Given its monopoly power over the legitimate use of force, people have a tendency to believe that the government, particularly a democratic representative government, can solve all types of problems. Further, if things do not go well, people tend to think that it is be- cause the “wrong” people won the last election. Public-choice analysis suggests that the problem is more fundamental: there is sometimes a conflict between winning elections and following sound policies. For some types of activities, there is reason to believe that the political action that will help get one elected will, at the same time, reduce income lev-els and living standards.
Both the market and the political process have shortcomings.
Understanding the strengths and weaknesses of both sectors is important if we are going to improve our current economic institutions. When the government protects property rights, enforces contracts, and provides a stable monetary environment, economic prosperity is more likely to ensue. The basic problem, however, is how a society can obtain the benefits of the protective functions of government and at the same time constrain it to those activities where it is a productive force.
Posts Tagged ‘taxation’
The economic way of thinking about government
Thursday, December 3rd, 2009Political decision making
Saturday, October 31st, 2009Public choice analysis is a branch of economics to the operation of the political process. Public-choice analysis links the theory of individual behavior to political action, analyzes the implications of the theory, and tests them against events in the real world. Over the past fifty years, research in this area has greatly enhanced our understanding of political decision-making.’ Just as economists have used the idea of self-interest to analyze markets, public-choice economists use it to analyze political choices and the operation of government. After all, the same people make decisions in both sectors. If self-interest and the structure of incentives influence market choices, there is good reason to expect that they will also influence choices in a political setting.
The collective decision-making process can be thought of as a complex interaction among voters, legislators, and bureaucrats. Voters elect a legislature, which levies taxes and allocates budgets to various government agencies and bureaus. The bureaucrats in charge of these agencies utilize the funds to supply government services and income transfers. In a representative democracy, voter support determines who is elected to the legislature. A majority vote of the legislature is generally required for the passage of taxes, budget allocations, and regulatory activities. Let’s take a closer look at the incentive structure confronting the three primary political players- voters,legislators, and bureaucrats- and consider how they affect the operation of the political process.