Politics and Markets: A Highly Misleading Analogy

Proposition: Putative “public demand,” especially as expressed by voting, drives the political-governmental system. Elected officials and hence the bureaucracy subordinate to them may be viewed as perfect agents of the electorate.

Adherence to this proposition characterizes the bulk of all analysis dealing with the growth of government in the West, regardless of analytical tradition or ideological leaning. (Specific citations seem unnecessary, but see virtually any issue of Public Choice, as well as the widely cited articles by Meltzer and Richard [1978, 1981, 1983], Peltzman [1980, 1984, 1985], Becker [1983, 1985], and Borcherding [1977, 1985]. The most recent and most extreme contribution along these lines is by Wittman [1989].)

This approach displays a professional deformity related to the economist’s basic tool of analysis―the theory of markets, with its component theories of demand and supply. Economists, applying their familiar tools to the analysis of politics, immediately look for analogues. What is the “good” being traded? Who is the “supplier,” and who is the “demander”? What is the “price”? The answers seem obvious to economists. Public policy is the good; the elected legislators are the suppliers; the voters are the demanders; votes are the currency with which political business is being transacted. Thus, voters “buy” the desired policies by spending their votes; the legislators “sell” policies in exchange for the votes that elect them to office. (See Benson and Engen 1988 for a straightforward application of such analogues.)

Economists view consumer demand in ordinary markets as ultimately decisive for the allocation of resources; hence, they speak of consumer “sovereignty,” thus importing a political metaphor into economics. Applying their familiar apparatus of thought to politics, economists tend to think that the political system ultimately gives the voters what they want. In the words of the authors of a recent survey of economic theories of the growth of government, “Voters decide which goods the government will provide and which negative externalities the government will correct” (Garrett and Rhine 2006, 18, emphasis added). Therefore, if the government grows, it does so because that is what the people want (Musgrave 1985, 306; Stiglitz 1989, 69). Demand creates its own supply. Voting is ultimately all that matters for determining the growth of government. As Dennis Mueller has observed, “In the public choice literature the state often appears as simply a voting rule that transforms individual preferences into political outcomes” (1987, 142).

It is easy—and probably healthy—to mock this view of the political process. Joseph Schumpeter called it “the perfect example of a nursery tale” (1954, 429). There are, after all, many significant differences between ordinary markets and the “political market” (Higgs 1987a, 14–15; Boudreaux 1996, 115–19). Even Benson and Engen, adherents of this model, describe their output variable as “somewhat artificial and very restrictive” and their price variable as “clearly an incomplete proxy” (1988, 733, 741).

Not least of the problems is that voters rarely vote directly for or against policies. Rather, they vote for candidates who run for office. Winning candidates subsequently enact a multitude of policies, many of which neither the voters nor their representatives had considered at the time of the campaign. It is not enough that voters know something about office seekers’ general ideological reputation (à la Dougan and Munger 1989); the devil is in the details. Besides, notwithstanding the elaborate theoretical and econometric attempts to show that politicians are perfect agents (Becker 1983, 1985; Peltzman 1984, 1985; Wittman 1989), we can easily demonstrate that political representatives frequently act in ways that must necessarily run counter to the dominant preference of their ostensible constituents. We see this disconnect in the U.S. Senate, for instance, every time the two senators who represent the same state split their votes—and such splitting occurs commonly (Higgs 1989c). Remarkably, and quite damningly for models that presume tight linkages between voters and their elected representatives, many of the vote-splitting senators are reelected time and again. So elections are reliable neither as an ex ante check nor as an ex post check on the substantial autonomy of officeholders.

Perhaps the most important case in which legislators and other officials (including many nonelected functionaries) act independently of control by the voters concerns political action during crises. How many voters could possibly have known in the election of 1940 what the elected federal officials would do during their upcoming terms in office, which were to include, depending on the office, some or all of the years of World War II? How many voters in the election of 1972 had any idea how they wished their representatives to deal with the “energy crisis” of 1973–74 or even that such a crisis would arise? Who anticipated that George H. W. Bush would send U.S. troops to the Persian Gulf to eject the Iraqis from Kuwait? How many, when they cast their ballots for George W. Bush in 2000, anticipated the military invasions and the long, bloody occupations of Afghanistan and Iraq? During crises, government officials, lacking any reliable means of discovering dominant constituent preferences, necessarily exercise considerable discretion. But even if leaders cannot know what “the people” desire, they act nevertheless, often in dramatically important ways.

Once those actions have been taken, the course of events is changed irrevocably in a world of path-dependent historical processes (Brennan and Buchanan 1985, 16, 74; Higgs 1987a, 30–33, 57–74). (Rasler and Thompson [1985] confirm statistically, using Box-Tiao tests, the increasing growth of government spending associated with participation in global wars.) If U.S. voters in 1940 had preferred that the nation not go to war, it was too late to rectify the legislators’ mistake in the election of 1942―the fat was already in the fire. If they preferred the removal of U.S. troops from Iraq in 2004, they were out of luck because neither candidate for the presidency espoused that alternative.

Further, political actions are usually accompanied by carefully crafted rationalizations, excuses, and propaganda emanating from the politicians and their friends who initiated or supported the actions. (How often do politicians admit policy mistakes?) From this vantage point, it is easy to see how political preferences, public opinion, and even the dominant ideology may be altered, becoming more congruent with what has been done and thereby reversing the direction of causality usually assumed in political models. (On ideology and policy as interactive, see Higgs 1985, 1987a, 67–74, 1989b, 96–98, 2006, 202–5.)


Source: The foregoing is a slightly revised version of material that appears in my book Neither Liberty Nor Safety (2007), pp. 41-43, and, in a still earlier version, in my article “Eighteen Problematic Propositions in the Analysis of the Growth of Government,” Review of Austrian Economics 5 (1991): 3-40. Readers who would like to find complete citations for the references cited here can find most of them in the RAE version, which is available online, the others in my book.

Robert Higgs is Retired Senior Fellow in Political Economy at the Independent Institute, author or editor of over fourteen Independent books, and Founding Editor of Independent’s quarterly journal The Independent Review.
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