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Voters and the Incentive to Be Ignorant
Special Interests and the Incentive to Be Informed
A Formula for Political Success: Diffuse Costs, Concentrate Benefits
Voter Myopia and Political Business Cycles
Two Cheers for Democracy
Takeaway
If you have read this far, you may now be asking, “What’s wrong with the world?” Economists tend to favor free and competitive markets and to be skeptical about policies like price controls, tariffs, command and control regulation, and high inflation rates. Yet around the world, markets are often suppressed, monopolies are supported, and harmful policies, such as those just listed, are quite common. Why do the arguments of economists fall on deaf ears?
One possible answer is that politicians are right to reject mainstream economics. As we explore in Chapter 21, some people do argue that mainstream economics ignores important ethical values. Or perhaps mainstream economics is simply wrong about economics. Of course, that is not our view, so you will have to seek other books to judge that question for yourself. A third answer to what’s wrong with the world and the one we will explore in this chapter is … can you guess? Bad incentives.
Public choice is the study of political behavior using the tools of economics.
A good incentive system aligns self-interest with the social interest. In Chapter 7 and Chapter 10, we explored the conditions under which markets do and do not align self-interest with the social interest. It’s now time to turn to government. The critical question is this: When does the self-interest of politicians and voters align with the social interest and when do these interests collide? This question is at the heart of political economy or public choice, which is the study of political behavior using the tools of economics.
We will begin this chapter looking at some of the major institutions and incentives that govern the behavior of voters and politicians in a democracy. As we will see, democracies have many problems, including voter ignorance, control of politics by special interests, and political business cycles. Yet, to quote Winston Churchill, “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.”1 Thus, in the latter half of the chapter, we look at nondemocracies and some of the reasons why nondemocracies have typically failed to produce either wealth or political or economic liberty for their citizens.
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Let’s begin with voters and the question: “Do voters have an incentive to be well informed about politics?”