When a Nigerian gifts us his estate over email, we tell him: “Thanks, but no thanks!” We know that there are no such easy solutions to our personal woes. But, when an ex-army truck driver claims that he has found the solution to a nation’s woes, even otherwise sane men think that they have found their Messiah. It feels so good because in politics and religion, people refuse to use their mind.
James M. Buchanan, who died yesterday, won Nobel Prize in economics in 1986 for his work in “Public choice theory”, applying this insight to politics. Buchanan was right when he said that public choice theory is “politics without romance”. Public choice theory applies the tools of economics to politics. Public choice theory sees politicians, bureaucrats and people as they are, without any romantic illusion.
Feel-good policies fail partly because people often forget that politicians, bureaucrats and activists are people too. And people are wolves. Our representatives are also driven by self interest and power lust---at least as much as a businessman is, at least as much as the man on the street is. It is not “common good” or some such noble virtue that motivates them. This is the central theme of Buchanan’s work, and that of public choice literature. Buchanan was a realist.
But, how is public choice theory relevant to modern India? As Buchanan observed, politicians will spend and spend and spend in order to remain in power. Austerity might be a virtue, but it is not in their self interest to practice it. This explains India’s rising fiscal deficit—and that of many countries in the world.
Many economists fear that when the cash transfer scheme is implemented, the poor will vote for cash. Buchanan himself assumed that you can always count on the support of a person who profits from a government agency to support increases in the budget outlays for it. But, as modern public choice theory tells us, whatever the merits of the cash transfer scheme, it is not true that people vote their pocketbooks.
Many political commentators believe that the rich and the middle-class do not vote. They tell us that the Day of Judgment will come once in every five years. The long-suffering poor will get closure on that day. But, this is a prejudice. Public choice research had long established that the economically and politically aware are more likely to vote.
Political scientists have long known that government officials or welfare recipients do not support disastrous policies any more than you or me. People vote selflessly because a single vote does not affect the outcome, and voting selflessly helps them feel better. The rich are markedly more capitalistic only because their IQ’s are relatively higher. Wealth does not make anyone oppose welfare.
If you press on, informed policy analysts will readily admit that their favorite policies have not been altogether satisfactory. This is true of government subsidies, NREGA, price controls and many other grand plans of governments across the world. But, they believe that in an ideal world, these policies will work. These policies ought to work. But, Buchanan and other public choice theorists marched to a different tune. Buchanan was no “free market fundamentalist”, but he knew that government failure is far worse than market failure.
Many economists are not swayed by Buchanan’s approach because he ventured beyond economics, though it is not yet clear why public choice theory is not “economics”. But, like most eminent social scientists, Buchanan recognized that economics cannot be studied in isolation from other social sciences.
Consider this: In a recent study of the Charities Aid Foundation, it was found that 59% of Indians who give away their money do not invest in any time in researching the organization to which they donate. Many of them prefer strangers over friends and household staff. This is not what we would call “pure economics”, but to people who know public choice theory, these results should not be surprising. This is very similar to their voting behavior because the efficacy of philanthropy and the non-profit industry is very weak. It does not pay to examine the facts because when you donate mindlessly, it feels so good.
One interesting conclusion of public choice research is that people are willing to be roasted in hell if their betters are to join them. Even when facts lie flatly against them, people hold on to their delusions. But, this is fine. As it is evident by now, Buchanan was a realist. But, even he wanted to believe that at least to an extent, a science exists for providing psychologically satisfying explanations for what happens around us.