Although the whole book is interesting, it becomes a page-turner with Chapter Five, "Incentives and Collective Irrationality." This is, essentially, Schuck's version of public choice. Take one of the first sentences in the chapter: "First, incentives must be capable of eliciting the desired behaviors of both the policy makers and of the actors they must influence in order for the policy to work." (italics in original) This one sentence is far beyond what most advocates of government intervention ever discuss. What incentives do government officials have to do the efficient thing? Read through welfare economics articles and you can see sharp economists recognizing the various ways that markets can fail. But then, when they get to their government solutions, they write as if the incentives of the government officials trusted to formulate and implement the policies do not matter. That gap in thinking is a huge problem, and Schuck recognizes it. After listing five other factors that matter, he writes, "For deeply structural reasons, all six of these features are in shorter supply in government than budget is." He then adds, "To show why, I contrast government with markets that, for all their well-known imperfections, earn high marks for incentives, rationality, information generation, adaptability, credibility, and management."
In this chapter, Schuck explicitly defends public choice from its critics, writing, "[P]ublic choice theory's rational actor model explains and predicts far more observed official behavior than its main rival, public interest theory." He then lays out how well public choice predicts the destructiveness of many government programs--programs that are destructive precisely because of the many perverse incentives that motivate politicians, bureaucrats, special interests, and voters. Schuck gives many historical and contemporary examples of government programs that cause large inefficiencies, including unemployment insurance (creates the incentive to stay unemployed); disability insurance (creates the incentive to claim disability and quit work); and the Dodd-Frank Act (creates moral hazard by broadening the government's safety net for risk takers). Interestingly, Schuck ends by critically discussing the claim of my co-blogger, George Mason University economist Bryan Caplan, that policymakers can sometimes "enact wiser policies than the median voter prefers." When a noted moderate political scientist (Schuck) finds that a noted anarchist (Caplan) is too optimistic about the political system, you know you are reading an interesting book that cuts across conventional political categories.