Economics explains a political scandal.
By Paul Krugman
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
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
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?
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
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.
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.
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
Paul Krugman is a professor of economics
at MIT whose books include The Age of Diminished Expectations and
Illustrations by Robert Neubecker.