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It's a very good post. The trouble is, a good public choice account seems to be very much in the eye of the beholder. I've all but given up getting a real answer to the public choice problems I see in libertarian policy discussions, and I've also all but given up on getting much admission on the holes I see in some of the favorite arguments used. It is easily the most politicized sub-field (for understandable reasons, of course).

It's also often used the way an intro student will use market failure theory. If there is even a whiff that there's a government failure involved (as there will ALWAYS be - it's government after all - hardly the tool of choice for an efficient outcome), people act like that's the end of the discussion. That's not a legitimate answer - the question is, will the imperfect mixed solution, the imperfect state solution, or the imperfect market solution be comparatively better.

It gets very old for people who see politics without romance to get repeatedly told they need to see politics without romance, and one starts to suspect it's because we're not coming up with the answers that people want to see.

Clearly none of this is a disagreement with what you're interested in. I obviously agree. It's a statement of how this always seems to work out in practice.

"The invisible hand proposition is of course the bold analytical claim of mainline economics from Adam Smith onward..."

How many times does Gavin Kennedy have to show that Smith had no "invisible hand mechanism" before people stop claiming he had one?

Take the recent Lind question. It was a little ham-fisted in execution but the question was a perfect opportunity for some really robust soul searching by libertarians of the public choice problems with their often romantic politics.

Did we get that?

Nope. Mostly just denunciations (Russ had a nice long talk with him... I've heard good things about it but haven't listened yet).

It's situations like this that concern me about public choice and endogenous politics in practice. Its not analysis that has proceeded as objectively or dispassionately as other areas of economics.

Gene -
That passage isn't the ace in the hole people treat it as. It's a funny little passage if people take the time to read it. Kennedy's done a good job pointing that out. But on the broader point he seems far too strenuous to me. If Smith had only written his first three chapters we'd pretty much have what people attribute to the invisible hand passage. So practically speaking I don't think there's much harm in the misreading of the invisible hand passage itself.

Daniel Kuehn (in an otherwise thoughtful comment) argues:

"It's also often used the way an intro student will use market failure theory. If there is even a whiff that there's a government failure involved (as there will ALWAYS be - it's government after all - hardly the tool of choice for an efficient outcome), people act like that's the end of the discussion. That's not a legitimate answer - the question is, will the imperfect mixed solution, the imperfect state solution, or the imperfect market solution be comparatively better."

Daniel, I believe you miss Pete's point completely. Yes, we have two imperfect institutions: markets and government. And as you aptly note, perfection is not possible, so the objective is to come up with the least imperfect mix of the two - markets and government. Given your comment, from where to you obtain objective values for the costs and benefits of (further) government intervention in order to define some better mix of a status quo brought about through voluntary exchange?

Let me use a specific example with employment law. Safety standards are legislated to seemingly protect workers. Outside of what workers freely choose for themselves, how can we ever know that some legislated standard is welfare enhancing? Obviously the workers have to pay for the new standard in the form of lower compensation, so how can we ever know that they're better off with such standards given that it was imposed by force and not through voluntary exchange? We always have information and incentive problems, and maybe the workers suffer from both getting to the status quo, but those same information and incentive problems don't go away if politicians and bureaucrats move in to "fix" the current situation.

Who is better off? The politician(s) who brag about making some workplace safer or better without regard for the costs imposed from said legislation (e.g., GW Bush and the "Family and Medical Leave Act); the suppliers of goods and services that are now needed to make the workplace seemingly safer (this is especially true with anything dealing with transportation); the competitors of an industry that stand to benefit from higher costs imposed on the industry facing the new regulation (railroads and the trucking industry are notorious for lobbying for legislation with the sole intent of raising the costs of its rival); the companies that are now regulated given that maybe one or a few sought to collude on such regulation (for whatever reason) and regulation is the most effective means of colluding because it is deemed legal (smoking bans for example).

One of James Buchanan's greatest lines was "That what is, is." What he was saying is the status quo achieved through people voluntarily trucking and bartering to their current situation is the most efficient means of allocating scarce talent and resources that we know of. It may not be best, and it's certainly not perfect since that is an unachievable (and undesirable) standard, but we can never know what better is outside of people choosing voluntarily to trade and thereby coming up with a different more preferable allocation.

To say that markets aren't perfect and neither is government, but using government can better an existing status quo misses the point that politicians and bureaucrats aren't perfect - in fact, many are malevolent. The difference we have to always keep in mind is that I can almost always choose to not participate in a market activity or outcome that I find detrimental to my (and others') well being, but I can almost never opt out of a government program that I believe it is detrimental to my (and others') well being. For that reason alone, government has a very limited role in bettering social welfare.

I think a lot of it can be explained in this paper by Wagner:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1856294

Basically, when government was only making up 5-10% of economic activity, the predictions generated by the theory of a monocentric government devoid of public choice concerns really wasn't that far off from reality,i.e. the theoretical fix that you call for just wasn't worth it. But as government activity expanded over time, the predictions get further and further from reality and unfortunately, theory hasn't kept up.

Mark -
I was 100% with you through the example so I'm not exactly sure what has been lost in translation. I don't think I've missed Pete's point (or if I have just little snippets and corners of his point).

We agree that nothing is going to be perfect - that was sort of the whole point of that passage! - I think it's a lot harder to defend the claim that we can never know what better is outside of decisions to trade. In fact given the common incongruence of willingness and ability to pay it's certainly wrong that that is going to be the best of an imperfect set, and it's almost certainly wrong that we can't fairly certainly come up with better ideas (again, imperfect better ideas).

This can't be true - "To say that markets aren't perfect and neither is government, but using government can better an existing status quo misses the point that politicians and bureaucrats aren't perfect - in fact, many are malevolent."

Because lots of people think the first half and don't miss any more than you or Pete do that politicians and bureaucrats aren't perfect. [As an aside I think the malevolence is rare, at least in countries with liberal institutions like ours - but of course they are around].

re: "government has a very limited role in bettering social welfare."

Absolutely! Limited, but important, though.

Daniel,

"In fact given the common incongruence of willingness and ability to pay it's certainly wrong that that is going to be the best of an imperfect set, and it's almost certainly wrong that we can't fairly certainly come up with better ideas (again, imperfect better ideas)."

Certainly we can. It's called entrepreneurship and the proving ground for whether it's wealth enhancing is if the firm earns profits or suffers losses. This is the gist of my point in stating that outside of market exchange, how can we ever be certain that any movement from the status quo is efficient?

This is not to claim no role for government - I am not an anarcho-capitalist. But the proper role of government is simply to facilitate exchange: protecting property rights and enforcing contracts among the most important. (I am not even against things like public parks and the provision of libraries, but that's not the argument being made here.) Notwithstanding your assertions - and it is the question I asked of you in my original post - how can anyone ever be certain that change from the status quo to some other allocation is superior outside of people engaged voluntarily.

Again, let me bring in Buchanan. Buchanan saw a need for government and one of the crucial elements that he discusses his book The Limits of Liberty is that compromise is inevitable: we don't get everything we want, and in a free society you sometimes have to sacrifice and accept something that you don't want in exchange for some of what you do want. We have moved far beyond that stage in this country.

And yes, there are pols who are malevolent. You and I are in a profession with a high concentration of sociopaths and psychopathic personality types. So is the realm of politics. You may never see it because such personality types do a good job of covering their dark side, but to those who have been the victims of such people, malevolence is a kind word to describe them. I love the scene in House of Cards when Frank Underwood kills Russo and them masks it as a suicide. Underwood looks great and Russo looks like the guy with problems. I've experienced this in academia. Not the killing part, but the attempts to destroy careers and reputations for the sheer fun of it or to promote themselves. If you don't think this describes many of the leaders in politics then you are indeed naive.

I haven't made the claim that I can be certain of anything Mark.

In Sumner's defense, here's Machlup,

"Authorities or legislators charged with making the decisions have a right to know what an economist thinks, not about their likes and dislikes, but about the effects a particular measure, policy, or institution would be likely to have if it were adopted. Hence, the economist should frankly state what he would recommend if the constraint of “political feasibility” were removed, that is, if he could assume the absence of political resistances he thought were preventing the acceptance of certain proposals."

— Fritz Machlup, “Why Economists Disagree,” Proceedings of the American Philosophical Society 109, 1 (1954), p. 3.

______

While I've only had limited interaction with the public choice literature, it seems to me that the Austrian emphasis on the knowledge problem is more important than political incentive problems, at least of the kind that most people have in mind. For example, someone worrying about political incentives will distinguish between benevolent and non-benevolent rulers, but the former is just as incapable of efficiently allocating resources as the latter. I guess I can frame my point as a question. What's more important (not that either is unimportant), institutions that constrain immoral behavior or institutions that constrain action to set of choices where knowledge-induced inefficiencies are minimized? (This is a big reason why I'm so attracted to Jeffrey Friedman's application of radical ignorance to political theory.)

I agree with Daniel and Jonathan. Pete, somebody could turn this around on you and insist that nobody ever ought to present a theory of the unhampered market economy, because such a theory does not take into account the extreme political impracticability of an unhampered market economy. But this would mean we'd have to throw out everything in our textbooks from the Marshallian cross onward!

Alex -
I would suggest, though, that it's largely a matter of how it is practiced, and it's a matter of not finding a usable result. I don't think anyone wants to toss out the market economy, and as Mark pointed out above very few people want to toss out the state.

I think if you look at the work of, for example, Allan Drazen and more of the political economy literature you have stuff that is less contested. I don't know why that is, but for some reason public choice seems to be a lot more highly politicized. Maybe that's my perception but if it's not perhaps it's something for someone else to answer.

And maybe I am barking up the wrong tree here, but I've seen too many people get "politics without romance" hurled at them that are wholly aware of the lack of romance in politics.

btw, Alex, the biggest public choice concern with libertarianism for me is not that it could never happen. I could see how it could potentially happen (you're seeing the beginning of that now). The problem for me is that it seems extremely vulnerable being co-opted by special interests - much more so than a constitutionally limited, liberal, but active state that consciously takes the public interest as its object. When we've hints of this co-optation in the Reagan revolution gone wrong, the Tea Party gone wrong, Rothbardians paling around with segregationists, etc. - all we get is a true Scotsman response. It wasn't REAL libertarianism in the first place.

That, it seems to me, is a sign of a system that is very fragile and liable to co-optation. Contrast that with the constitutional liberalism of the United States which isn't perfect but seems to be stable and functional for over 200 years now. Since I care a lot about politics without romance, the success and robustness of that model matters a lot to me. I'll take that over libertarianism, myself.

The Sumner quote is not about public choice issues in the operation of index futures targeting. It is rather about public choice issues in its introduction. And so, there is no part of constitutional political economy that doesn't suffer the same problem. Who has a selfish incentive to incur costs associated with implementing rules when the benefits will be shared broadly and spread over the generations?

As for the other question, whether nominal GDP is the best target or futures targeting is best, isn't this a comparative institutional question? What is the alternative? Buchanan recently proposed a constitutional rule to target the price level. The public choice problems with actually implementing that aren't much different than the problems of implementing a nominal GDP level target.

What are the radical libertarian alternatives? Freeze the monetary base? Why do you think it will be kept frozen? Fix the price of gold forever? Why do you think it will remain fixed? Let people use alternative monies? Why do you think it will make much difference given the network effects of money? Separate money and state? Why don't you think that the result won't be the use of the Euro in the U.S.? Is the ECB better?

Unlike Sumner, I favor the privatization of hand-to-hand currency. But it really doesn't solve the problem. It just shifts it to the question of what serves as the means for final settlement of interbank claims. Gold at a permanently fixed price? A frozen quantity of fiat currency? Euros? Or does its quantity adjust to the demand to hold it but with a nominal anchor like the price level or growth path of spending on output?

I support protecting the right to use alternative monies. But I don't think that removing whatever restrictions there are to switching to the Euro would prevent the Fed from continuing with some kind of modified Taylor rule. I don't think the gold standard or a frozen quantity of base money would be improvements.

Mark Steckbeck wrote: "The difference we have to always keep in mind is that I can almost always choose to not participate in a market activity or outcome that I find detrimental to my (and others') well being, but I can almost never opt out of a government program that I believe it is detrimental to my (and others') well being. For that reason alone, government has a very limited role in bettering social welfare."

You can opt out of almost any market activity, but can you always opt in? No, many people cannot, because they tend to cost money, and some people won't have the ability to pay. Hence, to prevent this analysis from being lopsided, it should be restated:

"The difference we have to always keep in mind is that I can almost always choose to not participate in a market activity, but can only choose to participate in it if I can afford it. Whereas I can almost never opt out of a government program, but it can be ensured that I might always be able to opt in, regardless of cost."

Daniel, most of the 200 years was before Keynes and the New Deal and the very rapid expansion of Government activity, both in spending and in regulation. Someone pointed out that when the State accounted for a modest percentage of GDP we could afford some slack. We appear to be at a tipping point where we do not have a very long time to generate a wide-ranging and adult conversation about the future of the republic.

Daniel, another thought bubble, for how much of that 200 years of relative stability did you have something like 50% of the people who think they are entitled to live off the other 50%?

I am a big fan Buchanan but I am not sure exactly what the up-shot of public choice analysis is. If we can't address policy ideas to a benevolent despot, who do we address them to? In many ways, even in a free society, the sovereign state pretty much INSISTS on being addressed as benevolent.

Attempting political or social change under any other assumption is actually quite dangerous and could mark you out as a dissident. Its no coincidence that Buchanan talked about a 'constitutional revolution'. To do anything beyond talking about a constitutional revolution can put you in dangerous company.

Snowden and Manning probably rejected that assumption and have made some sort of impact in the political process though their actions. But its very costly.

Public choice doesn't address the Lenin question, 'what is to be done?'. Having comprehended political power, how do we respond to it. Without an alternative, begging and cajoling legislators and the executive to do the right thing (and explaining how doing the right thing might even work for them personally) is about all we can do. Which is exactly what Sumner is doing.

If I read the author correctly, what he is suggesting *between the lines* is really a much less romantic role for the economist. Not so much as an engineer of optimal policy, but mainly limited to that of the political gadfly, constantly whispering in the ear of policy makers (and political theorists of all stripes) that the laws of economics applied to real, fallible human beings renders certain imagined policy projects impotent or counterproductive in achieving their stated objectives. Only afterwards might the humble economist suggest that policy makers might consider a limited set of specified alternatives which may be better second-best options.

I think the author gently asks whether many economists still see their role primarily as "architects of a better world".

Didn't anybody notice that Sumner has built-in incentives for the FOMC to do its job?

Daniel, you wrote:

=btw, Alex, the biggest public choice concern with libertarianism for me is not that it could never happen. I could see how it could potentially happen (you're seeing the beginning of that now). The problem for me is that it seems extremely vulnerable being co-opted by special interests - much more so than a constitutionally limited, liberal, but active state that consciously takes the public interest as its object. When we've hints of this co-optation in the Reagan revolution gone wrong, the Tea Party gone wrong, Rothbardians paling around with segregationists, etc. - all we get is a true Scotsman response. It wasn't REAL libertarianism in the first place.=

I think you're making a very basic conflation here of libertarianism qua political movement and libertarianism qua potential ethical/politico-philosophical basis for the societal arrangement. From something done by adherents of libertarian ideas in the conditions of a clearly far-from-libertarian society nothing logically follows about how a libertarian society would fare compared to modern democracy.

Liberty4uk wrote: "Public choice doesn't address the Lenin question, 'what is to be done?'. Having comprehended political power, how do we respond to it. Without an alternative, begging and cajoling legislators and the executive to do the right thing (and explaining how doing the right thing might even work for them personally) is about all we can do. Which is exactly what Sumner is doing."

The obstacle isn't convincing legislatures to do the right thing...it's convincing the general public that markets create more value than command economies. That's where the bottleneck is. If the general public could clearly "see" the value disparity...then tax choice wouldn't be such a hard sell... https://www.facebook.com/ourtaxes

Mark Steckbeck wrote: "The difference we have to always keep in mind is that I can almost always choose to not participate in a market activity or outcome that I find detrimental to my (and others') well being, but I can almost never opt out of a government program that I believe it is detrimental to my (and others') well being. For that reason alone, government has a very limited role in bettering social welfare."

This is pretty great! Except, what would happen to the government's role if taxpayers could choose where their taxes went? They would be able to say "no thanks" to all but the most beneficial government organization. Over time the least beneficial government organizations would lose resources while the most beneficial government organizations would gain resources. So would the government suddenly have an unlimited role in creating value?

Guinevere Nell wrote: "The difference we have to always keep in mind is that I can almost always choose to not participate in a market activity, but can only choose to participate in it if I can afford it. Whereas I can almost never opt out of a government program, but it can be ensured that I might always be able to opt in, regardless of cost."

Did you know that I created the Wikipedia entry for the Forced Rider Problem? Unfortunately, some idiots butchered it... http://en.wikipedia.org/wiki/Forced_rider ...and they changed the title to just "Forced rider"...but left the "problem" in the title of the "Free rider problem". And now I'm indefinitely banned from Wikipedia. You can't fire me...I quit! Errrr...

I love Bastiat on exit and entry...

"What do we want with a Socialist then, who, under pretence of organizing for us, comes despotically to break up our voluntary arrangements, to check the division of labour, to substitute isolated efforts for combined ones, and to send civilization back? Is association, as I describe it here, in itself less association, because every one enters and leaves it freely, chooses his place in it, judges and bargains for himself on his own responsibility, and brings with him the spring and warrant of personal interest? That it may deserve this name, is it necessary that a pretended reformer should come and impose upon us his plan and his will, and as it were, to concentrate mankind in himself?"

How can Bastiat be so good? Clearly though, he wasn't good enough. His case for freedom did not avert two world wars...so we need to improve on him if we want to avoid a third world war. Therefore, I think exit, when it comes to funding war, is far more important than entry.

Daniel Kuehn wrote:
"That, it seems to me, is a sign of a system that is very fragile and liable to co-optation. Contrast that with the constitutional liberalism of the United States which isn't perfect but seems to be stable and functional for over 200 years now. Since I care a lot about politics without romance, the success and robustness of that model matters a lot to me. I'll take that over libertarianism, myself."

I agree with the thrust of this statement, but I think it is misdirected at Libertarianism. Instead, it is properly thrusted at any designed order, many Libertarian schemes included. We should always be preferential towards grown orders, like the United States' constitutional Liberalism, because not only is time the best stress test in the world, but also because American constitutional liberalism has evolved in context of the history of the world we now live it.

That's all important; however, I don't think it implies a rejection of Libertarianism per se (unless we take a very narrow view of Libertarianism, at which point sign me up for constitutional Liberalism). Instead, it shows that Libertarianism, or any ideology, must be focused on piecemeal reform that itself can be incorporated into the gradual evolution and growth of institutions.

There's simply no reason why we should reject something like Daniel Klein's pretense to liberty (itself certainly a Libertarian criterion for legislation) because of the growth of politcal orders in the world. It is a very good reason, though, for rejecting the program of favoring pushing a button to achieve a sudden shift in institutions (itself believed by many Libertarians), though.

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