Friends of the IEA will be sorry to hear of the death of James M. Buchanan, the US economist and Nobel Laureate. In the 1960s, with colleague Gordon Tullock, Buchanan brought to wide attention the idea of 'Public Choice' economics – applying the methods of economic analysis to the theory and practice of government and politics. His work, and the huge volume of subsequent work which he and others have done on the subject, has given us very important – and worrying – insights into how politics and democracy really work.
Public Choice economists maintain that, just as self-interest motivates people's private commercial choices, so does it affect their communal decisions. People 'economise' as voters, lobby groups, politicians and officials, aiming to maximise the outcome they personally desire, for minimum effort. Consequently the well-developed tools of economics – tools such as profit and loss, price and efficiency – can be used to analyse politics as well.
Making some choices collectively is inevitable – there are many things we cannot do on our own as individuals. And there is also the 'public goods' problem – that certain useful things, such as defence, will be under-provided by markets because non-payers can simply 'free ride' on others.
Buchanan and Tullock showed that such 'market failure' does not necessarily mean that government can do things better. There is 'government failure' too. Political decision-making is not a dispassionate pursuit of the 'public interest' but a struggle between different, competing personal and group interests. In this struggle for the supremacy of different values, small groups with sharply focused interests have more influence in decision-making than much larger groups with more diffused concerns, such as taxpayers.
The problem comes into sharp focus in simple-majority voting, where 49% of the population, no matter how strong their misgivings, can be governed by the other 51% - like the old joke that 'democracy is two wolves and a sheep deciding what to have for dinner'. Buchanan believed vehemently that constitutional safeguards were needed to protect minorities, and indeed the 'silent majority' who so often lost out to small but coherent and motivated interest groups. Constitutions, which should be agreed by all, would set out the mechanism for voting, such that the most potentially exploitative decisions could require higher majorities (or even unanimity) than others.
Buchanan's first publication for the IEA was back in 1965, and his last contribution was just three years ago, in 2009. He received the 1986 Nobel Memorial Prize in Economic Sciences for his work on Public Choice theory and was a life member of the Mont Pelerin Society, among many other awards and distinctions.
Eamonn Butler is Director of the Adam Smith Institute and author of Public Choice – A Primer.