The Economics of Politics

What to Read For Is there a general will in society? Is majority vote always a good thing? Why does the judgment that a project is good require unanimous agreement? Is bribery and buying of votes always bad? How do such activities get around the problem of unanimity? But what then is the problem of extortion? And would people tell the

8 These and the statistics following are taken from Robert Gallman, "Commodity Output 1839-1899," in National Bureau of Economic Research, Trends in the American Economy in the Nineteenth Century (Princeton, N.J.: Princeton University Press, 1960), pp. 46^18, 54, 56.

truth about valuations of public goods? Can one measure social gain created by a project without making an implicit judgment about the desirability of the income distribution?

Voting Is No Guide If everyone were a utilitarian and had precisely the same social utility function— to the General Will say, "maximize national income" or "maximize the prospects of the least fortunate"—then choices of government policies would reduce to mere calculation. The Council of Economic Advisors or the Lord High Economist would calculate the economic impact of a quota on Japanese steel (as against no quota), a deregulation of airlines (as against continuing the Civil Aeronautics Board), closing of /.' • o the Naval Supply Station at Norfolk, Virginia (as against keeping it open), or a 5-cent rise in cigarette taxes (as against no rise) and then insert the implied , change in the distribution of happiness among Tom, Dick, and Harriet into the social utility function. The Council would then choose the alternative giving the greater social happiness, to the unanimous applause of the citizens.

. ' ; But for better or for worse, no country has such unanimity. In other words, treating America as one person for purposes of measuring national income is j-r , ; obviously not acceptable. John and Laura may each have a social utility function, but they may not have the same function. Opinions about the social good differ. People disagree. Politics exist.

An enthusiast for social engineering might reply that this very politics will solve the problem of disagreement, because voting on the deregulation of airlines or the closing of the Norfolk Naval Supply Station reveals the general will. The reply sounds persuasive, but it is wrong. The arguments showing that it is wrong were discovered two centuries ago by a French philosopher, the Marquis de Condorcet. He pointed out that majority voting does not always lead to a decision, and when it leads to a decision does not always properly reflect the opinion of the voters.9

It is indeed not very surprising that a collection of people with varying tastes and interests cannot always agree. What is surprising is the gullibility with which people swallow the idea of the general will, identified as the simple majority or the vote of two-thirds of the Senate or the edicts of a man on a white horse. Cavaliers and roundheads, democrats and fascists cannot be expected to agree. John Adams estimated that fully a third of the people in the American colonies during the Revolution were loyal to the British crown.

Market Solutions: Economists are skeptical of the moral claims of majority rule. Someone will The Theory of Dollar be outvoted, and there is no reason to give the minority's dissatisfaction with Voting the outcome less moral weight than the majority's satisfaction. A decision to jail all communists would have pleased most Americans during the 1950s, yet would have displeased supporters of the Bill of Rights, not to mention the commu-nists themselves. A decision to soak the rich is ever popular, but it ignores the rights of the rich to their riches. The decision during World War II to put 120,000 Japanese-Americans in concentration camps was acceptable to most voters (of non-Japanese descent), Congress, the Secretary of War, President Roose-

s. . 9 See Keith M. Baker, ed., Condorcet: Selected Writings (Indianapolis, Ind.: Bobbs-Merrill, 1976),

' pp. 52-53, and K. [. Arrow, "Values and Collective Decision-Making," in P. Laslett and W. G.

Runicman, eds., Philosophy, Politics and Society, vol. 3 (1967), reprinted in Phelps, ed., Economic Justice. The best elementary treatment of the subject and the others mentioned in this section is Dennis C. Mueller, Public Choice (Cambridge: Cambridge University Press, 1979).

J, velt, and even the Supreme Court, but such a weight of opinion against the Japanese-Americans is no guide to justice.

The economist's usual guide is unanimity. If literally everyone agrees that a new road should be built from the main highway to Great Durnford, then it - should be built. If everyone has a veto over the taxing and spending by the

. J village government to build the road, then the case is similar to a free trade i between two people, because the people affected, like the two people trading, can enter or not enter the deal voluntarily. A new road or other project is r - i desirable if it makes someone (or many) better off without making others worse

' off, that is, if the project is efficient.10 And in such a case, setting aside mere spite, everyone would agree to let the project go forward, v \ ' Unanimity is an absurdly strict test of a project's worth if no side payments, bribes, or vote trading are allowed. The new road could be a social bonanza, ,s: bringing a previously isolated village into contact with the wide world, enriching and enlightening everyone in the village—except the mule skinner, whose pack > \train was previously the only way out of the village and who is impoverished by the new road. He by himself can veto the road if unanimity is required, denying others the great benefits.

The solution, however, is simple. Allow the rest of the village to buy off the mule skinner. If the rest of the village gains from the road enough to share some of the gain with the mule skinner (enough to make him happy with the outcome) and yet still has some net gain left over, then the project is mutually advantageous and should go forward. Likewise, a rule of unanimity—or, for that matter, even a strict rule of majority—would paralyze Congress if its members were somehow forbidden to trade votes. But with vote trading allowed, Congress is able to pass hundreds of bills a year, for better or for worse. The practice has bad-sounding names: vote trading, graft, vote buying, bribery, venality, logrolling (you help roll my log, I'll help roll yours). But in fact the results can be good, selling a bill to the highest bidder and using the money collected to compensate losers in the bidding. Voting without vote trading enriches the winners at the expense of the losers,- voting with vote trading compensates the losers at the expense of the winners.

Bargaining in good faith under a rule of unanimity, then, makes politics into a market. It solves the problem of discerning the general will: The general will is whatever money can buy. It suggests that, if democracy (the rule of the people) is to be fair to minorities, it must become plutocracy (the rule of the rich), with the losers in elections by dollar votes being compensated by the plutocrats. Obnoxious as the argument may seem when put plainly, it does at least in the style of all such market arguments "ensure the largest happiness from a given distribution of money (that is, of powei).

It has some merit, furthermore, as a description of real politics—or, rather, realpolitik. The payment to losers need not be coin of the realm. Farmers wanting the votes of a shipbuilding district for a farm subsidy may bribe the senator or representative involved by promising to vote for a Navy contract to build two submarines in American yards. Indeed, the payments need not be selfish. If the people to be bribed, the shipbuilders, are for some unselfish reason filled

10 Or in fancier language, Pareto efficient or Pareto optimal. The only point of the fanciness is to commemorate the role of the Italian sociologist and economist Vilfredo Pareto (1848-1923) in framing the idea clearly.

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