"Oh, but he's different"

So the big news today is that the governor of Illinois has been caught doing explicitly what most politicians do with more subtlety every single day:  selling off their power to the highest bidder.  I can't help but note that yet another politician is indicted on corruption charges at the very same time we are handing over unprecedented power to the political class as we partially nationalize the banking system and, apparently, the Big Three auto companies.

I simply do not understand how those who are in favor of giving government all of these new powers because they sincerely believe that doing so will work out the way their blackboard designs intended can keep a straight face.  What kind of cognitive dissonance must it take to believe that the people YOU are handing power over to are "not like" Ted Stevens or Rod Blagojevich?  How deeply must one be in denial or engage in rationalization to believe that they are "different?"  How blind must one be to think that trillions of dollars in bailout money won't go to the highest bidder (as the lobbyists line up on K Street...) in a process different only in its wink-and-a-nod courtesies than Blagojevich's auctioning off of a Senate seat?

For me, the key insight of public choice is the same insight that underlies Austrian economics:  it is the institutional framework that is the key to understanding the choices people make and the unintended outcomes they produce.  As I said to a class last week:  "Governments can't act like businesses because businesses only act like businesses because they operate in the institutional environment of private property, monetary exchange, and competition."  In the same way, getting politicians to stop selling off their power isn't a matter of ethics or psychology, rather it's about changing the rules of the game such that they do not have as much power to sell.  Unfortunately, the current bailout mania is changing those rules in utterly the wrong direction.

Look at it this way:  the bailouts are already becoming just a legal form of the essentially the same behavior for which the governor has been indicted. 

Why should we ever accept "Oh, but he's different" as an answer to the claim that explicit bribery and selling off power are just a less subtle form of politics as usual?

Comments

[Brian Pitt]

Believe it or not, I almost feel bad for politicians. The modal politician probably runs for office, and gets on the campaign trail with the aim to "Change Things." Once in office, however, they orient their action to the action of other politicians - i.e., the institution of politics gives them the incentive to focus on their interests.

[Richard Ebeling]

The bottom line is that as long as the government has the legal authority and power to hand out favors, privileges, subsidies, and protections there will be individuals and interest groups lining up at the public trough to acquire them.

Corruption is as old as human history. The ancient Romans imposed laws trying to limit and punish it. For example, local magistrates in the Roman Empire were permitted to legally receive cash gifts up to 100 gold pieces a year, but anything beyond this amount was considered "filth."

Emperor Constantine (A.D. 331) had a law passed that condemned those found guilty of corruption in political office to exile on either an isolated island or a far-off rural area, while others might even be put to death.

Corruption, of course, might arise in any situation in which an individual wishes to bend the legal process to his advantage. Again, in ancient Rome a judge might be executed if he had acquitted someone guilty of murder for the right price.

But the corruption that we see in so many countries around the world, and which also affects the American political process, is tightly tied to the degree to which the government follows intervetionist policies that provide the incentives for members of society to gain at others' expense.

If you compare the annual "Index of Economic Freedom" in terms of degrees of government control over economic affairs with the annual reports on corruption around the world issued by the Berlin-based NGO, Transparency International, you soon discover a high correlation between state involvement in economic affairs and the pervasiveness of corruption of many different types.

A few months ago a wrote a piece on "Global Corruption and the Role of Government" for one of the print publications of the American Institute for Economic Research (AIER), in which I traced out these correlations between corruption and interventionism in different countries and regions around the globe.

(I will gladly send a PDF of it via email for anyone interested in seeing the piece.)

Economic liberals believe that one of the benefits of separating market and state is precisely the undermining of corruption in society.

When the state is basically limited to protecting life, liberty and honestly acquired property, those in political office have nothing to "sell" and special interest groups have nothing to "buy."

Instead, each most deal with their fellow men on the basis of voluntary exchange, mutual benefit, and interpersonal respect for the property and wealth of others.

For the proponent of economic liberalism this helps to secure and reinforce the ethical foundations of a free society.

The weakening of social ethics in the highly regulating interventionist state was explained by Ludwig von Mises in 1929:

"By constantly violating criminal laws and moral decrees [people] lose the ability to distinguish between right and wrong. The merchant who began by violating foreign exchange controls, import and export restrictions, price ceiling, etc., easily proceeds to defraud his partners. The decay of business morals . . . is the inevitable concomitant of the regulations imposed on trade."

Trying to reduce or eliminate corruption by appealing to people's "better nature" or attempting to elect the "right people" to political office will not solve the problem as long as government has the ability to determine so much of people's material well-being via the regulatory and redistributive state.

Richard Ebeling

[matthew mueller]

I still do not like this argument. You paint a picture of politicians with their hands on a giant wheel that can be turned either to increase or decrease corruption and scandal through the motive of greed and power. The right institutions will make the turning of this wheel more difficult, but the wheel is there nonetheless.

In fact, politicians don't have a clue as to what's going on. Just watch C-SPAN for a few minutes and you will notice this immediately. These guys are just as naive and ignorant as the people who elect them. Good economists can offer an escape from this only by selling an ideology that appears to be neatly consistent and coherent. But this doesn't make the world any less complicated or uncertain. In fact, a good economist must always remain suspicious of an ideology that tries to accomodate all of social reality (i.e. the contemporary Austrian movement).

You guys are better than this; don't fall victim to the empty dogma of Public Choice. Hayek's work is a direct challenge to the Public Choice school. The world is complicated and people are burdened by epistemic ignorance, not political corruption and perverse institutions.

[Steve Horwitz]

Matt,

I'm not denying that politicians are "burdened by epistemic ignorance." That's what prevents them from being *able* to do the "right thing". I'm perfectly willing to assume that most politicians enter office desiring to do the right thing. When they discover how difficult it is to do the right thing, for precisely the reasons you articulate, the temptation to distribute favors to the voices that are loudest and that coincide with their own worldviews is very hard to avoid.

Put differently, in both markets and politics, actors end up behaving in self-interested ways because they lack the synoptic vision/knowledge that would be required to behave directly in the "public interest." The difference is that markets are much better, though hardly perfect, at channeling that self-interest in ways that benefit others.

Pervasive ignorance can be overcome under the right institutions. Pervasive ignorance under perverse institutions leads to political corruption. It's all three together.

[matthew mueller]

Hello Professor Horwitz,

A good reply. You are presenting a very solid position; I just don't agree with it. You are correct in noting that incentives are not enough to enable politicians to do the "right thing." But why is it not enough? Well, because people are burdened by epistemic ignorance. They cannot know the exact consequences of their actions. Once this is acknowledged, I do not see how you can then go on to write that politicians will attempt to act in a self-interested way. We have already acknowledged that no one can succeed in acting in his own interest for the simple reason that the world is just too complicated to bend it to our will. (This does not stop them from trying, of course; but disappointment, surprise, revision, and creativity typically dominate rational calculation, prudence, success, and incorrigibility.)

And I don't see how pervasive ignorance can be overcome under the right institutions. We can certainly develop institutions that help us to ignore the pervasive influence and presence of ignorance and uncertainty, but these things cannot be erased UNLESS we believe in some sort of determinism. But this would defeat the purpose of economics (and the entire humanistic enterprise).

[Richard Ebeling]

Mr. Mueller, I would be the last one to deny the general and extensive economic ignorance of those in politics as well as far too many among the citizenry.

The first task of trained economist, it seems to me, to help inform his fellow citizens about the nature of the social order and its workings.

At the end of his critique of mercantilism in "The Wealth of Nations," Adam Smith bemoaned the fact that it was as likely to ever see free trade in Great Britain as it would be to see the establishment of a utopia.

Why? Smith said this was due to two factors: the prejudices of the public and the power of the interests.

By the prejudices of the public, Adam Smith meant the difficulty many people experienced following the logic and the often counter-intuitive reasoning of the economist in explaining, for example, the relationship between "self-love" and the advancement of the general welfare, i.e., the "invisible hand" concept.

But equally or more powerful in retarding the advancement of sounder economic policy was the power and influence of special interest groups who would fight all attempts to weaken or abolish their privileges, favors and protections from competition.

Indeed, Smith referred to the "dirty tricks" that would be used against the reformer in attempts to harm his reputation and character, and even dangers to his physical safety. (The latter is real problem even today in a country like post-communist Russia where a reformer and critique of those in power can be arrested, imprisoned, exiled or even murdered.)

Why in Adam Smith's time and today do the "interests" fight so strongly against market-oriented reforms? Precisely because it would require them to earn the income they desire by doing better than their rivals in satisfying consumer demand. That often seems a more difficult task than winning the favors of those in political office to gain what they cannot honestly earn in the marketplace.

It is ideology that has given us the political system we have today in America. By this a mean the several generations of intellectuals, academics and political meddlers who were dissatisfied with the institutions and outcomes of the limited government market society.

They advocated, pushed and implemented the legal and policy change in the early decades of the 20th century, into and through the New Deal, that produced the institutional setting within which political decision-making is all done today.

Whether those in political office understand the history of this or have any deep committment to the same ideological currents that have created the contemporary political system is unimportant.

It is part of the unintended consequences of this historical process that it is the system that now prevails. Given this, who is attracted to political office? Those who have the comparative advantage to fit the "job description": glad-handlers who know how to work crowds and form coalitions among those wanting favors that the "rules' of the system allow government to hand out.

(This, of course, is an instance of Hayak's argument about "why the worst get on top." Those who feel comfortable and even enjoy the political process of the interventionist state, and who don't mind or even enjoy managing other people's lives are drawn to the political scene.)

That is part of the dilimma. The existing system is the "taken-for-granted." Virtually all who participate in it, simply take it as "given." One is born into a society and one grows up taking for granted the language, the customs, and ways of doing things -- including the implicit ethics of what is permissable how to obtain what you want.

Most people today take it for granted that the government "legitimately" is a huge wealth transfer machine to serve your immediate and short-run desires and interests.

One of the tasks of the social scientist, includinng the economist, I think, is to explain to his fellow citizens not only that the emperor may have no clothes, but that the clothes that everyone is wearing need not be the only way of dressing (the possible social, economic, and political order of things), and that a change in attire (that instituional order) might offer opportunities and liberties not possible under the prevailing circumstances.

Richard Ebeling

[Goran]

Matt,
Get off your high horse, open your mind and do some studying.

Your casual dismissal of public choice is ridiculous.

Goran.

[matthew mueller]

Goran,

I would like to you to compare your post to that of Professors Horwitz and Ebeling. Now while I suspect that they think my "casual dismissal" of public choice also ridiculous, they have still written excellent responses to my views and opinions. This is all about discussion. Why don't you try to contribute to the discussion?

What makes my dismissal ridiculous?

[Bob Murphy]

Steve,

Of course I agree with you, but I think the typical leftist would say the same thing after Enron or whatever. "Yep, another CEO gets caught skimming money from workers' pensions, but you free market types want us to hand over all power to companies."

The free market types have a response to this, naturally, but then again a social democrat would have a response to your post here.

To repeat, I'm not disagreeing with you, just trying to show that the "cognitive dissonance" etc. might not be as stark as you think. Or rather, our intellectual opponents think we are being just as boneheaded and stubborn when we refuse to admit, say, that the Invisible Hand "clearly" blew up during the housing boom.

[Josh37]

Steve,
I think that you have to remember first and foremost that, individually anyway, companies have no interest in the free market. They would each prefer to have the competitive advantage government coercion can uniquely offer in society. In fact, it is that competition for political favors and influence that distorts the truly free market even while giving it an undeserved negative reputation.

We "free market types" have no interest in shifting power to the hands of companies. In many ways, it is already there. It is that power which robs us of free choice in education, medicine, death, retirement, recreational behavior, etc. Look behind every "well-meaning" government program or plan and you will find a group that benefits in ways it never could if free people were allowed to choose.

That is also, of course, the unspoken theme of Matt's eloquently worded responses here. He believes, like so many others, that when you get right down to it, there are just too many people who are too stupid to run their own lives. It is for those people that governments and their coercive powers are necessary. Too many people just don't know what's good for them. Ironically, the people who advance this argument are always willing to concede that of course YOU are smart enough to live your own life. It's the OTHERS they worry about.

Life's too short. Worry about yourself, Matt.

[Josh37]

Whoops, that last one was meant for Bob and Matt. Sorry to call you out unfairly there, Steve.

[Bogdan Enache]

While I completely agree with professor Ebeling's analysis (and would like to read the paper) - and once I've even had the opportunity of making the case of relating the TI corruption index findings with government size to a person working for their Romania division, suggesting them that they should therefore ask for less government instead of new or better laws, new or better regulations and new or better supervising offices and so in order to eradicate corruption - the meaning of corruption is actually (or at least used to be) broader and more encompassing than today, i.e. a government officer taking a bribe. Originally, it use to mean a breakdown in the moral compass of society, an abdication from the customary principles of right and wrong that made a society prosperous. Corruption was, therefore, the anti-chamber of social disorder, of degeneration and decadence (as opposed to development). For instance, for the ancient Greeks (and later for the Europeans in the Middle Ages) when a king waged wars of conquest, committed crimes against its people, supressed their customary liberties or confiscated their property he became a corrupt king - he was a tyrant, not really a king anymore. Similarly, when the Roman Senate became a place of factional infighting in the end the Republic, Cicero spoke out against corruption and warned about the eventual downfall of Rome. Etcaetera. Essentially, the idea behind the old concept of corruption is that social order is inseparable from a general, systematic and tacit respect of some basic, well-known, principles of public moral conduct by the vast majority of people, including the political or ruling class. But of course, in our positivistic world there is no room anymore for such anachronistic concepts as moral order, or structural, moral corruption and so on (which, incidentally, were also familiar to and used by Adam Smith), even though it is not at all evident that the realities which they used to refer to and the explanatory power they used to had are no longer of any importance. There are however a few people even today however who are at least aware of the broader - and if I may say, fundamental - meaning of corruption, see for instance J.P. Euben, "Corruption", in Terrace Ball (ed), Political Theory and Conceptual Change, Cambridge University Press.

[Grant Beaty]

Matthew,

You've made that argument before, and I still think its very wrong.

Like all actors, politicians have some knowledge of certain things, and little knowledge of others. You're right that they know little about the effects of their interventions, but what I think you're missing is that they don't care! Politicians have comparative advantage in knowledge of things political: They know how to get votes and campaign contributions. The actual effects of their policies only very indirectly effects these two things, and may not effect them at all.

Special interests have the knowledge to understand what specific interventions will do for them. They don't know what they might do to the rest of the economy, and again they probably don't care. Thus special interests, by purchasing political power, can further their own goals.

I believe its a classic division of labor:
Politicians are experts in procuring political power, and they sell this power where they can achieve the greatest gains from doing so.

I really don't see any knowledge problem with the model being painted here, once you look at the actual aims of the actors involved.

[Goran]

Matt,

I don't think there is anything to discuss with you. I don't mean this to sound rude (really I don't) but I don't get the impression that you really know what you are talking about. So why would I want to discuss things with you?

Your casual dismissal of public choice is ridiculous and naive. To describe it as "empty dogma" is just plain foolish and is hardly engaging in discussion. If you are going to engage in discussion then we would need to do better than that. What's more, if you are going to develop an academic career (as you appear to want to) you are going to need to do better than that. Which is why I offer you this advice - go study; leave the sweeping statements alone (at least until you command respect in academic circles and can do so in the blogosphere).

Your drive is admirable, but a lot of the time you are way off target. Why do you keep coming back to this blog if you are so against the Austrian school (yes I know you are reframing it into "post" Austrian economics)?

Goran.

[Goran]

P.S. Hayek's work isn't a direct challenge to Public Choice.

[RickC]

Matt,

Hate to jump on the bandwagon, but the last paragraph of your first comment does seem naive at best. You seem to be conflating ignorance and its role in policy making, and corruption which is a problem in and of itself. And yes, corruption is a huge problem at all levels of government.

I don't think anyone on this site would argue that politicians, like the rest of us, suffer from ignorance in their decision-making. It seems to me though that institutional frameworks do play a central role in how the system works or fails to work.

There clearly is a relationship between the massive and growing centralization of power and money, and the magnitude of problems that result from the decision making of national level politicians whether out of ignorance or corruption. The questions surrounding institutional structures are important then, specifically in the ongoing debate about the efficacy and efficiency of centralized government.

[Rafael Guthmann]

Horwitz
"Put differently, in both markets and politics, actors end up behaving in self-interested ways because they lack the synoptic vision/knowledge that would be required to behave directly in the "public interest." "

This means that if we assume that radical uncertainty doesn't exists, them the world will always pareto optimal? In the world of perfect knowledge state intervention will be optimal because the costs of reducing the inefficiencies of intervention trough political channels will be higher than the costs of these inefficiencies, since everybody will know everything they need to know to act in a optimal way. I saw this argument in The Meaning of the Market Process.

However I have never read that people will be less altruistic if their knowledge is imperfect, compared to perfect knowledge. Why this happens?

[Nick]

Surely Matt is not for real.

Surely he just posts on here and his own blog to wind people up. Surely.

He can't be so sure of himself, can he?

Is he for real?

For example, he says stuff like:

"The empty dogma of public choice"; "Boettke doesn't understand institutional economics"; "Austrian economics has given in to liberterian dogma and abandoned whatever, whatever, whatever ...."

Come on Matt, time to be truthful about your motives.

[Dave Prychitko]

For more, see here:

http://divisionoflabour.com/archives/005392.php