Public Choice Theory

Public Choice Theory uses modern economic tools to study problems that are traditionally in the province of political science.

Public Choice began with Duncan Black. In 1948 he identified the underlying concepts. Later he wrote The Theory of Committees and Elections. He is known as the father of public choice theory.

James M. Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy in 1962. This is one of the landmark works that founded the discipline of public choice theory.

Public Choice theory explains how politicians do things that conflict with the preferences of the general public.

For example, pork barrel projects are not the desire of the overall democracy. However, it makes sense for politicians to support these projects.

• It may make them feel powerful and important.
  
• Politicians can benefit financially by opening the door to future wealth as lobbyists.
  
• The project may be of interest to the politician's local constituency, increasing district votes or campaign contributions.
  
• The politician pays little or no cost to gain these benefits since it is public money being spent.

• Special-interest lobbyists are also behaving rationally. They can gain government favors worth millions for relatively small investments.

• The taxpayer is also behaving rationally.
  
• The cost of defeating any one government give-away is very high, while the benefits to the individual taxpayer are very small.
  
• Each citizen pays only a few pennies or a few dollars for any given government favor, while the costs of ending that favor would be many times higher.
  

Everyone involved has rational incentives to do exactly what they're doing, even though the desire of the general constituency is opposite.

Over time government tends to grow in excess of what a true democracy really wants. Occasionally there is a spontaneous eruption when the average voter finds the energy to fight back. That is what happened recently with the Tax Day Tea Parties.

Take a look at how Chicago protesters responded to aggressive CNN questioning. Astute observers will notice a sharp contrast between such "reporting" and the sympathetic ear from some news networks that is afforded to protests involving gay rights, Christian bashing and immigration.

Instead of just reporting the event, CNN attempted to "spin" the news--trying to make it appear to be a right wing, Republican-driven event. This reporter was the news, instead of just covering the news. That alone will make a good case study in journalism school!

However, if you watch more of the clip you will discover these are common Americans voicing their concern about run-away government spending--and are apt to criticize both parties.



Many who did not have the ability to attend a tea party still wanted to watch on TV. The balanced coverage of the events by Fox News attracted more viewers than MSNBC, CNN and CNN Headline News combined. This shows that millions more were paying attention, and suggests wider support for the protests.

Some say that Americans are not overtaxed & the protests are not justified. But this misses the point.

Government spending is exploding, with the Congressional Budget Office projecting $9.3 trillion in deficits over the next ten years.

State and local taxes are going up. At least 10 states are planning hiking taxes. And promised future spending on Social Security and health care must be paid.

Under the Obama Administration’s budget, federal government spending in the next ten years will average 24% of GDP--almost triple what it was back in the 1930s.

As a result, when we add taxes today and expected future taxes, Americans face a bigger tax burden than at anytime in history.

How is our government responding? Here is an initial attempt:

President Obama has asked his Cabinet to identify a combined $100 million in budget cuts over the next 90 days.

Economics professor Greg Mankiw put this into perspective:

Imagine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall.

How much would he or she announce that spending had be cut? By $3 over the course of the year--approximately the cost of one latte at Starbucks.

The other $33,997? We can put that on the family credit card and worry about it next year.


Economist Brian Wesbury says, The Tax Day Tea Parties are a very interesting case study for Public Choice Theory. Whether or not they suggest a shift in the political landscape is another issue. If government continues to grow and cost more, we would expect to see more spontaneous voter response.

In a recent Rassmussen Reports national telephone survey, 85% of of Mainstream Americans say the government has too much power and money.

Would you be classified as a Mainstream American? Rassmussen Reports determines this by the answers to three questions measuring general attitudes about government:

• Do you trust the judgment of the public more than political leaders,
  
• Do you view the federal government as a special interest group, and
  
• Do you believe that big business and big government work together against the interests of investors and consumers?

By the way, those who share the opposite view are categorized by Rassmussen Reports as the Political Class. In this group, just 2% believe the government has too much power and money and 68% say it has about the right amount of each.