Ask any economist, and the standard advice you are likely to hear is that the government must step in to help the economy whenever the market fails. Almost no economist, however, talks about even the remote possibility of government failure — even though there is ample evidence all around us to suggest that governments are far from perfect. Political corruption of various kinds often makes news, and sometimes affects us personally, yet economists continue to believe that the government can play a positive role in the economy. Just why are economists so blind to reality?
A possible answer lies in the assumption that economists usually make about the nature of individuals. When economists talk about producers and consumers, they have in mind an economic man, or homo economicus, who is purely interested in his own self-interest.
So economic models, for instance, assume that businessmen run companies primarily to maximise profits, while consumers purchase goods and services from firms primarily to better their own personal condition. Yet, when it comes to politicians and bureaucrats who run governments, economists for some reason naively assume that these are altruistic individuals who care only about the well-being of society, rather than their own self-interest.
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‘People are People: The Elements of Public Choice’ , an essay by Gordon Tullock, offers an alternative — and more realistic — view of public servants. Tullock, an American economist and a prominent member of the Virginia School of Political Economy, encourages economists to view politicians and bureaucrats as self-interested individuals just like any of us. In Tullock’s view, public servants do not participate in public life to promote the interests of the people, but rather just to line their own pockets.
This crucial insight about human nature leads to many interesting conclusions in public policy — mostly to do with the unintended consequences of government ownership and regulation. For instance, private monopolies are usually considered a huge threat to the efficient working of the market economy. Consequently, many economists argue that government regulators must be given the powers to prevent the domination of any single group of companies. Very little thought, however, goes into the likely incentives that face bureaucrats who are in charge of regulation. Not surprisingly, lobby groups — which are more organised than consumers — end up influencing both regulations and regulators. Meanwhile, the social good — which is supposed to be the goal of all regulation — goes for a toss.
So, if people in government are interested only in furthering their own interests, as Tullock argues, what does it mean for public policy? Government policy, in that case, will simply be dictated by the personal interests of those in power. If so, it is worth noting that the fate of any reform that can benefit the overall economy will depend above all on how it might first affect the interests of the powerful.
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