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ECONOMISTS ON PRIVATE INCENTIVES, ECONOMIC MODELS, AND THE ADMINISTRATIVE STATE: THE CLASH BETWEEN HAPPINESS AND THE SO-CALLED PUBLIC GOOD
Published online by Cambridge University Press: 11 October 2021
Abstract
This essay examines the administrative state as a ubiquitous phenomenon that results in part from the mismatch of incentives. Using two dramatic episodes in the history of economics, the essay considers two types of mismatch. It then examines how economists increasingly endorsed the “general good” as a unitary goal for society, even at the expense of private hopes and desires. More than this, their procedures and models gave them warrant to design mechanisms and advocate for legislation and regulations to “fix” the supposedly suboptimal choices of individuals in service to the overarching goal. The rise of New Welfare Economics dealt an additional blow to the sovereignty of individual motivations, notwithstanding that Hayek and Buchanan warned that this engineering approach allowed social goals to override individual preferences. Throughout, the argument is that it is important to recognize that people within or advising the administrative state are influenced by the same sorts of (private) motivations as actors throughout the economy.
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Footnotes
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Jepson School of Leadership Studies, University of Richmond, speart@richmond.edu.
References
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29 Tiffany Miller, “Richard T. Ely,” this volume, examines the paternalistic policies that flowed from the pronouncements of irrationality. For a definitive challenge to the idea that such preferences are irrational, see Rizzo, Mario J. and Whitman, Glen, Escaping Paternalism: Rationality, Behavioral Economics and Public Policy (Cambridge: Cambridge University Press, 2020)Google Scholar.
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37 Mill to Gustav d’Eichthal, October 8, 1829, in The Earlier Letters of John Stuart Mill, 1812–1848, ed. Francis E. Mineka, volumes 12-13 of The Collected Works of John Stuart Mill (Toronto: University of Toronto Press, 1962–1991), 36. See my “Editor’s Introduction” to Hayek on Mill for a detailed discussion of the parallel between Hayek and Mill in this regard, xxxviii–xxxix.
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42 “By clarifying the role of that momentous engagement in a truly outstanding pair of articles in the Journal of Political Economy in 1954, Buchanan immensely enriched the subject matter with which social choice as well as public choice has to be centrally engaged. In contrast with Arrow’s initial inclination—as he put it—‘to assume … that individual values are taken as data and are not capable of being altered by the nature of the decision process itself,’ Buchanan had to insist that seeing ‘democracy as government by discussion’ implies that individual values can and do change in the process of decision-making” ( Sen, Amartya, “On James Buchanan,” Journal of Economic Behavior and Organization 80 [2011]: 368 CrossRefGoogle Scholar). See Arrow, K. J., Social Choice and Individual Values, 2nd ed. (New York: John Wiley, 1963)Google Scholar, and Buchanan, James, “Social Choice, Democracy, and Free Markets,” Journal of Political Economy 62 (1954): 114–23CrossRefGoogle Scholar. In Sen’s judgment, “It can be claimed that it is only through Buchanan’s expansion of Arrow’s departures that we can do justice to the Enlightenment enterprise of advancing rational decision making in societies, which lies at the foundation of democratic modernity” (ibid., 368).
43 Levy and Peart, Towards an Economics, reproduce the full letter as well as the (unsuccessful) application to the Ford Foundation and related documents. At the time of the correspondence, Kermit Gordon was Director, Program for Economic Development and Administration at the Ford Foundation. Buchanan and his colleagues at the Thomas Jefferson Center applied in May 1960 to the Ford Foundation for $1.14 million to support the Center. Buchanan, Warren Nutter, and University of Virginia president, Edgar Shannon, met with Ford Foundation officials on August 31, 1960. They were unsuccessful in their attempt to obtain support.
44 James Buchanan, “Positive Economics.” For a contemporary extension of Buchanan’s opposition to the expert-imposed goal of efficiency, see Paul Dragos Aligica, Boettke, Peter J., and Tarko, Vlad, Public Governance and the Classical-Liberal Perspective: Political Economy Foundations (Oxford: Oxford University Press, 2019)Google Scholar.
45 In this respect, my argument is an extension of the case David Levy and I have made regarding experts. In Escape from Democracy, we suggest that awareness that experts are motivated by private desires and hopes is a first step toward obtaining the benefits of expertise while reducing the risk associated with uncritical acceptance of their recommendations.