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Apples Must Be Compared to Apples and Not to Angels

Here’s a letter to a recent visitor to the Café:

Mr. L__:

Thanks for your e-mail in response to my blog post titled “A Note on the Knowledge Problem.”

You write that I’m “mistaken in assuming there is no dependable source of information about the optimal supplies of public goods…. In democratic countries democratic voting produces this information.”

That’s the theory. Yet despite being widely accepted, it’s not credible. The same collective-action problems identified in textbooks as causing private markets to ‘fail’ to supply adequate amounts of public goods (such as national defense and pollution abatement) operate even more disruptively in political settings. Start with the fact that, because no voter reasonably expects to determine the outcome of an election, each voter’s incentive is to gather only a suboptimal amount of information about the issues at stake. In addition, because the outcomes of elections affect a multitude of individuals, every person in a voting booth expresses an opinion about how countless other people should live – countless other people about whom each voter knows next to nothing.

Add to the above realities the fact that (1) no voter, no elected official, and no bureaucrat spends through political action chiefly his or her own money (most money so spent belongs to other people); (2) concentrated interest groups have strength in political processes disproportionately greater than their members’ numbers; and (3) it’s literally impossible to aggregate myriad individual rankings of preferences into that phantasm called a “social welfare function,” and the notion that political elections reveal accurate information about what the public really wants – and incite government officials to consistently satisfy such wants in any ways approaching cost-effectiveness – becomes utterly fanciful.

Economists’ conventional model of efficient provision by government of public goods works only because it rests on highly unrealistic assumptions made about the knowledge and motivations of political actors. If these same unrealistic assumptions were carried over to analyses of the private sector, any reasonably competent economist could easily show that public goods would be efficiently supplied by the market, thus obviating economists’ core case for government.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030