The late economist James Buchanan made many valuable contributions to the economics profession. His research emphasized the role of government in the economy.
What’s Inside?
The architect of public-choice theory, James Buchanan was not a mainstream economist, yet his contributions to political economy are quite relevant today. His research focused on understanding the role of the state in the economy and why it matters.
How Is This Article Useful to Practitioners?
Public-choice theory helps explain the recent economic crisis and ongoing political gridlock in Washington, DC. Buchanan recognized early on that the increasing role of government in economic behavior warranted a closer look. Demands on the state grew because of national security concerns and economic calamities, such as the Great Depression.
Public-choice theory evaluates the benefits and drawbacks of policy choices with a detached view toward their execution. Government figures tend to act out of self-interest rather than public duty, which helps explain the increased reliance on fiscal deficits and debt over the potentially more prudent use of taxation to meet government obligations. Another example is the interaction of government and private industry in rent-seeking behavior, whereby private companies lobby for government contracts and special privileges rather than pursuing private clients. Such activity detracts from the productivity of the private sector. The view of public-choice theory is to question the role of the state.
The theory of public choice also helps in making sense of the recent wasted time and debate in the United States about the “fiscal cliff,” debt ceiling, and sequestration. All of these occurrences sprang from the self-interest of the politicians, but deadlines forced them to take action.
Economists, policy strategists, and government officials are all agents in the role of government in the economy. They need to understand the tradeoffs between self-love and public service. Decision makers in the investment management profession, whose motivations may well conflict with those of the investing public they purport to serve, would also benefit from the same understanding.
Abstractor’s Viewpoint
Government’s increased presence in the national economy is unlikely to change. It is better to gain an understanding of it, which is the point of Buchanan’s work. Buchanan’s school of thought facilitates an understanding of what drives government action in the economy. The author focuses on the United States, but I think it would be interesting to examine the application of public-choice theory in other political-economic systems.