Rethinking Public Choice

By Richard Wagner, Emeritus Professor of Economics, George Mason University, US

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I was pleased when Edward Elgar invited me to contribute a book on public choice theory to its series on “Rethinking Economics.” My entire academic career has taken place inside the corridors of public choice thinking, starting with my 1963 enrollment in the Ph.D. program in economics at the University of Virginia. I enrolled there and not somewhere else after reading James Buchanan’s and Gordon Tullock’s 1962 Calculus of Consent. That reading settled my indecision about whether I would study economics or political science, for reading that book convinced me that I could study both in Virginia’s economics program.

            After my first year at Virginia, moreover, Buchanan and Tullock invited me to attend a conference they were sponsoring in October 1964 in what at the time they were calling “nonmarket decision making.” With weakening memory after nearly 60 years, I no longer recall full details of that conference. Among the 15-20 attendees were such prominent contributors to the early years of public choice as Duncan Black, Anthony Downs, Roland McKean, William Niskanen, Elinor Ostrom, Vincent Ostrom, William Riker, and Thomas Schelling.

            The conferees were united in their dislike of the common practice of using concepts from welfare economics to offer advice to politicians about optimizing one thing or another. It’s not that they were opposed to optimizing in principle, but that they thought that politicians were already quite adept at being politicians, and so didn’t need help from economists. After all, politicians were typically elected repeatedly to their offices, leaving those offices only when they chose to do so. Politicians didn’t need economists to help them to be better politicians.

            The conferees pursued a quite different analytical challenge, which was to uncover the hidden logic that undergirded political action. Politicians were recognized to be at least as rational as ordinary people, only they operated inside a different type of social and institutional environment than did ordinary persons. In this respect, Vilfredo Pareto’s 1915 treatise on Mind and Society distinguished between two major environments that contained human action within society. One of those environments elicited logical action by participants. These were commercial and scientific environments. The other of those environments elicited action that was non-logical, which is different from being irrational. The primary non-logical environments in society were politics and religion.

            Logical environments were primarily environments dominated by direct experiences of costs and gains by participants. Those participants invested in their choices and bore the value consequences of the resultant outcomes. By contrast, non-logical environments were animated by impressions and images. One beautiful illustration of the difference in environments arises in different approaches to the existence of God. Pascal’s Wager pertains to a logical environment with Pascal counseling that the mathematics of infinity explains that a prudent person would choose to believe in God. Alternatively, Anselm’s so-called proof starts with someone who believes in God and counsels people to probe the meaning and significance of that belief in their lives. Applied to politics, this means that people start with feelings to which politicians seek to appeal by crafting images that resonate with those feelings.

            The early public choice theorists confronted the problem of making their ideas intelligible to an economics profession that for a good half-century had become accustomed to using economics to proffer advice to politicians, mainly through the medium of welfare economics. To gain a foothold in that profession, it seemed prudent to proceed by making marginal changes to the prevailing schemes of economic theory. Hence, public choice, which was given its name in only in 1968, embraced the standard postwar assumptions of optimizing individual choice and systemic equilibrium, and proceeded to emend those assumptions to incorporate political phenomena. For instance, William Niskanen published Bureaucracy and Representative Government in 1971. This book treated bureaus within the context of the theory of the firm by modifying the theory of the firm to account for the inability of bureaus to capitalize their profits. It wasn’t that bureaus couldn’t conceivably return profits; it was that their institutional arrangements prevented them from doing so. Instead of returning profits, bureau officials would convert what would have been profits into rents for bureau officials and relevant legislators.

            In my judgment, public choice has become ossified over the course of its life. Rethinking Public Choice seeks to fight that ossification by replacing the orthodox equilibrium framework with one based on such concepts as evolution, complexity, and emergence. Models don’t just help us to see more clearly; they also shape what we see or think we see. Models are not neutral elements that just magnify our thoughts. To the contrary, they carry our thinking in particular directions. In this respect, equilibrium models are rendered in the passive voice.

            In contrast, Rethinking Public Choice is rendered in the active voice. Everything that happens occurs because of actions people undertake somewhere within a social system. There is, moreover, no such thing as acting on a social system. All action occurs inside a social system, and with that system’s architecture continually changing in response to those actions. A central bank, for instance, does not control a price level. It instructs brokerage houses to buy private assets, which sets in motion transactions that bring about changes in asset holdings throughout the social system, including changes throughout the structure of prices.

            Rethinking Public Choice ranges widely throughout the material that public choice theorists have addressed, always seeking to explore alternative insights that arise through this emphasis on active voice theorizing where human population systems feature dense collections of people always acting, and with much of what those actions accomplish being unintended by-products of human interaction within complex social systems. In this respect, Rethinking Public Choice looks to the Scottish Enlightenment and not to post-war welfare economics for its animating scholarly inspiration, only integrating those insights of old with such new schemes of thought as evolution, complexity, emergence, and some dialectics of constituting social order.

Rethinking Public Choice, by Richard E. Wagner, George Mason University, US is out now.

Read the introduction and other free chapters on Elgaronline



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