Bryan Caplan  

Two Arguments for Democratic Failure that Don't Convince Me

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Public choice scholars often say that democracy underperforms the market because of:

1. Infrequent choice. In the market, consumers can continuously change their minds. In politics, however, voters are stuck with their choice until the next election.

2. Bundled choice. In the market, consumers can pick and choose what they put in their grocery cart. In politics, however, voters choose between two indivisible policy packages.

These are good stories, but they overlook a few big facts. Namely: Our most important market decisions - buying a house and taking a job (not to mention getting married!) - are, like elections, both infrequent and bundled. Whether you're voting for a politician, buying a house, or taking a job, it's very costly to say "re-do" just because you're disappointed. And whether you're voting for a politician, buying a house, or taking a job, you choose between big baskets of pluses and minuses.

So infrequent and bundled choice is a big deal in markets as well as politics. But the natural response is for (a) home-buyers/workers to shop around for a while to compensate for lock-in; and (b) for home-sellers/employers to do some detailed market research to triangulate what they're doing right and what they're doing wrong. These work well enough in markets; and unless elections have some other major defect, there's no reason why they couldn't work in politics, too.

Yes, some differences between my market examples and elections remain. But they're smaller than they appear. If you say, "If you're really disappointed with your house, you can just sell it," I'd reply, "And if voters are really disappointed with their politician, they can just have a recall election." Neither's easy, but both happen.

Of course, if you just say "Labor and real estate markets work a lot better than democracy - that's the difference," I'll agree with you. Even when choice is infrequent and bundled, markets do OK - which indicates that the key difference between markets and politics lies elsewhere.


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COMMENTS (26 to date)
Kenny writes:

One key difference is that there are no enforceable contracts or agreements between a politician (seller) and voters (buyers). How often do voters get what they expect?

Michael Kolczynski writes:

I would like to point out that with respect to infrequent choice, there is still a large distinction between free-market and democracy; even though an individual decision may be infrequent in the market, the decisions of all do not occur simultaneously, so you may look and see what happens to a person in a market before you act, giving you extra information that a predecessor did not have. In a democracy (heavily centralized), everyone makes the choice together, only able to really reference the previous decision, unable to look at a multitude of options.

another bob writes:

Sometimes, not only is my democratic 'choice' a bundle of choices, my choice is also bundled with and constrained by other peoples' choices thereby becoming even less optimal.

Take school spending as an example. If I were to spend $10k on my daughters education in a 'small bundle, frequent change, unconstrained' ala-carte manner, I might choose 4 or 5 classes from 1 source - a school - that's bundled. Or, I might choose 4 or 5 classes from 4 or 5 providers - a series of tutors - that's unbundled.

But, if the local school board spends the whole $10k I don't get to choose the unbundled 4 or 5 choices. I don't even get to choose between bundles - that is between schools. I only get the choice the school board makes which is not even my choice of bundles.

So, does that make for argument #3 - "bundled, infrequent, constrained-by-consensus" is even worse? Sort of like the difference between marriage (bundled and infrequent) and arranged/forced marriage (bundled, infrequent and constrained) - or a 'choice' in a Soviet election.

Of course, you might argue that the school is part of your house purchase choice. That's starting to get to be a very big bundle.

I'd argue, based on a book I read recently, that most people make systematically suboptimal choices about education for their kids and, these suboptimal choices are transmitted to elected officials.

Where we can substitute an unbundled, frequent-choice, unconstrained-by-consensus market for 'democratic tyranny' we get faster evolution of services offered in the market. A few highly informed people show the way to better services through their choices.

Nathan writes:

When you make a decision on the market, you're usually stuck with whatever you chose, encouraging careful research beforehand, especially for big purchases like a house or car. When you vote, you get what everyone else chooses. See David Friedman on cars, as discussed by your co-blogger recently.

ryan writes:

Kenny, is the real problem that voters don't get what they want? And if that's the issue, well, why are campaign contributions nonzero?

Michael, it's not only entirely possible for simultaneous markets to be efficient, but the basic models generally assume this to be the case (and it's probably easier to prove efficiency with simultaneous markets). So this may be a difference between politics and real-life markets, but since markets wouldn't obviously have a problem with simultaneity, it's hard to see why this property would be the main cause of inefficient politics.

Adam writes:

I think another bob is right to mention the importance of consensus. In most markets I can make a hard choice, like quiting a job or leaving a marriage, and pay a price (lost wages, alimony) as a result. Not only do markets make such costs well know but they allow people to unilaterally act upon them. Even in a housing example with mutiple occupants breaking a lease may only require convincing a few people.

The difference is that in politics, even if I knew the cost of a recall election, I could not pay it. Others have to be convinced to act as well.

I don't agree that this "underperformance" in politics is a failure. Democracy is designed to be a slow-moving creature, in large part to keep that apparatus outside the control of a small group.

Kurbla writes:

Infrequent choice is not essential problem - consumers make some of the worst decisions even if they do it on a daily basis - classical example is overeating.

Bundled choice is the problem. Political market usually offer parties that advocate more-less any possible combination of the choices. Sometimes voting system favor big parties and it is serious defect of democracy and it should be changed. Unfortunately, it appears that majority of people support mainstream parties so much that they do not really care for extending their freedom of choice.

Also, in many countries, people can isolate some problems, and make petition that forces government to organize referendum. Practice shows that people are rarely interested enough to really do that.

Finally, where is the evidence that consumers decisions are better than voters decision on the first place?

If we only count overeating, smoking, alcohol and drugs abuse, we'll likely find that say 50% of Americans severely ruin their health and quality of life by their bad consumer's decisions. Even more if we count their families. I do not believe that American voters did so much harm for a long long time.

Sebastian writes:

"which indicates that the key difference between markets and politics lies elsewhere."

Transparency--the costs of mistake in a political choice are often not clearly seen by the person making the mistake.

Similarly,

Delay--often the costs are not obviously linked to the choice

and

Externality--ofthen the costs of the choice are not actually paid by the person making the mistake.

Grant writes:

On bundling, nothing is as bundled as an election! Your deciding between one bundle of foreign policy, education, labor, energy, etc. The information asymmetries are huge compared to any market transaction; its really silly to assume a voter could make an informed vote even if Bryan had never written his book.

On infrequent choice, each individual's choice is limited by the choices of others. One person can't recall an election until a majority (or supermajority) do.

William Newman writes:

Kurbla writes "If we only count overeating, smoking, alcohol and drugs abuse, we'll likely find that say 50% of Americans severely ruin their health and quality of life by their bad consumer's decisions. Even more if we count their families. I do not believe that American voters did so much harm for a long long time."

Maybe. There's a lot of room for disagreement on how effective a government could be. I don't remember the elasticity of lifespan with per-capita income, or even a Google query to look it up. But it might not take an incredibly large increase in rate of economic growth before 60 years of efficient economic policy, fed through the lifespan elasticity, could outcompete the lifespan cost of 60 years of average schmoe self-indulgence.

(And that's just one government impact on lifespan, chosen because it seems relatively easy to give a ballpark estimate. What's the effect of, e.g., having a mandatory monopoly provider of medical services?)

Also note that all those self-indulgences, even up to fairly heavy abuse, come with effects that many people value. I don't know how to estimate that value, but if (as it sounds like) you value it as zero, I doubt that's a particularly good estimate.

dezakin writes:

Do endricinologists make analogies of elections to hormonal responses the same way economists make analogies to market economics? When you have a hammer...

Patri Friedman writes:

Thanks for posting this, as those two arguments have always been part of my explanation about why democracy doesn't work. I'll have to ponder what you say.

One thing is that I think job markets and housing markets do work much worse than markets for goods which are unbundled and frequently changed. So it does matter, even if it isn't the whole story.

Also, it seems like the package of things you get in an election is even broader than a job or a home, broad though those things are.

It would be fun to brainstorm other differences. The ones I usually complain about, because seasteading changes them, are lack of competition (to start a new government you have to win an election or revolution - what a huge barrier to entry!) and cost of switching (customer lock-in - which is high for jobs and houses too).

Lord writes:

No, I would say it is that you can choose, but when most choose otherwise you effectively have no choice. Due to the hierarchy of jurisdictions, you may be happy with some results and unhappy with others, and frequently very unhappy with those you have no choice at all over because they represent the choices of others.

Thaddeus McMonster writes:

Two thoughts:

1. You say

"Our most important market decisions - buying a house and taking a job (not to mention getting married!) - are, like elections, both infrequent and bundled."

The reason these decisions are so "important" is because they are infrequent and bundled. If the cost of reselling a home were much lower, it wouldn't be considered nearly as important. And why should "importance" be the yard-stick? Shouldn't we use some measure of efficiency? I would argue that jobs and housing are much less efficient than almost any market for consumer staples.

2. These are not nearly as bundled as elections are. There are thousands of possible careers. There are two political parties. If houses only came in two types, or there were only two possible jobs, then you'd have a valid comparison. Also, one can determine the frequency in housing and jobs; renting and short-term jobs are common. With elections, we can't choose to say, vote for McCain but only for 1 year.

Adam Ruth writes:

I think those are both straw-men.

The real argument behind #1 is that the timing of the choice is not under the control of the consumer. Also that the choice happens for everyone at the same time. It's not the frequency, Kenneth, it's the choice of frequency.

The real argument behind #2 is the nature of the bundles, not the fact that they are bundles. *All* purchasing decisions are decisions between bundles. When buying a house I can choose between hundreds, possibly thousands of bundles. And those bundles are all related to the house itself. When buying a house I don't also bundle in my job, marriage, car, computer operating system, and boxers vs. briefs. Those are all other bundles that I can choose more or less independently. In elections there are typically only two bundles, maybe three or four, and they all include the kitchen sink.

Lord writes:

It is more the bundling of the choosers than the bundling of the choices.

superdestroyer writes:

Consider how few people actually get any real choice when voting for Congressman or Senator. Out of 33 Senate seats, maybe five will change hands this election. In the House over 60 are running for relection with no opponent and an equal number face only unfunded token candidates.

For most people, the election is moot since every race that they can vote for is non-competative or moot in their state.

However, maybe some economist will start thinking about what will happen when the Republican Party completes its collapse and the U.S. is left with only one political party. Image how elections will work when Democratic primaries spread over months will be the real elections.

Unit writes:

I think the difference is monopoly power. In democracy the bundling is actually hyper-bundling, in the sense that there is no real difference between the two packages. In brief, since the barrier to entry is so high, the Dems and Reps are in effect colluding and have tacitly agreed to stick to a "divide and conquer" strategy. The more people bicker about imaginary alliances the more the political class benefits.

Hopefully Anonymous writes:

Bryan, Have you commented on Palin yet? If McCain wins and then croaks, it could do a lot for the popularity of your book.

Rolo Tomasi writes:

It's not just the bundling but its the lack of choice on the margin. Individuals don't just decide yes or no to buying a house, the can weigh the benefits/cost of having 2 or 3 bedrooms, of being X miles from work/schools etc. Even though houses are a large bundled good, there is still way more incremental choice than elections.

Nate writes:

My two cents on "another bob"s comment about consensus:

In an election consumers are constrained by consensus in the election of an official, but consensus also interacts with infrequent choice once the election is over. In order to have a recall election, or an impeachment, again the majority must come together to take action. Again consumers will be stuck with the bundled package.

Michael writes:

I have to disagree with your formulation of the problem.

1) Houses are not like elections because you can change the color of the walls, the cabinets in the kitchen, the type of ceiling fan that is in the den, and the landscaping. Assuming you own the house outright, you do not have to consult anyone to do this (abstracting from co-ownership).

2) the dichotomy between politics and market does not hold for marriage. If marriage is a market, then so is politics. The logrolling and the aggregate choice problems apply to both, but both function at a different scale. Note that 3 people are needed for cycles to form, a major public choice critique of the market.

TheFinanceDude writes:

Um, you can choose to live in more than two cities. You can choose between more than two jobs. You can choose between more than two just about anything (maybe not your parents)...the problem is that there exists a monopoly that most people can't even perceive.

Rolo Tomasi writes:

A question that I think is interesting is how did we end up with basically two parties? Why not many parties fighting for the scraps or just one handing out largess? Why do all these varied interests separate into two main coalitions? I think answering that question may lead to more insight into why the public sector under performs the private.

To put it another way, if people like lots of choices, why does the public sector always give us only two choices?

BIll Nichols writes:

1)
a) Me buying a house is infrequent, someone buying a house is very frequent, it must happen thousands of times every day.
b) Parliamentary governments can change more readily.

2) With most bundled packages, I also have the implicit choice of "none of the above".

David writes:

"not to mention getting married!"

The funny thing is that getting married seems to be the least successful of those choices. Even then, a lot of people aren't happy in their marriage and stay together to avoid shame, etc.

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