Wednesday, January 16, 2013

The Political Situation in Context

Should they or shouldn't they?

Should Republicans fight President Obama tooth and nail over debt ceilings, fiscal cliffs, and spending sequesters, or should they let them through?

Because the fights are really minor skirmishes on the march to sovereign default.  The federal deficit is about six to seven percent of GDP, and that can't go on forever.

And even though everyone is dumping on the Republicans for their intransigence (President Obama) or their timidity (conservatives) the fact is that Republicans have the whip hand.

When we hit default day then Democrats are going to have to call for tax increases on the middle class and/or spending cuts.  The American people won't like that.  Republicans?  We say cut spending, so nothing will change for us.

But what do the scholars and the experts tell us about all this?  I'm glad you asked, Senator.

In The Calculus of Consent, James Buchanan and Gordon Tullock argue that the government should use unanimous consent, not majority voting, as its default voting system.  Why?  Because that would minimize the ability of some people, even a majority, to force costs on other people.  Under unanimous consent, the supporters of a government measure would have to pay off the opponents in order to get their consent.

Shocked?  Appalled?  Well, the system of "logrolling" where solons vote for the other guy's measure in return for the other guy's vote for their own measure is already the way that politics is done.  What Buchanan and Tullock call unlimited "side payments" is just a formalization of this system.

But let's roll out a key quote from the end of the book:
[N]o social organization in which men (some men or all men) are allowed freedom of choice can prevent the exploitation of man by man and group by group... The relevant choice among alternative institutions reduces to that of selecting that set which effectively minimizes the costs (maximizes the benefits) of living in association.  The shift from market organization to political organization does not, in any way, eliminate the opportunity for specific individuals and groups to impose external costs on others...
This is central.  In any situation, where a decision-maker has the power of choice, he can use it to exploit someone else.  Let us stipulate Marx's notion that capitalism is exploitation.  As Chuck says:
In one word, for exploitation, veiled by religious and political illusions, [capitalism] has substituted naked, shameless, direct, brutal exploitation.
The same applies to socialism and communism, in spades.  That's what Buchanan and Tullock show in their analysis of political voting.  Any system of deciding social and political issues will impose costs on the losers.  In one word: exploitation.

People are selfish; the rules of capitalism as encoded in economics recognize this.  Thus:

[Its] organizational norms are based on the view that [selfish] behavior can be channeled in such a direction that it becomes beneficial rather than detrimental to the interests of all members of the community.
That is the means of Adam Smith's "invisible hand."  The question that Buchanan and Tullock ask is this:
Can the pursuit of individual self-interest be turned to good account in politics as well as in economics?
Buchanan and Tullock answer that we can do better, and one way to do this is to empower the minority to demand compensation when society wants to do something they don't like.

That's something that President Obama and the ruling class, the executive committee of the educated elite need to remember as they send the whole economy into the toilet. 

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