In defense of excessive government.

• Author: Lee, Dwight R.
• Position: 1998 Presidential Address

1. Introduction

   I don't have much practice defending government, and I certainly would not have written this article if it were going to be subjected to a rigorous review process. But because it will not be subjected to any review process, rigorous or otherwise, I have the opportunity to try something different and irritate almost everyone, and that is not an opportunity to be passed up.

   In mounting a defense of excessive government, I risk annoying two groups of people with very different political perspectives. The first group consists of those who think the term "excessive government" is an oxymoron, or if they do recognize the possibility of excessive government, they certainly do not think it describes any democratic government. The second group consists of those with whom I have long identified, classic liberals working in the field of public choice who advocate if not a minimal government, certainly one that is limited far more than in any existing democracy. In writing this article, I kept anticipating the objections of the latter group and trying to guard myself against them. In this effort I have attempted to use arguments drawn from, and consistent with, the public choice perspective to make my case.

   Before diving into the details of my defense of excessive government, I will outline briefly the main points. I recognize that we rely on government to do some pretty heavy lifting in the form of collective action that, although socially desirable, cannot be motivated by market incentives. Given the serious obstacles to efficient collective action, it should not be surprising that this action is typically performed poorly by government. Of course, the difficulty in carrying out collective action and the deficiencies in the political process are commonly used to make a strong case for restricting government to a very few functions that it can perform cost-effectively. Unfortunately, the very problems that make it desirable to impose effective constraints on government make it extremely difficult to do so.

   The flaws inherent in political decision making force a crucial trade-off that philosophical discussions about the ideal role for government typically overlook, the trade-off between the desirability of preventing government from doing things it does poorly and the desirability of securing advantages that only government action can provide. Precisely because government is not very responsive to the general interest, we lack the control over it to get rid of all the inefficient government programs while keeping the efficient ones. "Washington Monument syndrome" is a political reality that public choice economists delight in pointing to,(1) but the implication of that reality is that to get government to provide things we want, like the Washington Monument, we will have to put up with excessive spending on other government activities that cost more than they are worth. Recognizing the full implications of having to accept the bad with the good in government leads to at least a cautious appreciation for the political influence of organized interest groups. Public choice economists correctly see their influence as a major source of excessive government spending, but following the public choice explanation for this influence to its logical conclusion suggests that it is also the source of important benefits. Also, public choice economists may be mistaken in seeing some government spending as excessive because they overlook the fundamental distinction between marginal and inframarginal effects. Finally, I argue that a minimal state may be either desirable or possible, but not both. If it is desirable, it is not possible, and if it is possible, it is not desirable.

2. Compared to What?

   "Compared to what?" is a completely natural question to those who instinctively think in terms of scarcity and opportunity costs. This explains why economists tend to miss the humor in the following joke: When asked, "How's your wife?," the fellow responded, "Compared to whom?" To most economists, that seems like a perfectly reasonable response, so where's the humor? Nothing can be usefully evaluated without reference to relevant alternatives. Although the joke may suggest a certain callousness, it actually reflects a forgiving perspective, one based on an understanding that the world is an imperfect place, and pointing out that something is flawed is not a meaningful criticism of it unless better alternatives are possible.

   Much criticism of the market, for example, is completely misplaced because it ignores this elementary point. The first thing that many people fail to recognize when criticizing the market is the difficulty of the task assigned to it. Coordinating the decisions and harmonizing the interests of millions of individuals, who know little and care less about the concerns and circumstances of one another, is extraordinarily difficult. I should note that a primary reason this difficult task goes unappreciated is that the market performs it so remarkably well that the resulting benefits seem part of the natural order of things. Karen Vaughn (1996, p. 839) mentioned the problem in her 1995 presidential address: "Given the daunting nature of the economic problem that humans face, that markets should ever succeed is more of a puzzle than that they might from time to time fall short of our expectations." Not realizing the difficulty of what the market accomplishes makes it easy for those who criticize inevitable market failures to ignore the importance of realistically examining the alternatives. Fortunately, this failure to ask "compared to what?" has not gone unanswered.

   Austrian economists have earned their keep by persistently pointing out that the perfectly competitive model is not a realistic alternative to the warts and blemishes of the real-world marketplace. Indeed, it is not even a particularly desirable alternative. As Robert Bork (1978, p. 92) - admittedly no Austrian - has stated, with less exaggeration than it may seem, "A determined attempt to remake the American economy into a replica of the textbook model of competition would have roughly the same effect on national wealth as several dozen strategically placed nuclear explosions."

   The response to the failure of market critics to ask "compared to what?" that I am most familiar with is the development of public choice. Buchanan and Tullock (1962) revitalized and redirected the study of political economy by subjecting political alternatives to the same analytical scrutiny that economists had long applied to the market. One measure of the success of public choice is that most professional economists would now be embarrassed to call for corrective government policies solely because the market is not working with textbook perfection.

   But, if criticism of the market process should be tempered by comparisons with realistic alternatives, so should criticism of the political process. Just as with the market, we rely on government to perform an extremely difficult task. Indeed, its task is at least as difficult, and probably more so, than that assigned to the market. Unlike the market, in which most exchanges involving agreements between two parties with only moderate, if any, spillover affects others, politics involves exchanges that directly affect everyone in the relevant polity and requires reaching at least de facto agreement from them all.(2) According to Buchanan (1967, p. 4), "Political decision-making is a complex and intricate process, much more complicated than is the nonpolitical decision-making in market institutions" (emphasis added).

   In other words, I can defend political failure on the same grounds that we defend market failure. Let me do so by paraphrasing Vaughn's earlier comment: Given the daunting nature of the political problem that humans face, that government performs as well as it does is more of a puzzle than that it is excessive when measured against textbook standards of efficiency. Or, citing Buchanan (1988, p. 12) once more, "[my] argument might be taken as a criticism of the naivete of both the market-failure welfare economists and the market-works-politics-fails stance of many modern public choice new neo-classical economists. By comparison with idealized standards, both markets and politics fall" (emphasis added).

3. The "Invisible Hand" Behind Rent-Seeking Waste

   Private Interest Dominates the Political Process

   The theory of rent seeking, and the resource dissipation that results, is one of Gordon Tullock's most important contributions to our understanding of political reality. The coercive power of government attracts organized interests intent on capturing private profit at public expense by influencing political decisions. At worst, political rent seeking destroys value; at best, it reduces the value that government programs could otherwise create, as with unnecessary military bases or excessively costly procurement of military hardware. Whereas private-sector profit seeking creates value, political rent seeking creates a larger, less efficient government, and the term "rent seekers" is commonly used as a pejorative. Clearly, any attempt to defend excessive government is incomplete if it does not come to the defense of rent seeking and rent seekers.

   Let me first take on the easier of these two by defending rent seekers. One of the most powerful insights of economics is that we should not depend on self-sacrifice for the realization of desirable outcomes. Conversely, we should not blame self-interested people for undesirable outcomes. Most people, most of the time, will put their interests ahead of the interests of others, and little can be done to alter this fundamental fact of life. Thus, the only hope for realizing a persistent pattern of desirable outcomes is through institutional arrangements that, as if by an invisible hand, align individual interests with those of the general community. When outcomes are...