Just because I’ve spent a lifetime watching politics, don’t think I like it. The mechanics bore and appall me, and I study policy as a doctor studies disease, with books by Hitler and Stalin on my shelves, and Keynes as well as Friedman. But speaking of Friedman, it’s the books that say incentives matter that contain medicine, not infection.
Which is half right and half wrong, and both halves matter. It’s right because it’s not how you want politicians and bureaucrats to make choices. But it’s wrong because it’s obviously how rationally self-interested ones do make choices, always have, and will until history ends, something strict limited-government constitutional arrangements can alleviate but not cure.
As I’ve said before, the crucial insight of real economics is that people respond to incentives, and the crucial insight of “public choice theory,” whose forbiddingly dull name I’ve deplored before, is that it’s just as true in government as in the marketplace but the incentives are different and worse, frequently creating “incentive traps” absent in private life.
Plenty of people go about denouncing the idea that incentives matter, as somehow favouring “greed” in markets and justifying the state elbowing aside private enterprise to bring real human values into society. But it’s a foolish position on two grounds.
First, markets aren’t about greed and cannot be. To quote Adam Smith yet again, when we go to the market, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
Selfish? No, because they in turn address themselves, and must, not to our humanity but to our advantage, emphasizing how their meat, beer, or bread will nourish and please us at a reasonable cost. We and they are obliged to act, not just superficially but fundamentally, as if each cared about the other.
Sure, you can get ripped off in a store and especially online. But lasting economic relationships are built on real mutual benefit that builds trust, even affection, whereas bankruptcy awaits narrowly selfish merchants. And a key reason is that the butcher cannot by brandishing his cleaver force us to buy on his terms, nor can we by waving our walking stick force him to sell on ours.
Now consider what happens when we go to the polling station. Politicians and bureaucrats are considering their advantages, election/re-election for the former and a quietly lucrative workday and early promotion for the latter, while voters are considering theirs, getting maximum state benefits for minimal sacrifice. But the incentives then diverge sharply, because governments, unlike merchants, can compel people to pay taxes by waving the policeman’s truncheon, and in a democracy, voters can compel their fellows to provide benefits on their unilateral terms by grasping its arm.
Of course, they get imperfect control. Governments are inherently unwieldy, politicians’ interests align imperfectly with those of voters, and assembling a big enough coalition requires cutting a lot of people in on the booty, sharing what you must while dumping what burdens you can onto people too young to vote or not yet admitted to the country. But politics still rewards grasping, covetous conduct that is punished in trade.
It’s neither a counsel of despair nor a call to abolish the state. As John Locke understood, we combine into societies because our precious natural rights are hard to enforce flying solo. But then we must place tight constitutional restrictions on the politics of plunder because, while sufficiently wise and virtuous voters won’t ask more of government than it can or should deliver, once greed invades the public arena, people start seeking ways to transfer the contents of the Treasury to their own pockets, triggering a selfish race to insolvency very hard to stop.
So back to our politicians buying goodwill, and our voters selling it. It’s actually a very good way to spend money, other people’s money, for buyer and seller alike, or at least a very cunning way, though ignoble and unsustainable. Including today’s middle-aged voters nervously pushing the teetering debt burden onto kids in elementary school, where they were when it started.
In markets, shops that give fair value for money and shoppers who get it flourish. In government, those who strike hard for selfish short-term advantage flourish. Once you see it, you know what to do. Until then, you’re baffled and sickened.
