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The Public Choice Legacy of Gordon Tullock

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The Public Choice Legacy of Gordon Tullock

November 5, 2014

Gordon Tullock, a professor of law and economics at George Mason University, is best known for his work with the late James Buchanan in developing the public choice school of economics. Tullock's death on Tuesday at the age of 92 marks the end of an era. 

Public choice theory acknowledges that once people become public servants, whether as bureaucrats or politicians, they do not cease to be self-interested. Pursuing their own economic utility, rather than maximizing social welfare, remains their chief concern. Surprisingly, many people and political economy models fail to account for this, and see no downside in expanding government.

Public choice does not hold that people always act rationally, or that everyone values goods equally. Rather, reduced to its bare essentials, the economic assumption behind the theory is that individuals, when confronted with a choice in exchange, will choose what they deem to be “more” rather than “less.” While this does not explain all political choices, this theory is helpful in understanding seemingly inexplicable situations. 

Public choice economics helps to explain the multitude of regulations that benefit a select few and increase costs for everyone else. Why does this happen in a democracy? Shouldn’t majority rule? As Tullock argued, it makes perfect sense for individuals not to concern themselves with fighting back against special interests. 

Take, for example, the continued existence of biofuel mandates, which cost taxpayers billions of dollars in subsidies and billions more in higher gas prices. The direct cost to the millions of Americans who are harmed by biofuel subsidies is about $20 each a year. While the actual costs are certainly higher from secondary effects on gas prices, the amount lost is not high enough to warrant significant public backlash. It is not rational for individuals to spend more than a few hours learning about and fighting against the special treatment biofuels receive. 

On the other hand, biofuels are a large portion of farm subsidies, which have many large corporate eneficiaries. On a smaller scale, farmers whose livelihoods depend upon artificially high crop prices stand to lose tens or hundreds of thousands of dollars annually if biofuel programs are terminated. It makes sense for these groups to spend more time and money lobbying legislators to keep subsidies in place.

The same phenomenon can also be seen in be seen in attempts to ban new technologies such as ridesharing. Existing taxi companies are upset that ridesharing services such as Uber or Lyft are cutting into their customer bases. In most states and cities, the transportation industry is heavily regulated and there are high barriers to entry. 

For example, in New York City there are over 13,000 taxi medallions, which are required to pick up passengers hailing taxis on the street. While the amount may seem like a lot, it is not enough for America’s largest city. A single New York City medallion sold for $1.26 million last year. From 1975 to 2013, the value of a New York City tax medallion increased over 2,700 percent. This beat the Dow Jones’s return of 1,675 percent and the 850 percent growth in gold’s value. The value of medallions is inflated because there are fewer cabs than people who want rides—as anyone can attest who has tried to hail a taxi in Manhattan during rush hour. 

Since taxi cab medallions have been in place for decades, many owners are not even benefiting from the programs. Tullock termed this a “transitional gain.” When taxi owners purchased the medallions, the future value of restricted supply was included in the price. If the medallion requirement was removed tomorrow, these owners would lose a substantial amount of money.

Many of those who realized gains are long gone, leaving current owners in a no-win situation. 

Some taxi drivers are rightly upset that the value of their forced investments will fall in value with competition from ridesharing companies that do not have to abide by the same rules. However, while these losses may seem unfair, basing economic policies on subsidies and barriers that benefit a few people while raising prices and reducing opportunity for everyone else is inexcusable. Tullock’s work made it clear that policymakers must avoid such traps. 

Tullock illustrates that when organized groups petition the government for special treatment, the economy loses. Freely chosen exchange must be perceived to be advantageous to all parties, or else the trade would not have taken place. This is why trade brings overall gains, and increases the proverbial economic pie. However, when the political process is used to gain special treatment at the expense of others, gains are reduced. 

It is often argued that James Madison, father of the U.S. Constitution, understood the insights of public choice theory. This is why Madison and the other Framers designed the checks and balances that define the American political system. Madison recognized that individuals in each of the branches would use their powers to limit the influence of the other branches.

Perhaps it is fitting that Tullock passed away on the date of an election. Tullock adamantly defended his decision to not vote. He understood that the mathematical chance of affecting an election was miniscule, and he claimed that he got no enjoyment from going to the polls. While he was right that a single vote will rarely swing an election, votes still matter. As the results of the midterm elections showed, strong voter turnout not only influences elections, but it also sends a clearer policy mandate than do slim margins of victory.

It is unfortunate that Tullock was not chosen to share the 1986 Nobel Prize in Economics with Buchanan. As opposition to special interests grows on both sides of the political spectrum, Tullock’s contributions to the field of political economy will undoubtedly continue to influence future research and policy. His work is very much alive, but he will be missed.

 

Jared Meyer is a policy analyst at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.

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