that motivates public officials. So it's more or less a mess to begin with.

But on top of that implicit mess, public choice theory is rarely applied objectively. It is almost exclusively applied to alleged cases where self-interest at hand is an interest in expanding government for... for what? Personal gain on the part of the public official? Sometimes that answer to the question "for what purpose?" is provided, sometimes it isn't. The expansion in the size of government is usually (and I should add, tautologically) construed as serving some private interest, and private interests that militate against socially beneficial government actions are almost completely ignored by self-identified "public choice theorists".

For example, Matt Yglesias has a post up about how Republicans might sabotage the recovery by preventing monetary or fiscal stimulus because it would serve their political interests. This is public choice theory through and through. A politician sees an electoral advantage in a bad economy (undeniable that this would be an advantage to Republicans), so they act to try to make the economy worse. If you're a Keynesian and a public choice theorist, you would say that public choice theory suggests the Republicans would oppose stimulus. This argument is never made, though, and nobody connects the dots between Yglesias's logic and the logic of public choice theory. Why? Because public choice theory has by and large been the lap-dog of conservative and libertarian ideology on the one hand and anti-Keynesian economics on the other. This is unfortunate. It could be a meaningful research agenda, but it's not because it is selectively and subjectively applied.

Another good example recently has been some recent posts by Paul Krugman and Brad DeLong on why the administration and the Congress don't seem to have the gumption to implement meaningful Keynesian macroeconomic policy. They provide a fundamentally public choice theory argument: it is not in the private interests of Democratic congressmen and administration officials to implement such a policy, and so it will not be implemented. That's public choice theory!!! Why don't I hear any self-identified public choice theorists making these cases??? Because no self-identified choice theorist wants to tell you that public choice theory implies that politicians will fail to implement Keynesian policies. The people who call themselves "public choice theorists" don't take the theory itself seriously enough to follow it where it leads - they only want to use it as a tool for bludgeoning their political opponents. It's politics, plain and simple - not science.

Another good example is presented by self-styled public choice economist Don Boudreaux in a critique of Representative Mike Pence this morning. Don writes: "Your proposal for a Spending Limits Amendment – one that would cap federal-government spending at a maximum of 20 percent of U.S. GDP – is dangerous... Your proposed Spending Limits Amendment is dangerous chiefly because of the inevitable need, that you recognize, for express exceptions that would release government from the spending cap – especially the exception that you mention: war." So far so good. Here's where Don conveniently drops his public choice theory lens: "As Thomas Paine wrote in The Rights of Man, “War is the common harvest of all those who participate in the division and expenditure of public money, in all countries. It is the art of conquering at home: the object of it is an increase of revenue; and as revenue cannot be increased without taxes, a pretence must be made for expenditures. In reviewing the history of the English government, its wars and its taxes, a by-stander, not blinded by prejudice, nor warped by interest, would declare, that taxes were not raised to carry on wars, but that wars were raised to carry on taxes.”" A very thoughtful quote from Paine - and I personally am a big Paine fan - but let's turn the public choice theory lens on him. Paine wrote The Rights of Man in 1791 in defense of a war - the French Revolution. A public choice theorist would note that the tract served a political interest in undercutting Paine's enemy, Britain. Indeed - Paine was all for raising revenue for war in the early 1780s when he did it as an agent of the American colonies in France. He was also all for it in the early nineteenth century when he tried to convince Napoleon to raise revenues to support a thousand ship fleet to invade and conquer Britain. Paine's statement here has the air of public choice theory about it, but any genuine public choice theorist should recognize it for what it is: a statement by a public official, writing watever seemed plausible to support his own interests. Don cites this logic in applying it to Pence and his fellow Congressmen and their wars. Would he apply it to Paine and his wars?

My concern isn't that public choice theory is a bad thing (it's not at all) and my concern isn't that Don Boudreaux doesn't take a founding father to task. My point is that what gets passed off as public choice theory is often just political rhetoric. Anti-stimulus rhetoric, not anti-stimulus analysis. Pro-libertarian rhetoric, not pro-libertarian analysis. It's not objective analysis because it's not universally applied. Public choice theory would be nice, but I think there are huge obstacles to applying it rigorously and I think we have very few examples of its rigorous application so far.


  1. Good to see this post up.

    I think the main problem is that good Keynesian policy and good laissez-faire policies are hard sells, and are even harder to execute. So you almost always end up with a half-assed result. You get stimulus packages that are too small and/or are politically driven instead of economically driven. Or you get pointless austerity that puts unemployment benefits on the chopping block first.

    The problem is that since we only have one test case (what the government did), each 'side' can use that as a strawman for their opponent, which I think is sort of what you were getting at.

  2. nickn - yes I think that's right.

    I do think, however, that if Keynesians who make these observations would (1.) do it more rigorously (all of three of those examples except perhaps Krugmans were more partisan venting than thoughtful science), and (2.) actually think of it as an call it and draw from Public Choice Theory, then we might actually get somewhere. You would have this perspective challenging other perspectives that could legitimately be called "public choice theory" and there would be some kind of arbitration.

    Right now, though, libertarians who think like this call it "Public Choice Theory", and liberals who think like this call it "thinking about politics" because they don't even think of it as being the same thing as the economics work they're doing. The liberals don't even know the libertarians are doing public choice theory, and the libertarians won't acknowledge the liberal musings as public choice theory, so - surprise, surprise: public choice theory as a field of research stagnates.


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