All Commentary
Monday, August 29, 2016

Markets, Not Elections, Are Where Your Choices Truly Matter

Compare the process of choosing your own health insurance plan with the process of deciding which national health policy to support.

As November’s election nears, democracy is increasingly invoked as an ideal. Anyone ahead in any poll touts it as evidence they are on “the right side of history” because they better reflect “the will of the people.” The same happens with initiatives that command over 50% approval in some survey. Yet democracy is a seriously flawed ideal.

Democracy is a seriously flawed ideal.Perhaps the most obvious evidence is that candidates and policies claiming majority support as justification are commonly advancing coercive government measures that take from one group to give to others. Such piracy policies, which violate the universal moral and ethical condemnation of theft, cannot be ideal from citizens’ point of view.

There are, in fact, several ways democracy comes up short as an ideal. To be an ideal, it would have to avoid violating individuals’ established rights, creating the tyranny America’s founders so feared from democracy. It would have to be responsive; people’s votes would have to matter. It would have to give people incentives to become well informed and think carefully before deciding policy issues. It would require powerful incentives to deter dishonesty and other forms of misrepresentation. It would have to be limited in scope, as no one wants every issue, from how they dress to what they eat, drive, live in, etc., subject to majority determination.

Modern American democracy fails all those tests.

Limited Options with No Results

It is hard to think of examples of government policy that do not incorporate the violation of some people’s rights (e.g., the Endangered Species Act, which violates the rights of owners unlucky enough to have land that is a habitat for such species). In many cases, such violations are actually the main driver of policy (e.g., price controls from minimum wages to rent controls and FDR’s abrogation of the gold clause in federal debt). And, as John Locke argued, those violations eviscerate the central function of any government focused on the well-being of its citizens – better defending existing rights.

Despite all the rhetoric extolling democracy, virtually no one individual vote changes the results. For any reasonably large-numbers election, whether you vote for or against a candidate or initiative, or don’t vote at all, the outcome will be the same. And if you decide to change your vote, the result will still remain the same. Results are not responsive to either individual preferences or changes in them.

Further, in elections, voters face binary yes/no votes on initiatives typically written by special interests and A or B votes on candidates representing inseparable bundles of policies and promises. In such cases, both alternatives can be far from an individual’s preferences, yet in the absence of an effective “none of the above” option, the least adverse alternative, not the most preferred, will be chosen. That is a far cry from giving voters the power to effectively exercise their desires.

Private versus Federal Decisions

Most voters also have very attenuated incentives to become well-informed or think carefully about policy issues. Such “rational ignorance” is perhaps most famously illustrated by vast numbers of voters who cannot even name their political representatives.

For voters, the benefits of becoming better informed about political decisions are lower than in their comparable private market decisions, but the costs of acquiring the necessary information to evaluate public policies are higher. To illustrate, compare the benefits and costs of making an informed decision about your own health insurance plan (assuming you are allowed that choice) to those necessary in evaluating alternative federal health insurance policies.

The benefits from becoming better informed are substantial in private market decisions, but not in public policy decisions.The benefits from becoming better informed are substantial in private market decisions, because making a better choice improves an individual’s outcomes. You get a policy that better matches your circumstances and preferences. But one person’s better vote has only an infinitesimal chance of changing the political outcome, essentially eliminating such a benefit.

Further, you already know your health history and much about likely inherited problems, and you need not worry about the insignificant effects of your choices in the marketplace. But for government policies, you must incorporate all the health issues facing anyone, now and in the future, as well as many relevant price-, income-, and cross-elasticities of supply and demand, adverse selection, moral hazard, technological changes in medicine, etc. This combination means most voters will know far less about political decisions and analyze what information they have less carefully.

When it comes to dishonesty and misrepresentation, politics imposes fewer effective constraints than normal day-to-day arrangements. In addition to rational voter ignorance, politics has no truth-in-advertising laws. There are no effective money-back guarantees or warranties. The products are not goods and services that can be easily evaluated, but plausible-sounding stories about what a candidate or initiative intends to do – most of which they cannot do alone and much they can easily compromise away behind the claim that they got the best deal actually possible. There is usually only one relevant competitor to keep you honest (so that when both major parties ignore an issue, as 2016’s campaign has with regard to the almost unimaginable unfunded liabilities in Medicare and Social Security, it essentially disappears), and, even then, competition occurs infrequently.

When it comes to democracy, there are also no inherent limits on what a majority could decide, whether those whose rights were effected want it to or not. A majority could force its preferences on others with regard to any issue, including how to dress, what to eat, where to go or live, what to learn, where to work, what to do, etc. America’s founders understood this when they adopted constraints on majority abuse such as the Bill of Rights (also called the federal government’s “Thou shalt nots”) and separation of powers. However, those constraints have long been eroding at the hands of “living constitution” jurists and, more recently, at the hands of a President with a phone, a pen, and a massive bureaucracy.

In contrast to political democracy’s severe flaws in all these dimensions, there is a form of democracy that far better satisfies the criteria to be an ideal – free market capitalism, which represents democratic self-government.

Learn from the Market

Free market capitalism represents democratic self-government.In capitalism’s system of exclusively voluntary cooperation based on self-ownership, property rights must be respected; no majority can impose arbitrary violations on owners. Every individual’s dollar votes change his or her outcomes, even if their preferences are far from those of the majority. Consequently, people are far better informed about their choices than in politics. Not only does more accurate and complete knowledge deter dishonesty and misrepresentation, it is supplemented by truth-in-advertising and fraud laws, more effective contractual and reputation mechanisms to ensure accountability, a larger number of rivals, more frequent competition, etc. And property rights that are actually honored straightjacket what a majority can decide for all by requiring voluntary agreement by all whose rights are involved, thus keeping coercive political power in check.

Winston Churchill famously cited the claim that “democracy is the worst form of Government except for all those other forms that have been tried.” That has been used for the almost 70 years since as a way to shut down criticisms of democracy. It contains some truth, in that changing governments peacefully can be far less costly that bloody revolution. However, it leaves unanswered which form of democracy better serves a country’s citizens. A very strong argument can be made that a superior form is to remove virtually all decisions and policies we need not share in common (which is almost all of them, beyond the mutual protection of our property rights) from government dictation, and let people exercise the democracy of the market, protected by their unalienable rights. That would reduce the shortcomings of our political democracy by reducing its reach, and employ a far more ideal form of democracy to make those choices.

  • Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network.

    In addition to his new book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).