FINAL PUBLIC CHOICE

topics

1. tax policies

2. public choice and political economy of “social justice”

3. insights into representative democracy

4. public choice analysis of diplomatic interactions

5. failures of political governance

6. law and economics

7. populism and public choice

8. public goods

TAX POLICIES

“tariffs are a BAD idea for every country”

“seek truth from facts”

interpreting international trade policies

• political logic

  • promote interests of leaders or political parties and tend to ignore wider human costs

  • tariffs and realiation

• economic logic: focus on impact on human actions in markets

  • ZERO or lower tariffs for all countries

→ unilateral free trade is better than protectionism

→ voluntary trade is moral action and leads to just outcomes

• trade imbalances

  • political realities differ from human realities

  • countries or society is imaginary

• tariffs are a tax that raises costs on domestic consumers and producers

• ways to measure burden tariffs (none is better than another)

  • nominal rates: oversimplistic

  • consumer price impact: burden on consumers

  • effective rate of protection: benefits only domestic producers

  • trade restrictiveness index: distortion effect upon trade

→ No measure is “better” in isolation because each can be manipulated or obscured for political gain, aligning with Public Choice’s core idea: policy outcomes often reflect the interests of the politically powerful rather than the economically efficient.

“trade wars”

• political, not economic response

  • only individuals trade, not counties

  • governments start wars, not individuals

  • war: destruction for both sides

  • trade: both sides win

• protectionism is a war on trade and an avoidable taxi

international trade

• magical outcomes

  • voluntary exchange → positive outcomes → more wealth without increased production

• consequences of trade

  • engine of economic growth, increased specialization

  • more wealth, higher living standards

  • economic support

  • greater income inequality

SOCIAL JUSTICE (SOCIAL → JUSTICE? X)

“The idea of social justice is that the state should treat different people unequally to make them equal.”

- Hayek

→ Equality of outcome vs. equality of treatment:

→ Contradiction with rule of law:

• Hayek believed in the rule of law, where laws apply equally to everyone.

• Social justice, in his view, violates this principle by making laws or policies that favor one group over another based on subjective criteria.

→Unintended consequences:

• Efforts to create "equality" may reduce freedom, encourage rent-seeking, or lead to perverse incentives (e.g., dependency on welfare).

❓ Does Social Justice Really Exist?

Social justice exists as a normative ideal—a vision or principle that societies should ensure fair treatment and equitable outcomes for all, especially marginalized groups. But whether it exists in practice depends on how we define it and how political systems implement it.

From a Public Choice or classical liberal perspective (like Friedrich A. Hayek’s), social justice as a real, enforceable concept is deeply problematic, because:

• It requires subjective judgments about what is "fair."

• It implies coercive redistribution by the state.

• It often empowers interest groups and bureaucrats, rather than actually helping the disadvantaged.

conditions of humanity

• no one is naturally entitled to dominate others

• aspects of freedom

  • negative freedom

  • positive freedom

• instrumental aspects of freedom

  • can be ourselves, work together and maintain autonomy

  • freedom → spontaneity → discovery and innovation → improved material well being

  • self ownership

mind over matter

the idea that the power of the mind—including thoughts, beliefs, focus, and willpower—can overcome physical limitations or external obstacles.

• mind: emerged self organizing process that is embodied and relational, regulates energy and information flow within and among us

• human mind extends beyond physical entities

• not only perception of experiences but experiences

• impossible to completely disentangle subjective view from our interaction

• Thoughts, attention, memories, experiences, feelings influenced by subjective part of our minds

• Our subjective values & different abilities constantly change as new knowledge discovered

• Human complexity: different priorities, preferences, circumstances, goals, concerns, dreams & desires

subsidiarity versus solidarity

• subsidiarity

  • principle that problems should be solved at lowest possible level

• solidarity

  • choice by individual

  • imposed by legislation or customs

search for stable social order

• social order: arrangements to overcome conflicts arising from scarcity → peace

  • order and justice from individual minds and human actions

• rule of law

  • eliminate privileges to individual or groups

  • support property rights as peaceful means to resolve conflict

• spontaneous order from human action, not design

INSIGHTS INTO REPRESENTATIVE DEMOCRACY

“the voice of a majority is no proof of justice”

power, authority and human actions

• nature and focus power to influence human actions

  • political governance and state power (force)

  • self governance (choice)

• power vs purposive human actions

  • political power: threat, compulsion and punishment

  • economic power: interactive

• goal: identify political system that avoids opression, elimiantes privilege and supports human liberty

democracy and deficits

• public sector budget deficits and debt

  • politics as profession

  • purpose of taxation shifted from providing (few) “public goods” towaeds redistribution to reward electoral support

  • loss of public concern for saving and thrift

    • keynes “paradox” of thrift

      → If everyone tries to save more during a recession, overall savings in the economy may actually decrease.

    • central banks lowering interest rates, reduced incentive to save

  • congressional attempts to control budhget

political power does NOT matter:

• political institutions do not reveal knowledge, shape choice, and create incentives so self-interest of political leaders lead to public benefits

• democratic votes reflect

  • momentary and accidental majority

  • passions of the moment

  • manipulated “perceptions”

• democracy becomes dangerous when its used to justify political power.

democracy versus human liberty

• contradictions of modern democracy

  • imposes “natural entitlement” of elite and experts to dominate

  • allows democratic government to suppress liberty and rights

• human liberty is more important than the right to vote

• constitutional contstraints and rule of law

  • citizens need protections from abuses of power by individuals and majority by setting limits on state actions

• perserving democracy requires limits on political power

DIPLOMATIC INTERACTIONS

diplomacy is unlikely to lead to peace or stable relations.

incentives and human actions

• actions based on strongest, not “best” motives

  • link tasks to own self interest

  • guided by ideology, political party

• diplomacy and diplomatic activity

  • represent collective (state)

  • concern for loss of privileges and status

diplomatic actions

• diplomats viewed as elite with special skills

  • have privileges and status not available to other public officials

• foreign policy is a collective choice for binding international relations conducter by individual diplomats

• incentives and behavior

  • acceptable for diplomats to be masters of deceit with host

  • can use same tools to deceive political leaders

public choice

• domestic policies and processes

• concern of those acting on behalf of politicians on international stage

• choices to improvise based on personal ideology or partisian commitments. → principal-agent problem

  → 🕊 The principal-agent problem highlights that agents in government aren't always benevolent or loyal.
  Even in diplomacy, self-interest and institutional behavior matter—not just national interest.

• rational ignorance

• special interest effects

  • well organized groups or experts with large stakes in outcomes have disproportionate impact on direction and conduct of policies

  • industrial groups or NGO’s can influence diplomatic actions and their communicactions with superiors

• “going native”

private contracts versus treaties

• arguments against reneging on international treaties

• historical reality

• if democracy involves constant deliberations over moral action then it is incoherent to expect treaties to be “permanent”

• self-interest of diplomats and legislators affects negotiation and ratification of treaties

→ 🧠 Public Choice Insight:

Private contracts tend to be more enforceable because there's a clear legal system and aligned incentives.

Treaties rely on state behavior, which is often driven by strategic interests, not just legal obligation—making enforcement more political than judicial.

• citizens must accept treaties even if they dont align with their own conditions

FAILIURES OF POLITICAL GOVERNANCE

government and politics

governments were not created to produce goods or services

→ only rules of behavior, justice, security, liberty and rights

• rule of law

what can democracy deliver?

• national self determination (macro)

  • isn’t an end in itself, but a mean

  • achieve shared goals

• individuals self determination (micro)

  • is being able to vote better than freedom?

  • democracy without liberalism is a poor system og governance

    🔁 Public Choice Insight:

    Democracy is a method of choosing rulers, not a guarantee of good outcomes.

    Without liberal limits, self-interested politicians can use democracy to entrench themselves—just like any other power system.

rational ignorance and democracy

• information scarcity → need to sacrifice to be informed

  • people choose in a rational manner to be ignorant

“Why spend hours researching policies if my vote won’t make a difference?”

special interests and democracy

special interest groups seek policies to increase their income or restrict competitors

short sightedness and democracy

• focus on eleciton induces politicians to

  • emphasize immediate conditions but ignore long-term effects

  • electoral cycles occur

economic theory of bureaucracy

• importance of incentives to guide behavior

• regardless of other goals, bureaucrats will try to maximize size of budgets

• bureaucracies have information “monopoly” over budget

• growth in size of governments benefits public officials, not citizens

• weal incentives to control waste, theft and corruption

market failures

• provide theoretical rationale for government intervention

• portrayals are based upon comparison with unrealistic model of perfection

government faliures

• most market failures are action inaction by government

• human imperfections can be worsened when political power is applied

democracy and political failure**

• governments grow without citizen demand or approval

• corruption and inefficiency

• mixing politics without morality

• degradation of environment

• monopoly and privileges

• poverty and under development

• promises of democracy vs reality

LINGLE’S LAW

cause-and-effect cycle, showing how government intervention can unintentionally spiral into more intervention—often serving special interest groups.

LAW AND ECONOMICS

• systematic analysis of legal doctrines and jurisprudence based on economic reasoning

• microeconomic tools:

  • cost benefit analysis, incentives, efficiency to legal systems

  • economic effects of legal rules

  • coase theorem: legal rules and bargaining/transaction costs

overlaps

• microeconomic theory and rational choice model

• both analyze institutions shape incentives and outcomes, often focusing on inefficiency

• public choice can inform law and economics by explaining political processes to create legislation

• law and economics can inform public choice by analyzing legal frameworls of political behavior

POPULISM AND POLITICAL POWER

• populism as political opportunism, not ideology

  • difficult to challenge

• essential ingredients; redistribution and privilefes

  • redistributes political power between parties

  • redistributes income or wealth of citizends

  • privileges: protection or monopoly or subsidies

→ LEFTISTS: rich against poor, take from one to give to another

→ RIGHTIST: nationalism and distrust of “others”

• all varieties of populism weaken political cohesion, work against peace and undermine prosperity

• tyrants can violate individual rights and freedom, often by limiting property rights

populism and democratic suicide

• populists blame outisders or global turmoil for own failure

• economic consequences of populism (tariffs)

  • increased burdens on relativeley -smaller or shrinking private sector

  • efficiency losses due to increased use of resources by public sector

• political consequences of populism

  • demagoguery as instrument of populists of left and right

  • tends towards tyranny regardless of ideology of leaders

  • increase divisions

• state as an instrument of political power is ONLY permanent source of oppresion

PUBLIC GOODS

• public goods most cited rationale for state intervention

  • “non-excludable”

  • government actions allegedly can be Pareto optimal and cannot be without it

  Concept	Explanation
  Public Goods	Goods that are non-excludable and non-rivalrous (e.g., national defense, clean air).
  Non-Excludability	You can’t prevent people from benefiting, even if they don’t pay.
  Non-Rivalry	One person’s use doesn’t reduce availability to others.
  Free-Rider Problem	Since people benefit even without paying, many will choose not to pay.
  Result	The good will be underprovided or not provided at all in a free market.
  Solution	The State steps in to fund the good by coercing contributions (e.g., taxes).
  Pareto Argument	If government forces everyone to pay, and everyone benefits, the outcome may be Pareto optimal (no one is worse off, some are better off).
  Justification	The existence of government is often justified by this need: without coercion, key services would not exist.

• govenments should not provide public goods

  • NGOs may substitute

externalities and the state

• closely connected to public goods

  • either positive (spillovers), or negative (pollution)

    • negative externalities harm people that cannot fesibly charge polluters for their suffering

    • beneficiaries of positive externalities cannot be charged for their improved satus

• government action to correct these inefficiencies

  • command and control regulation, subsidies

  • define and enforce private property rights

private solutions to externalities

• resolved by private business with clear property rights

• pure public goods are rare

anthony jasay and public goods

• ethical basis for human actions

  • all human actions arise from rational self interest actors

  • clash of value judgments “moral minimalism” with freedom to act without harming others

contracts and trading

• trading involves potential free rider hazard

• rationality of honoring outcomes og bargaining → reduced need for a state to provide public goods