Sunday, August 30, 2009

The Hesitant Hand by Steven Medema (Princeton University Press), Part 7

Chapter 6: Marginalising Government II: the rise of public choice analysis)

A central axiom of modern economics has long been the rational, self-interested agent; public choice was largely about the application of that assumption to the political process (from Homo economicus to Homo politicus; with my apologies to Latin scholars).

Among the major figures in this new school were James Buchanan, Gordon Tulloch and Warren Nutter, and this chapter takes a close look at their work and influence, which towards the end of the chapter gets very close with an almost blow-by-blow account of its leading professors struggling to maintain their legitimacy within departmental economics, already narrowing down its core interests within mathematics (‘political economy’ was long dead since Marshall).

Naïve analysis of government relied on almost altruistic officials working for the public good through their conception of a ‘public welfare function’, as if legislators were ‘neutral’ between factional interests and worked solely for the whole community. Buchanan and company were not so naïve
Virginia, where they worked, is very close to Washington, D.C.).

Politicians were not quite neutral, nor were they mere technical translators of the public will into public policy. They too maximised their self-interest (primarily to be re-elected) and they did whatever it takes to build a large enough coalition of voters that supports their election (and re-election).

Disappointedly, Steve holds back from developing an account of the analyses of public choice theory in much detail and refers his readers to Dennis Mueller’s Public Choice (3rd edition, Cambridge University Press), and for the political process model he refers to Buchanan and Tullock’s seminal text, The Calculus of Consent (1962: Michigan University Press). I mention that last book (with Anthony Downs’s An Economic Theory of Democracy (1957) because it was from reading them in the late 1960s that I began my own drift away from student political activism (I even wrote a long forgettable essay applying the general idea of self-interested politics to left and right conflicts in the university).

However, Steve’s account of public choice theory is a neat, clear summary and will inform, or remind, readers of its main ideas, plus an adequate account of the work of Arrow (his ‘possibility theorem’: voting preferences do not promote ‘optimality’) and Black (committees and elections).

As is his outline of the difficulties of the public choice school in overcoming general indifference (and, later outright, hostility) among academic economists, an attitude replicated among academic political scientists. This left a formidable gap between the reality of political processes and the conventional assumptions of democratic political conduct, partly manifested in the lack of attention to government failure, at least not to the degree to which market failure is acknowledged and used to justify government interventions to ‘correct’ the alleged failures of markets.

The last 15 pages of Steve’s chapter is a detailed account of the struggle for the recognition of public choice theory as a scientific subject worthy of a higher status with the subject areas where it rightly claims a place. I shall not review their contents on this occasion, except to say the conduct of (self-interested) academics, while in my view is disappointing, it is also a classic example of the vindication of public choice theory in action – perhaps someone should re-write those 15 pages as a case study.

[Part 8: “Legal Fiction: The Coase theorem and the evolution of law and economics” is up next.

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