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Civic Religion Reasserted

Mises Daily: Wednesday, December 21, 2011 by

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[The Myth of Democratic Failure: Why Political Institutions Are Efficient • By Donald A. Wittman • Chicago: University of Chicago Press, 1995 • 240 pages; originally reviewed in Liberty (January 1997)]

The Myth of Democratic Failure: Why Political Institutions Are Efficient

In recent decades the public-choice school has been applying economic analysis to political institutions and activities. People are fundamentally the same in government as in private life. In trying to achieve their purposes (which need not be narrowly egoistic ones), individuals respond to opportunities and incentives. The specifics of these are different in politics than in the marketplace of business.

One implication is that the ordinary voter seldom finds it worthwhile to become well-informed on a wide range of political issues. Almost never would his trouble change an election result or the policies adopted. He has better uses for his time and energy. The private market gives him a better chance than politics does to satisfy his own preferences, even quirky ones. Similarly, he has only slight opportunities and incentives to monitor the performance of his supposed servants in government. Special-interest groups have better opportunities to steer government policies in their own favorite directions.

For these and other reasons — only some of them noticed in the book under review — the democratic political process responds inaccurately to what the citizens would desire if they were well-informed. Modern democratic government has a bias toward counterproductive hyperactivity.

An extensive literature making such points meets sweeping rejection by a Berkeley PhD graduate, former assistant professor of political science at the University of Chicago, and now professor of economics at the University of California at Santa Cruz. In an earlier article now expanded into the book, Donald Wittman claimed that "democratic markets work as well as economic markets" (1989, p. 1395). The book (1995, p. 1) weakens this claim into "both political and economic markets work well." In article and book alike, Wittman claims that the democratic process is "efficient," scarcely bothering to describe what his standard of comparison might be. He does invoke, but only ritualistically, the criteria of Pareto optimality and wealth maximization (pp. 3–6, 22 n., chap. II). Relative to what is democracy "efficient"? Relative to other forms of government? Relative to leaving wide aspects of life outside the political arena, as the American Founders evidently intended? Wittman does not say.

Wittman argues his efficiency claim feebly. He scarcely goes beyond asserting that the positions he attacks are incorrect or have been "exaggerated." ("I have already argued that the degree of opportunism by politicians has been greatly exaggerated," p. 33.) Such claims are hard to confront and are correspondingly limp, since some exaggerations occur on almost any side of any issue. Furthermore, Wittman relies heavily on the analogy — hardly more than that — between economic markets and democratic politics ("this book develops an invisible-hand theory of efficient democratic markets," p. 3). Gordon Tullock, Richard Posner, and others had argued that spending to curry government favors will tend to dissipate the rents sought. Wittman replies that rules will develop to minimize the social cost. Campaign contributions are not dead losses; they help provide valuable information. Besides, rent-seeking goes on in the business sector also. Pet stores push sales of bird feeders, which redistributes income from humans to birds. If rent-seeking is not viewed as a serious problem in the business sector, it probably should not be so viewed in political markets either (p. 36).

Wittman provides many more examples of trying merely to talk away points made by public-choice analysts. Political entrepreneurs, like business entrepreneurs, can gain from discovering and exploiting unknown demands, providing related information, and clearing up confusion. So doing, they help solve the supposed problems of the "rational ignorance" of voters and the differential information of special interests. As for principal-agent problems (problems of monitoring by voters of their supposed political servants), well, they are mitigated by institutions such as government structure, political parties, and candidate reputation. Besides, if the principal cannot monitor his political agent, then neither can the academic researcher.

Competition for office reduces politicians' potential for opportunism and shirking. The party is the analogue in politics of the franchise in the business sector. Party labels, accumulated reputations, interest-group endorsements, and comparative political advertising also provide good substitutes for specific knowledge about particular candidates. Voters discount information from sources known to be biased. As for the allegation that "diffuse taxpayers" are insensitive to spending for concentrated interests, well, uninformed people may even exaggerate the extent and harm of pork-barrel projects. Even if some voters do make incorrect choices, the law of large numbers is likely to yield the correct majority choice anyway.

Political institutions, including legislatures much smaller than the constituencies represented, reduce transactions costs and facilitate efficient policy deals. Despite supposed problems of transitivity, externalities, localism, and pressure groups, efforts to gain a majority push a government toward achieving efficient outcomes. Local zoning, for example, is likely to be efficient.

Here are three more examples of Wittman's style of argument. (1) Do voters shift some of the burden of current government spending onto future generations through debt-financed deficits? Three short sentences assuming that taxes fall on land introduce a sweeping conclusion: "The burden of the debt falls on the present generation, and they will therefore choose the optimal discount rate, just as they choose the optimal policy in other areas" (p. 159). (2) "[E]fficient economic markets constrain the behavior of democratic markets. If vote-maximizing politicians try to monkey with the economy, it backfires — the economy becomes less efficient, and workers and capitalists vote them out of office. So politicians are restrained from such maneuvers in the first place" (p. 176). (3) In making consumption-versus-investment decisions in a socialist economy, "Vote-maximizing politicians would again be constrained in their choices by requirements of an efficient economy. Making different choices would ultimately yield fewer votes" (p. 176). "Ultimately" — perhaps so, if freedom and democracy survive under socialism; but why should the individual politician care about "ultimately"?

Wittman provides little sustained reasoning to support his positions, and scant evidence beyond airy references to the existence of elections, parties, ideologies, rivalries, campaigning, Congressional hearings, and so forth. He does cite many books and articles claimed to support his position, but he cites them sweepingly, without detailed discussion. He spends more space on the supposed methodological and other flaws of studies that reach contrary conclusions. One whole chapter criticizes psychological studies casting doubt on how dependably people behave "rationally" as economists understand the term.

Wittman pays little or no attention to major strands of public-choice literature. While he does paw away at the concept of voter ignorance, he seems not deeply to appreciate why superficiality is rational for the individual voter (and nonvoter). Other such phenomena include: the fuzzing of issues in a two-party system (the Hotelling effect), and the associated drift over time in what positions are considered respectably mainstream; the jumbling together of diverse issues in often incoherent packages; the chasm between the personal qualities of an effective campaigner and those of a sound statesman; various rather mechanical inaccuracies of the political process (including several paradoxes of voting and what Robert Dahl labeled "minorities rule"); the fragmentation of decisionmaking power and responsibility among levels and branches of government and among individual politicians, bureaucrats, and judges; the analogous intertemporal fragmentation of responsibility; the associated reasons why politicians and bureaucrats have short time horizons; the forestalling of market solutions to problems by governmental preemption; the way that government activism, far from just remedying externalities in the private sector, creates major externalities in government decisionmaking itself; the lesser scope for prices to function in government than in markets; and the coercive aspect of government that is absent from private business. He does not draw the implications of politicians' and bureaucrats' constituting special interests of their own (he should have taken to heart such case studies as Alan Ehrenhalt, The United States of Ambition, 1991; John Jackley, Hill Rat, 1992; and Eric Feiten, The Ruling Class, 1993).

One wonders what world Wittman has been living in. Hasn't he noticed examples of government irresponsibility and failure in policy on crime, education, welfare, regulation, litigation, money, and budgeting? Can voters diagnose who is responsible for current poor economic performance, especially given lags in the effects of policies? Hasn't Wittman noticed voters' tendency to blame or credit the administration in power for the current stage of the business cycle? Hasn't he noticed the wretched quality of arguments on economic-policy issues presented by all major sides and reported on television and in the popular press? Doesn't he recognize that the quality of political discussion is so low because politicians appeal to voters as they actually are, with their short attention spans in their actual circumstances?

Although Wittman neglects most such counterevidence, his treatment of what he does notice suggests how he would deal with the rest of it. It is all too easy, he says, to point to such standard examples of supposed government inefficiency as rent control, tariffs, tobacco and other farm subsidies, and agricultural-marketing orders. But some observers complain about too much foreign aid or too much support for right-wing dictators; others complain about too little. "So, while just about everyone has her [sic] theory of government failure, at least half must be wrong." "[M]any examples of political-market failure are mutually contradictory and methodologically unsound" (chap. 13, quotations from pp. 182 and 181).

Wittman's arguments are not only feeble but sometimes inconsistent. "[O]pportunism by politicians is mitigated when they are paid above-market salaries and then threatened with losing office if they shirk. The fact that candidates engage in very costly election campaigns is consistent with the hypothesis that holding office pays above-market salaries" (p. 27). What, then, has become of the much-trumpeted competition? Don't the costly campaigns dissipate wealth? And how does Wittman's judgment about politicians' salaries square with his equally blithe judgment (p. 106) that bureaucrats' wages are kept at the competitive level?

Ironically, Wittman's book, like the precursor article, was published at the University of Chicago, a citadel of positivism in economic theory and of insistence that theories be falsifiable. (I interpret this, perhaps charitably, as insistence that theories have actual content, as opposed to being formulated with built-in immunity to any adverse evidence.) Wittman himself makes self-congratulatory remarks about sound and unsound methodologies. His two concluding chapters, totaling only 13 pages, bear the titles "The Testing of Theory" and "Epilogue: The Burden of Proof." (Page 2 had already placed "the burden of proof … on those who argue that democratic political markets are inefficient.") The reader expects Wittman at last to say what he would recognize as weighty evidence or argument against his thesis and say how it stands up to the test.

Yet he does not follow through. Even so, he ends his book claiming to have "carried over to models of political-market failure" the suspicion about underlying assumptions that economists properly apply to assertions of failure in the business sector. "I have argued that voters make informed judgments and that democratic markets are competitive" (p. 192). "Economists do not dwell on business error or pathological consumer behavior." Instead, they "analyze the normal and look for efficiency explanations for abnormal market behavior. Similarly, political scientists should not dwell on the mistakes made by political markets" (p. 193 n.).

But he does not claim to have actually shown that democracy is efficient. The fuzziness that remains renders his thesis even less testable than it might have been if more sharply formulated. Again he insinuates that the burden of proof lies on those who would deny the presumption of efficiency to economic markets and political markets alike.

That something as inadequate and perverse as this book (and its predecessor article) has been written and published under prestigious academic auspices is a phenomenon crying out for explanation. Tackling the puzzle is important, for the book's mere existence and academic trappings will carry some weight. Along with like-minded academics, politicians and bureaucrats relish support from what "studies have shown."

Before exploring possible explanations, I should confess to indignation dating back to the 1989 article. Perhaps my judgment must be discounted. I used to criticize that article in my graduate seminars in political economy. What called my attention to the book was Donald Boudreaux's excellent, and properly adverse, review article on it in the first issue (Spring 1996) of The Independent Review. (In hopes of avoiding duplication, I set Boudreaux's review aside while reading the book and drafting my own review.)

I must also confess to embarrassment. It is a commonplace remark that one should not ask about people's motives. Yet sometimes such inquiry is necessary. A detective in a murder case must conjecture about motives while formulating rival hypotheses and trying to rule out all but one of them. The intellectual puzzle of a curious book requires a roughly similar procedure.

My first hypothesis must be that Wittman is driven by passion for truth. Conceivably he is quite right: the now-familiar public-choice theories of bureaucracy and democratic politics are radically deficient, and in the ways he diagnoses. Democratic processes do indeed closely resemble competitive processes in markets for goods and services. It is I who am wrong, blinded by mindless indignation to the merits of Wittman's brilliant revisionism.

But other hypotheses suggest themselves. The thought did cross my mind that Wittman's book (and article) might be a sustained spoof, like physicist Alan Sokal's article on "postmodern gravity" in Social Text, or if not a spoof, at least a move in an academic game. Wittman does acknowledge (p. ix) that he has been playing a "game," that latecomers to an intellectual controversy enjoy an advantage, and that he has "had a lot of fun."

Or perhaps Wittman was trying, as an exercise, to make the best case for democratic government he could devise. "Democratic decisions should be treated as innocent until proven guilty," he says, "and they deserve a lawyer arguing their side of the case" (p. 193). With ample talent already making the prosecution's case, perhaps Wittman chose to write the legal brief for the defense. Letting someone else recognize how weak even that best case is — provoking the reader toward a judgment of his own — might be an effective way to reinforce public-choice-type skepticism about activist democratic government.

One variant of the hypothesis about an intellectual exercise is that Wittman saw an opportunity to fill a vacant niche in the academic landscape. From that hitherto unoccupied "intellectual foxhole" (as Charles Peirce said), he might sally forth in battle with holders of other positions. Evidently the marketplace of ideas had left room for an academically credentialed rehabilitation of what R.W. Bradford (1993, pp. 159–165) has called "The New Civic Religion" — pop wisdom about the virtue and efficacy of voting and about the mandates conferred by elections. I do not know about Wittman, but as a general proposition, holding a distinctive intellectual position can draw invitations to attend scholarly conferences and contribute chapters to collective works. Serving as a foil for other positions is not necessarily disreputable: as John Stuart Mill said in On Liberty, truth may sometimes strengthen its appeal by struggle against error, even contrived error.

The hypothesis about niche-filling meshes with one about the state of academic economics (at least as diagnosed by several eminent participants). Academics feel pressure to publish and be noticed. Latching onto a fad is one way. Delivering shock value — being an iconoclast, challenging established beliefs — is another way, which can even add to the "fun" of the game. Occasionally the two approaches can even blend into a kind of routine originality: extend a fad so as to challenge yet another widely accepted belief.

I have observed plenty of faddism, iconoclasm, and their combination in my own field of macroeconomics. Certain strands of Chicago and UCLA economics cultivate the fad of arguing that whatever institution or practice has long endured thereby demonstrates a certain efficiency, whether or not its rationale has hitherto been spelled out. Such iconoclastic faddism (or chic iconoclasm) purports to rationalize forms of protection and rent-shifting long condemned by mainstream economists. Wittman's work could be another example, whether intentionally or not I do not know.

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Following academic practice in one or several of these ways need not indicate insincerity or other personal immorality. Besides, Leon Festinger's principle of cognitive dissonance maybe at work. If one feels uncomfortable as a gamesman saying things one does not really believe, one can remove or forestall the dissonance by coming quite sincerely to believe those things.

I do not know which of the hypotheses mentioned is correct; maybe some other one is. Pending further evidence, we should perhaps opt for a charitable one. Meanwhile, Wittman's judgments remain puzzlingly perverse. If they should succeed in making a great splash, that would reflect adversely on academic social science and on popular discourse infected by it.

References

Bradford, R.W., ed. It Came from Arkansas. Port Townsend, Wash.: Liberty Publishing, 1993.

Wittman, Donald A. "Why Democracies Produce Efficient Results." Journal of Political Economy 97 (December 1989): 1395-1424.

Wittman, Donald A. The Myth of Democratic Failure. Chicago: University of Chicago Press, 1995.