The Dismal Science
Illustration by Robert Neubecker Rat Democracy
Economics explains a political scandal.

By Paul Krugman
(1,279 words; posted Thursday, May 15; to be composted Thursday, May 22)

       Like most people who once hoped for better, I have become resigned to the accumulation of tawdry detail about how President Clinton financed his re-election campaign. But condemning Clinton's brazen opportunism begs the question: Where did the opportunities to be so brazen come from?
       This may seem to be a question for a political analyst, not an economist. But there is an approach to political analysis known as "rat choice" (rat as in "rational"--it's not a comment on the candidates) that flourishes along the border of the two fields. The working hypothesis of rat choice is that voting behavior reflects the more or less rational pursuit of individual interests. This may sound obvious, innocuous, and even excessively optimistic. But if you really think its implications through, they turn out to be quite subversive. Indeed, if you take rat choice seriously, you stop asking why democracy works so badly and start asking why it works at all.

What is the problem? Won't rational voters simply choose politicians who promise to serve their interests? Well, in a rough sense they do. The logic of democratic politics normally pushes both parties toward the center--more precisely, toward policies that serve the interests of the median voter. Consider, for example, the question of how big the government should be. In general, people with low incomes prefer a government that imposes high taxes in order to provide generous benefits. Those with high incomes prefer a government that does no such thing. The Democrats are, by inclination, the party of outstretched palms, the Republicans the party of tight fists. But both are forced to move away from those inclinations toward actual policies that more or less satisfy the voters in the middle, who don't like paying taxes but do like knowing that they won't be stuck with Grandma's medical bills.
       But there are lots of issues that are not so big--issues that only involve, say, $10 or $20 billion a year--like who profits from electricity deregulation, or how much the government spends subsidizing irrigation water for Western farmers. Although these issues, cumulatively, are important to the electorate, the electorate doesn't vote--individual voters do. And it is rarely in the interest of the *individual* voter to take the trouble to track the details of public policy. After all, how much difference will one vote make?

Illustration by Robert Neubecker Bells have just started going off in the head of any reader who remembers Econ 1. What I have just said is that the duties of a good citizen--such as becoming well informed before voting (and for that matter bothering to vote at all)--are subject to the dreaded free-rider problem. The free-rider problem arises whenever some valuable good or service is not "excludable"--that is, whenever the benefit cannot be restricted only to those who pay for it. It is clearly in the interest of all boaters to have a rescue service. But no individual boater has any incentive to pay for the service if others are willing to do so. If we leave provision of a lifesaving service up to individual decisions, each individual will try to free-ride on everyone else, and the service will be inadequate or worse.
       The solution is government. It is in the collective interest of boaters that each boat owner be required to pay a fee, to support a Coast Guard that provides those nonexcludable benefits. And the same is true of police protection, public sanitation, national defense, the Centers for Disease Control, and so on. The free-rider problem is the most important reason all sane people concede that we need a government with some coercive power--the power, if nothing else, to force people to pay taxes whether or not they feel like it.

But there is a catch: The democratic process, the only decent way we know for deciding how that coercive power should be used, is itself subject to extremely severe free-rider problems. Rat-choice theorist Samuel Popkin writes (in his 1991 book, The Reasoning Voter): "Everybody's business is nobody's business. If everyone spends an additional hour evaluating the candidates, we all benefit from a better-informed electorate. If everyone but me spends the hour evaluating the candidates and I spend it choosing where to invest my savings, I will get a better return on my investments as well as a better government." As a result, the public at large is, entirely rationally, remarkably ill-informed about politics and policy. And that leaves the field open for special interests--which means people with a large stake in small issues--to buy policies that suit them.
       For example, not many voters know or care whether the United States uses a substantial amount of its diplomatic capital to open European markets to Central American bananas. Why should they? (I only keep track of the dispute because I have to update my textbook, which includes the sentence: "Efforts to resolve Europe's banana split have proved fruitless.") But Carl Lindner, the corporate raider who now owns Chiquita Brands, has strong feelings about the issue; and thanks to his $500,000 in contributions, so does President Clinton. It's not that Clinton believed that money alone could buy him the election. But money does help, and any practical politician comes to realize that betraying the public interest on small issues involves little political cost, because voters lack the individual incentive to notice.
       So what is the solution?
       One answer is to try to change the incentives of politicians, by making it more difficult for special interests to buy influence. It is easy to be cynical about this, but the truth is that legal limits on how money can be given do have considerable effect. To take only the most extreme example: Outright bribes do not, as far as we can tell, play a big role in determining federal policies--and who doubts that they would if they were legal? So by all means let us have campaign-finance reform; but let us not expect too much from it.

Another answer is to promote civic virtue. There are those who believe that if only the media would treat the public with proper respect, people would respond by acting responsibly--that they would turn away from salacious stories about celebrities and read earnest articles about the flat-panel-display initiative instead. Well, never mind. But it is probably true that the quality of politics in America has suffered from the erosion of public trust in institutions that used to act, to at least some degree, as watchdogs. Once upon a time a politician had to worry about the reactions of unions, churches, newspaper editors, even local political bosses, all of whom had the time and inclination to pay attention to politics beyond the sound bites. Now we have become an atomized society of individuals who get their news--if they get it at all--from TV. If anyone has a good idea about how to bring back the opinion leaders of yore, I am all for it.
       Finally, we can try to remove temptation, by avoiding policy initiatives that make it easy for politicians to play favorites. This is one reason why some of us cringed when Ron Brown began taking planeloads of businessmen off on sales trips to China and so on. Whether or not those trips did any good, or gave the wrong impression about how foreigners might influence American foreign policy, they obviously raised the question of who got to be on the plane--and how.
       But there is ultimately no way to make government by the people truly be government for the people. That is what rat choice teaches, and nobody has yet proved it wrong--even in theory.

Paul Krugman is a professor of economics at MIT whose books include The Age of Diminished Expectations and Peddling Prosperity.

Illustrations by Robert Neubecker.