Introduction to Public Choice - 1. Public choice and public policy

Public choice applies the methods of economics to analyze political decision-making.
- Looking at how the individuals in the political process make their own individual decisions.
- How do they make choice and their consequences.
The public choice approach analyses the way that political decision-making actually takes place,
- whereas public policy analysis too often describes the way an ideal political decision-making process might work.

Individual choice in markets versus collective choice in government

Economics help to understand how markets allocate resources
- It is also important to understand how government allocates resources under its control
- In the USA, more than a third of economic activity occurs through gov
Through gov, a single choice is made for all.
- Compared to markets, where each individual chooses.
In markets, transactions are voluntary.
- In gov, taxes and regulations are imposed by force.
The government's activities are a result of the collective choices of individuals as voters and lobbyists.
- Many activities of government would be difficult to undertake through individual transactions.
- Ex., roads, water supplies, waste treatment facilities, law and order.

Most economic analysis of government does not use a public choice perspective.
- The typical economic approach is to look at reasons why markets fail, and then derive policies that would result in an efficient allocation of resources.
Markets fail because: externalities, public goods, monopolies, informational asymmetries, etc.
This methodology compares the real-world economy to an ideal outcome that could be produced under certain assumptions.
- But those assumptions are rarely able to be met in the real world.
- The two big problems are information and incentives.
To compare outcomes in the real-world economy with some theoretical ideal optimum is misleading, and can lead to public policies that do more harm than good.
Public choice looks at what real-world governments do in practice.
In macroeconomics, for example, it is believed that monetary and fiscal policy can be used to reduce or eliminate economic downturns, and control inflation.
- So the economy can be controlled by tax cuts, spending increases, etc.
But even if the optimal policy were known, policymakers may not have the incentive to implement it.
- Incentives to work on the economy now to be reelected, but not work on it long-term.

There is no public interest beyond the individual interests of the individuals who make up the public.
Thinking about some concept of the public interest can often be misleading
- it is a rare public policy that benefits every single individual,
- so the concept itself implies that the benefits to some more than offset the costs imposed on others.
- It would be better to recognize interests on both sides rather than imply there's some greater public benefit.
Production is often organized through government to use the collective ability of gov to satisfy individual wants.
Justifications for gov collective action should not be confused with public interest.

Study of public choice is divided into three areas of inquiry
- Voter preferences are aggregated under democratic decision-making.
- The political process produces public policies, following the rules under which government operates.
- The way that the rules under which government operates are designed (constitutional constraints).

Voters are demanders of public policy and government output, and go to the ballot box to express their preferences.
- The choices voters face are more aggregated and the output is less certain.
Ex., choosing a whole shopping cart instead of
- There may be items you do not want.
- There may be items you can't see.
- There are other limits, like compromises or constitution.
The big is how the demands of individual voters are aggregated to produce a collective demand for public policies.

Demanders of public policy
- Voters.
- Other interest groups also hire lobbyists to appeal directly to elected officials.
- People within the government.
If we think of supply and demand in public policies
- Demand: nobody will get exactly what they want
- Supply: compromises must be made to pass legislation
Information and incentives
- Academics can debate about optimal public policies, but in reality they don't have enough information to know which policies are optimal.
- And, even if they did have enough information, they may not have the incentive to implement optimal policies.
The public choice approach looks at the way that policies are actually created and implemented,
- which is not necessarily the way most people would like for them to be designed and implemented

Public policies are designed within a framework of constitutional rules.
- Some are written in an actual constitution, some are determined by courts, and some are long-standing and generally accepted ways of doing things.
Constitutional analysis examines the way groups collectively choose their institutional constraints.

Public choice analysis emphasizes the information available to decision-makers and the incentives they face.
It examines the way that the individual decisions people make within the political process are aggregated to produce public policies for the group.
While it is possible to analyze political decision-making as people would ideally like to see it,
- public choice looks at the way that it actually does take place,
- given the information that voters, elected officials, and government bureaucrats have, and the incentives they face.