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Wednesday, December 22, 2010

Ideas versus Interests

One of my favorite quotes about the power of ideas comes from Ludwig von Mises in Human Action: “What determines the course of a nation’s economic policies is always the economic ideas held by public opinion. No government whether democratic or dictatorial can free itself from the sway of the generally accepted ideology.”

This is a rather extreme statement. Are governments really so tightly bound by the beliefs of the public? Anyone versed in Public Choice theory is likely to find Mises’s statement a bit much. After all, Public Choice demonstrates how incentive structures in the political system can lead to policies that are not in fact favored by the majority of citizens but are in the interest of a powerful few.

Public Choice analysis is incredibly useful to economists and laypeople alike. It has opened our eyes to the difficulty of government reaching its own stated ends because of incentive problems within the system of government itself. It has dispelled the myth that government ineptitude is simply the result of bad leaders. However, in all this emphasis on incentives and interests, Public Choice often overlooks or minimizes the role of ideas.

We cannot forget the power of ideas to overcome the bad incentives inherent in any system of government and to act as a roadblock to the seemingly inevitable expansion of State power.

Consider a rather silly example that illustrates the inability of Public Choice alone to explain the world of policies in which we live.

A billboard says, “Kicking chickens creates prosperity.”

This is part of a campaign sponsored by the Partnership for a Chicken-Free America. The group is made up of people who have an extreme dislike for chickens, and they are willing to put vast resources into reducing the well-being of such fowl. In fact, they advocate legislation to establish national Kick-A-Chick Day.

Most voters and members of the general public do not share this distaste for chickens. Then, again, most people are relatively indifferent when it comes to chicken happiness. With a few exceptions, it is not in an individual’s interest to spend resources on a counter-campaign or to hire lobbyists to oppose the Kick-A-Chick bill; the costs of doing so simply outweigh the benefits.

This is a classic case of concentrated benefits and dispersed costs. The anti-chicken people derive tremendous happiness from harming chickens, making their campaign a worthwhile expenditure. Yet the general public gains little from preventing chicken kicking, and the cost of opposing it is very high.

On the other hand, the public loves prosperity. If they believed that punting hens created wealth, there is little reason to suspect they would not support the policy. A public-awareness campaign would be just the ticket.

Armed with Public Choice theory we can see the sad but likely result. The chicken-free association will exert its influence and get its bill. The public will either support what they believe to be a prosperity-creating policy or ignore it altogether because the cost of fighting is too high. The interests align in such a way that we can expect the anti-bird forces to get their way.

Of course this story is absurd and such a law would never be introduced, let alone pass. What makes it so obviously impossible?


People know there is no causal connection between kicking a chicken and enjoying a higher standard of living. That knowledge makes the campaign laughable. Regardless of how the interests are aligned, if people are educated enough to know that chicken kicking does not equal prosperity, such an absurd policy will not be enacted.

Ideas and Public Opinion

This was an admittedly silly example. You could claim that the real reason such a stupid policy wouldn’t fly is not public opinion, but the fact that no real interest group would advocate for kicking chickens. But it is not hard to imagine other instances where a real interest would benefit from marketing a false cause-and-effect relationship, but where they simply cannot because the public knows enough not to buy it. Hotdog producers would gain if the consumption of one frankfurter per day were required by government. Why don’t they promote such a law? They could run ads saying, “If you eat a hotdog, a child will be cured of cancer.” It is not hard to see that, real or imagined, interest groups cannot get away with everything, even in the face of bad incentives.

Yesterday I saw a sign on the side of a bus that I found no less absurd than the chicken-kickers campaign. It read, “Converting buses creates jobs. What are we waiting for?” The ad was sponsored by a “clean air” association, no doubt consisting of members of the natural-gas industry and people for whom a reduction in fossil fuel use would bring some great personal pleasure.

Just like our chicken story, the incentives are aligned so that the benefits of bus-conversion mandates to the members of this small group exceed the cost of their advocacy efforts, while the benefits to individual citizens of stopping the mandates fall short of the cost of opposition. As far as incentives go, the situation seems pretty dire.

Unlike our chicken story, however, most people do not know there is no magical or “free” job creation when government mandates bus conversions. The resources used to convert the buses must be taken from somewhere, and it is as likely as not that there are many other jobs destroyed or never created in the first place when the resources are redirected. Furthermore, most people do not know that there is no causal connection between more jobs and more prosperity, or a higher standard of living. In fact, if a government mandate creates jobs, it is likely that it does so precisely because it is destroying wealth by moving it from more-productive to less-productive (and more labor intensive) uses.

This lack of knowledge is actually good news.

It means things are not as hopeless as pure Public Choice theory might suggest. Bad incentives can be overcome by good ideas. In our chicken story it was clear that interests alone were insufficient to enact policy. Knowledge of the policy’s incoherence trumped the incentive structure. With a grasp of basic economics, people may find the sign on the bus just as laughable as the idea of Kick-A-Chick Day.

Special interests can only appeal to things within the realm of accepted public opinion, which is shaped by public knowledge. We can affect public knowledge.

Special interests can do much to destroy liberty given the incentive structure in our political system. Indeed, with an ignorant populace there is little they cannot do. But even the most powerful interests ultimately answer to the ideas held by a majority of citizens. Policy follows the path blazed by belief.

In emphasizing the role of ideas in limiting the expansion of the State or the power of special interests I do not mean to say Public Choice is incorrect. It is a valuable toolkit that brings a dose of realism to our efforts at reforming the State. But it is most powerful when it recognizes and incorporates the power of ideas to change and shape interests, and to help people put aside their short-term interests and understand their long-term interests.

It was recognition of the power of ideas over interests that motivated Leonard Read to start the Foundation for Economic Education. It is because of the power of ideas that FEE has tirelessly educated individuals on economic principles for these many years. It is because of the power of ideas that we must continue our educational efforts, no matter how frustrating it may sometimes be.

When we succeed, all interventionist interest groups and their ploys will be shown to be just as ridiculous as the Partnership for a Chicken-Free America. No matter how powerful an interest, how strong its incentives, or how corrupt the system, government can ultimately only do what people permit it to; and people will only permit it to do what they believe it capable of doing. Through education we can demonstrate just how incapable government is. In the end, despite the very real power of interests, ideas win.

To paraphrase Victor Hugo, “More powerful than an army of special interest lobbyists, is an idea whose time has come.”