More than a decade after Mancur Olson, and almost two years after James Buchanan and Elinor Ostrom, another champion of public choice theory has passed away, at the modest age of 92. Gordon Tullock, together with James Buchanan (both pictured below), founded the public choice school of economics, or as they saw it "the theory of politics without romance". Their legacy still remains the single most influential theory that explains how politics interacts with economics, and how one cannot fully grasp all the economic phenomena and outcomes without understanding the logic of politics.
This is Tullock's (and Buchanan's) by far the biggest contribution to economics and even more so to political science. They taught us that politicians should be modeled and observed the same way market agents are modeled and observed; driven by self-interest and self-preservation. Before public choice theory governments were always modeled exogenously as a 'social planner' that unambiguously and without any negative effect corrects for market failures. It was basically the "deus ex machina" of the market system. Public choice theory and its numerous scholars to date exposed this as nonsense. Politicians and bureaucrats are people too, they too suffer from the same biases, lack of knowledge (informational asymmetry), and self-interest as do market agents. They get captured by well-organized interest groups, they focus on short-term goals aimed at securing re-election, they engage in corruption, and they seldom care of the public interest. This is why public choice theory necessitates the use of institutional and constitutional restraints on human behavior. The 'rules of the game' must be tilted in favor of the markets, not in favor of the expanding power of politicians and bureaucrats. The foundation of public choice theory was laid out in their most influential book, "The Calculus of Consent". I highly recommend it to all my readers.
|The founders of public choice theory: James Buchanan (left) |
and Gordon Tullock (right)
Tullock was much more focused on the political aspect of the story. He studied the transaction costs of the political process just like Coase studied the transaction costs of firms. The biggest of such costs is rent-seeking, a term he didn't himself devise (Anne Krueger coined the phrase in 1974), but his 1967 paper "The welfare costs of tariffs, monopolies and theft" remains the single most influential paper on rent-seeking to date. Rent-seeking is a process of gaining private benefits through the political process (by lobbying or logrolling for example). It implies gaining protection for a certain privileged group, which in return promises political support, large campaign contributions, and even bribes. This protection varies from giving a monopoly status to a certain company, regulating market entry than hampers competition (such as introducing licences to specific occupations), imposing tariffs to import goods to protect the domestic industry, handing out subsidies to politically chosen "winners"; etc. Rent-seeking most precisely paints the picture of how politicians, when they follow their self-preservation incentives, create outcomes that reward special interests, very often at a huge cost to the 'public interest'.
However Tullock also noticed that even though lobbying for political favors generates high returns to those who lobby, the actual lobbying expenditures are relatively low. This is called the Tullock paradox. The issue is why is there so little money in politics (here's a great paper on that topic btw), and why there isn't even more corruption than what we partially observe? One possible explanation is that voters simply don't like the sight of corruption, which makes politicians and lobbyists careful, and subject to restraints. The threat of punishment by the voters is very strong. My research focuses on finding the cut-off level of corruption (rent-extraction) - the optimal point - a politician needs to respect (balance) in order to maximize his/her stay in power. But this is just one of the possible explanations of the paradox, see this video for more.
What is most interesting about Gordon Tullock is that he never got any degree in economics, and took only one economics class during his studies of law at the University of Chicago (he was also educated at Yale and Cornell, and received an honorary PhD from Chicago, but none of it in economics). Otherwise he was self-taught. And as a self-taught economist he was considered a close candidate for the Nobel prize in economics (together with Buchanan). That serves to tell you how brilliant of a scholar he really was. Rest in piece professor Tullock.
His most important contributions are available in a 10 book series (The Selected Works of Gordon Tullock) published by the Liberty Fund:
- volume 1 Virginia Political Economy
- volume 2 The Calculus of Consent: Logical Foundations of Constitutional Democracy (with James M. Buchanan)
- volume 3 The Organization of Inquiry
- volume 4 The Economics of Politics
- volume 5 The Rent-Seeking Society
- volume 6 Bureaucracy
- volume 7 The Economics and Politics of Wealth Redistribution
- volume 8 The Social Dilemma: Of Autocracy, Revolution, Coup d’Etat, and War
- volume 9 Law and Economics
- volume 10 Economics without Frontiers