Public Choice Theory: Skwire’s First Law

Some time last spring, my friend and occasional KP contributor Sarah Skwire formulated on Facebook what’s now dubbed “Skwire’s First Law”, and we’ve been using it, kicking its tires, and discussing it all summer. In a timely manner (given what we’ve learned this summer about widespread, unwarranted government surveillance and the impending likelihood that yet another president will engage in yet another international military action without Congressional authorization), Sarah has formalized and expanded upon Skwire’s First Law in a Bleeding Heart Libertarians post today:

Accidentally invented by me on Facebook a while back, named by my co-blogger Steve Horwitz, and picked up–to my great diversion–by a crew of Facebook friends, Skwire’s law is simply stated thusly:

Politicians are asshats.

I’m driven to write a bit about Skwire’s First Law today because, like every other day, politicians are being asshats. And I want to talk about how Skwire’s law—though simply expressed—is not merely a sigh of exasperation, a political version of “boys will be boys.” It’s a manifesto condensed into three words.

Saying that politicians are asshats means that you acknowledge the deep truths of public choice theory. It means that even if the occasional politician supports a policy you like or gives a speech you admire, you know enough not to turn him or her into a hero. We can debate, as my friends and I have on Facebook, whether asshats become politicians or politicians become asshats. I don’t think that debate much matters, because I think both parts of it are true. Politics is a machine that turns good people and good ideas into bad ones, and turns bad people and bad ideas into worse ones. Politics is a system that attracts not only people who want to help, but people who want to control. And once those people—good or bad, helpful or controlling—are in the system, they use it to further their ends.

Note in particular the last three sentences, and how they encapsulate the essential implications of public choice theory — in our roles as political actors (here let’s focus on individuals as elected representatives and in regulatory agencies, not as voters), individuals prioritize self interest, broadly defined. This is the extension to the political decision realm of the self-interest assumption in our roles as purposive individuals in other decision settings. Many individual politicians are motivated by good intentions (the “public interest”, making the world a better place, “giving back”, bringing resources to his/her community), and some are also motivated by the desire to control and manage the choices of others and how others live their lives. Public choice theory is general enough to accommodate that diversity of motivation and intent.

More insidiously, though, the fact that political power gives politicians coercive power to make decisions about the resources and the choices of others means that even those who have good intentions and good ideas can, do, and often must use control and coercion to satisfy those intentions and attempt to implement those ideas. Thus even well-intentioned politicians use the system of coercion and control to attempt to achieve their ends. And I hope Sarah doesn’t mind my paraphrasing a Facebook comment of hers on this point, because it’s apt: by definition, politics means using the state’s monopoly on force, and being a politician means that you contribute to decisions that will use that force to enshrine your “honest mistakes or infelicitous actions” in a pretty permanent way in the lives of many, many people, including those the politician says s/he wants to help. If that politician is unaware of that likelihood, or doesn’t care, that’s asshattery. It’s also hubris. And it’s pervasive in politics.

Sarah goes on to point out that this outcome is not accidental or a flaw, although some of us may consider it perverse. Here’s where the study of institutions and incentives becomes important — once these individuals become politicians, they are embedded in a set of institutions that shape their incentives. They face the tragedy of the commons in the federal budgeting process, because to bring resources home to their constituents means either decreasing resources somewhere else that doesn’t matter as much to them or increasing government spending in ways that can unsustainably increase government debt (oh, hey, did you know we’re hitting another government debt ceiling in October?). They trade votes and engage in log-rolling to achieve what they style as “compromise”. The incentives are inherent in the institutions, and they are bad incentives that lead to inferior outcomes and to politicians being asshats. Of course there are nuances and degrees of asshattery, especially if you look on an issue-by-issue basis at the questions you find most pressing. But remember the initial formulation: occasional support that aligns with your preferences does not change the fundamental, underlying institutional incentives.

Note that this asshat designation is not a statement about personal character or merit of the individual politician. It’s a statement about the institutionally-driven incentives facing each individual politician regardless of their motivations or intentions. And that’s what makes it such a pithy and damning statement about the pernicious effects of political decision processes, even (or perhaps especially) political decision processes in what is supposed to be a democratic republic. It is the nature of our political institutions that politicians are asshats, and therefore

[t]hey are wasting your time and your money and your energy. They are allying you with people you hate and with causes you despise and with actions you would never condone.

Don’t wait around for them to save you or the things you think are important. Don’t think you’ve found the politician who can fix your world.

Realizing this nature of political institutions opens up the idea that political processes are not necessarily the only or the best way to approach social conflicts and problems. Thinking about alternatives, about experimenting with different approaches, about the impossibility of doing away with all social problems, gives us opportunities to be creative and to enable other approaches to emerge.

Which states have price gouging laws?

Michael Giberson

A graphic illustrating states with price gouging laws (blue) and states without them (gold). For a list of the states with citations and related notes, see my earlier “List of States With Anti-Price Gouging Laws.”

STATES_W_APGL_2012_NOV

 

So far as I know, the only serious attempt to explain why some states do have price gouging laws and others do not is Cale Wren Davis’s thesis,  “An analysis of the enactment of anti-price gouging laws,” Montana State University, (2008).

Davis makes some progress, but there is still a lot of work to be done on the political economy of price gouging.

If you must subsidize energy, subsidize wisely

Michael Giberson

Earth Track has dedicated itself to uncovering the government policies that it finds harmful to the environment, with a particular focus on the effects of energy subsidies. From various quotes in the press from Earth Track founder Doug Koplow, I gather I may not always agree with his views of public policy and the world. But a casual review of the extensive work Earth Track has done on subsidies suggests that its work is, as it aims to be, pretty thorough and reasonably unbiased.

Koplow, noted for his criticism of energy subsidies, reports being asked which kinds of energy subsidies he does favor. His response – “So which forms of energy should we subsidize?” – notes that while he is not opposed to energy subsidies in principle, in practice there are many reasons to be cautious.

The realism exhibited with respect to the ways policymaking actually works is refreshing.

Intrusive TSA searches create profit opportunity for Adidas

Lynne Kiesling

A concise public choice analysis of the distortionary economic rents created by the ever-increasing “layers” of TSA security theater, as reported today on the Wired gadget blog:

Airport “security” theater may be sickeningly pointless, but this stealthy introduction to a police state brings certain commercial advantages to those willing to cash in. First, it was the baggie makers that got rich. Then, it was the turn of laptop bag and sleeve manufacturers. Now its the turn of sneaker makers.

Adidas’ SLVR S-M-L Concept shoes are neither a concept nor “slvr” (silver?). What they are is TSA-friendy, with a stretchy upper and expandable sole which makes it easy to slip them off when being forced to undress and submit to the “security” “officers” of our totalitarian state. Sure, they may look like lace-up shoes, but that’s just a trick so you don’t look like you bought them on the over-60s shopping channel.

This pathetic genuflection to our governmental overlords has one neat side-effect: The shoes only need be made in three sizes, and they will stretch to fit. This also means that your girlfriend can now steal your shoes, along with your sweaters, socks and anything else that will fit her.

The SLVR S-M-L Concept shoes are $140 per pair. I told you somebody was getting rich. And what next? Crotchless pants to make invasive TSA groping a little bit easier?

In addition to Charlie Sorrel’s recognition of the rents that the TSA policies have created for Adidas, I applaud and echo his rhetoric. However,  in his list of those who have profited from the expansion of the police state, he forgot to list the whole-body imaging scanner manufacturers, who have paid through the nose to get those rents, through the politically-connected lobbyists they have employed to persuade Congress of their fear-driven, security-industrial complex “business” model. Any rents that Adidas gets to enjoy from shoe sales will pale in comparison.

Complexity essay question from Megan McArdle

Lynne Kiesling

Megan McArdle offers an essay assignment:

Pascal Emmanuel-Gobry has an essay question:

Tainter’s story goes like this: a group of people, through a combination of social organization and environmental luck, finds itself with a surplus of resources. Managing this surplus makes society more complex–agriculture rewards mathematical skill, granaries require new forms of construction, and so on.

Early on, the marginal value of this complexity is positive–each additional bit of complexity more than pays for itself in improved output–but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost.

Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.

The ‘and them some’ is what causes the trouble. Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake–“[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification.

Please write an essay describing whether and how Tainter’s thesis applies to welfare states undergoing demographic slide. You have four hours.

Answer: sounds exactly like the subject of Mancur Olson’s outstanding book about institutionalized, bureaucratic, economic sclerosis, The Rise and Decline of Nations. I’m sure he spent more than four hours writing it, and you’re likely to spend more than four hours reading it, but it’s well worth the investment.

Eternal truths about those who are attracted to politics

Lynne Kiesling

Over the past week there’s been an interesting online conversation with the participants discussing one of the eternal tautological conundrums: why does politics attract power-hungry narcissists?

Matt Yglesias kicked it off with what I think is a pretty naive query about the degree of cynicism and immorality in politics. Such cynicism and immorality is neither new nor confined solely to republican democracies, but we certainly do seem to be swirling in it now, don’t we? And while I characterize as naive his asking about what I see as almost a tautology (power attracts those who like power and have a heightened sense of self importance), it is a valid and valuable question when probed more deeply, and as such has provoked interesting response and discussion.

For example, our erstwhile Free Exchange blogger states the problem as

I think that this dynamic can be easily oversold, but it’s definitely one of the main reasons we have the legislators we have; powerful positions attract people who are interested in getting and maintaining power.

Arnold Kling points out that

… the growth in concentrated political power in this country leads to a system that selects for leaders with exaggerated senses of self-importance and a remarkable lack of perspective on their own foibles (think of Elliot Spitzer or Mark Sanford or John Edwards). One of the problems with large-scale politics and large-scale capitalism is that there is this tendency to select the most overconfident, driven, and aggressive men for leadership positions.

While I think he’s correct to say “men”, that’s as a central tendency, not as a description of the whole politician population — we have our Nancy Pelosis and Barbara Boxers too. And, to be fair, Arnold is generalizing the point to encompass CEOs, not just politicians, which I think has some justification.

Ilya Somin at Volokh posits a selection-based hypothesis, which in part is a formal way of restating my tautological form above:

The key explanation is selection effects. A politician willing to do anything to take and hold on to power will have a crucial edge over an opponent who imperils his chances of getting elected in order to advance the public interest. The former type is likely to prevail over the latter far more often than not. This is especially true in a political environment where most voters are often ignorant and irrational about government and public policy. Candidates have strong incentives to pander to this ignorance and exploit it in order to win elections.

As Ilya notes in his post, the scenario here is one in which the short-term interests of a constituency and the long-term “public interest” are not aligned, but this long-term “public interest” is in keeping with the representative’s stated principles, and the cynicism of the craven politician induces him/her to vote according to the desires of his/her constituency instead of voting for the “public interest”. There are a lot of issues with this scenario — isn’t the representative doing what s/he was elected to do by voting the constituency’s interest? Is there really such a thing as a monolithic “public interest”? Even if s/he wants to “do good”, the only way to do so is longevity in office, so how do we untangle motives from tactics that are needed to satisfy those motives?

One reason this discussion caught my eye is that I have despaired about this eternal truth — political processes as attractors for power-hungry narcissists — for most of my intellectual life; in fact, it’s one of the first consciously small-l-liberal thoughts I can remember having as a child. If the other tautology is true — that democracy is the worst form of government, except for all the others — then is there a way to cultivate representatives who are not power-hungry narcissists? I continue to come up empty with respect to that question.

One might hope that public choice economics, by treating politicians as rational agents and analyzing political economy processes such as lobbying and rent-seeking, could yield some insights. But Will Wilkinson’s foray into this discussion is not particularly sanguine; in fact, he contends that by treating politicians as rational agents, public choice economics is too generous to politicians:

By insisting that politicians are motivated by considerations no different than businessmen or anybody else, public choice economists have helped slay the pernicious myth that politicians are generally warmly other-regarding public servants. But the economist’s assumption of motivational uniformity fails to capture that politicians do in fact seem to be really odd people who don’t seem to be primarily motivated by the same considerations that motivate most of us most of the time. The incentives of the political process create a kind of filter that selects for individuals extraordinarily fixated on power and status and extraordinarily motivated to keep it. If this is right (anyone know of personality studies of politicans?), then the problem with standard public choice is that it gives too much credit to politicians by assuming they’re like everyone else and therefore it fails to capture just how exceptionally prone politicians are to narcissism, motivated cognition, self-deception, and brazen lying.

I think Will’s got it about right, and that his remark starts us down the road of developing a behavioral public choice model of politician decision-making, kind of an analogue to Bryan Caplan’s behavioral public choice model of voter decision-making. Will’s insight is also consistent with Ilya’s selection effects hypothesis, and is succinctly summed up by one of the commenters on Ilya’s post:

The most conservative senator and the most liberal senator have more in common with each other than they have in common with either you or me.

Walmart supports employer health care to raise rivals’ costs

Lynne Kiesling

I have to admit, I thought that this point was obvious. Clearly Walmart (accurately, I think) sees itself as well-positioned to leverage its size nationally to negotiate better health care arrangements than its competitors, so its newly-announced support of employer-based health care is a classic example of raising rivals’ costs.

Apparently, it’s not so obvious to everyone, as Megan McArdle pointed out:

I find it hard to believe that none of the liberal commentators breathlessly celebrating Wal-Mart’s “capitulation” on national health care have even entertained the most parsimonious explanation:  that Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart’s competition.  Yet somehow, this appears nowhere in any of the analysis. …

Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost.  Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors.  Finally, a high fixed cost means either that it’s harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.

Megan also recommends what I think should be universal required reading:

All of which is to say, Bootleggers and Baptists should be required reading in all schools.  When you find strange bedfellows in politics, don’t look for a surprising outbreak of spontaneous virtue:  looking for the hidden conspiracy.

Note: I don’t particularly care about what “breathless commentators” of various partisan stripes do or don’t claim politically; I do care about the economic content and substance of their analyses. Raising rivals’ costs and the political economy of leveraging regulation to do so is an important economic lesson.

UPDATE: I just got around to reading this morning’s Wall Street Journal, which has a lead editorial making the same point:

The employer-mandate endorsement falls into the same self-interest department. A boost in the minimum wage helps Wal-Mart because most of its workers already earn well over the wage floor, and it hurts smaller, less-profitable competitors that can’t afford to pay more. On health care, an employer mandate will also reduce the margins of their rivals. This is especially true for businesses of a slightly smaller size that cannot insure on the same scale or currently don’t reach the 55% of the 1.4 million Wal-Mart employees who are insured through the company. (Another 40% or so are covered by spouses or the likes of Medicaid.)

The continuing relevance of the bootlegger-and-Baptist model

Lynne Kiesling

In 1983 Bruce Yandle wrote an influential article in Regulation, “Bootleggers and Baptists: The Education of a Regulatory Economist”. His model explains how two parties with seemingly incongruent values can come together to get a regulation passed that meets the objectives of both parties. In the bootlegger and Baptist case, both parties benefit from restrictions on Sunday alcohol sales, and will therefore lobby politicians in favor of such restrictions. The bootlegger-and-Baptist model even has its own Wikipedia page. It’s a very powerful model for understanding coalition formation and regulation in many situations.

Recently in Newsweek George Will wrote about Yandle’s model in a column striking a cautionary note about the current increase in government regulation and involvement in the economy. To illustrate the dynamics and the incentives, Will discusses two cases: sulfur dioxide emission regulation via technology mandates, and tobacco regulation.

Will’s column is a good introduction to the bootlegger-and-Baptist model, which really is relevant in many settings and robust to a lot of different contexts. I find it particularly relevant when applied to environmental regulation.