A key insight of modern political economy is that people will use political power to concentrate benefits on themselves while spreading the costs over as many others as possible.
Thus a faltering corporation may use its political connections to win a government bailout paid for by taxpayers. Environmentalists may protect vulnerable wetlands from uses they don’t approve of, not by buying the property in question, but by using government to stop its current owner from developing it. In today’s interventionist world one could come up with a zillion examples.
The Political Logic
It would be a mistake to pass a government program if the full economic cost would be $100 million while its full economic benefit would amount to only $1 million — there would be an economic loss of $99 million. But if those costs were spread over 100 million taxpayers, each taxpayer would only pay $1. On the other hand, if the $1 million benefit went to 100 beneficiaries, each would get a hefty $10,000. In such a case a given taxpayer probably wouldn’t fight very hard against the program because doing so would save him only $1, but a beneficiary would likely make a lot of noise and spend a considerable amount (but less than $10,000) to make sure the program passes.
Many economists argue that this is the logic that drives our political system, resulting in chronically inefficient legislation and morbidly fat government budgets. It’s sometimes pithily stated as “concentrated benefits, dispersed costs.”
If the political rules allow it, calculating and opportunistic people will game the system to their narrowly selfish benefit. Armed with full knowledge of the consequences of their actions, they can exploit the rest of us, and we won’t bother to follow what’s going on because it’s just not worth it.
Hunting for Goodwill
When I teach my course on public policy I assign Friedrich Hayek’s famous book of 1944, The Road to Serfdom. A passage that stands out in my mind in this context is from chapter one:
Against the innumerable interests which could show that particular measures would confer immediate and obvious benefits on some, while the harm they caused was much more indirect and difficult to see, nothing short of a hard-and-fast rule would have been effective .
He means that it may be desirable for people to hold certain libertarian principles even when they may not fully understand why they do. The point that struck me, however, is how he contrasts the “immediate and obvious” benefits of a government policy with its negative consequences, which are “indirect and difficult to see.” This is similar to but different in important ways from the “concentrate benefits . . .” idea.
Hayek dedicates The Road to Serfdom “To the Socialists of All Parties.” Some think Hayek was mocking his opponents on the left when he wrote that, but they are wrong. Hayek’s raison d’être for writing the book was to warn well-meaning socialists in England that, just as he had seen happen a few years before in Europe, the policies of collectivism and central planning they were advocating during World War II were essentially the same that socialists in Germany (and Russia) had implemented before the war and that eventually led to fascism and national socialism. He warns that while socialism in theory may be internationalist, in practice it becomes violently nationalist (162).
But the logic of his argument is not that socialists are merely calculating opportunists who want to use the political rules of the game for their own personal gain. No doubt some of his ideological opponents were indeed political opportunists and he knew this. But his targets were the men and women of goodwill – socialists of all parties – who sincerely believed that the government interventions they sought would promote the general welfare.
Their problem from Hayek’s perspective was not that they were stupid or evil. It was that they were ignorant and mistaken. There were things that they didn’t know. That is, for Hayek the central political struggle is not one of fighting evil people but of fighting bad ideas, ideas that he hoped to persuade his reasonable opponents to drop once they heard and understood his arguments. He wanted them to look beyond the “immediate and obvious” to the consequences “indirect and difficult to see.” He hoped that sound economics and recent experience would convince enough people to reject the collectivist doctrines that, if left unchecked, would lead Great Britain down the road to serfdom.
Be Tolerant and Criticize!
In a world of heated ideological differences and partisan political conflict, it’s tempting to paint our opponents as stupid and evil, as calculating opportunists. Again, often they are, and from their point of view often so are we. We need to get past that. We need to keep learning.
Learning, though, means exposing yourself to ideas that you find strange, perhaps even repugnant at first. Even if we end up rejecting them, we will, having been able to correctly state the opposite case, have a better idea why we reject them. Learning through personal interactions requires dialogue, and genuine dialogue between grownups who disagree cannot begin with name-calling and smirking cynicism. No. Genuine dialogue means treating our ideological opponents as people of goodwill with the hope that they will treat us the same way. Only then can we learn and grow.
As a young libertarian scholar recently summed it up, “Treat people kindly but ideas harshly.” Exactly!