Tag Archives: Gordon Tullock

What is rent seeking? Ask the dino-hunters.

I haven’t had much time for blogging lately but I’m going to try to get back into the swing of things. Back in December, I had this to say in Real Clear Markets:

The eminent political economist (and my former professor) Gordon Tullock, passed away last month at the age of 92. His greatest contribution to economic understanding was a funny-sounding concept: “rent seeking.” Funny sounding or not, this idea-perhaps more than any other economic idea developed in the last century-explains what ails our moribund economy. And, as strange as this may sound, a pair of rock star dinosaur hunters form the 1880s can help us understand what exactly rent seeking is and why it’s such a problem.

You can read the rest here. FYI: I didn’t choose the title and am not crazy about it.  Dinosaur

The Sharing Economy

Over at the Tech Liberation Front, my colleague Adam Thierer has sketched out a few themes in the debate over the sharing economy. His discussion of leveling the regulatory playing field is particularly important. Here is my favorite part:

Alternative remedies exist: Accidents will always happen, of course. But insurance, contracts, product liability, and other legal remedies exist when things go wrong. The difference is that ex postremedies don’t discourage innovation and competition like ex ante regulation does. By trying to head off every hypothetical worst-case scenario, preemptive regulations actually discourage many best-case scenarios from ever coming about.

Adam asks for comments and additional reading suggestions. In that spirit, here are my own additional talking points on the issue:

  • Reviving dead capital: Something that Dan Rothschild has emphasized in a lot of his writings and that I’ve tried to stress when I can is that the “peer production economy” breathes life into otherwise dead capital. Cars, tools, apartments, planes, kitchens, and even dogs are now creating value for people when they otherwise would just be collecting dust (or fleas). This may help to explain the extraordinary value investors see in firms like Uber.
  • Exposing regulatory failure: Another—though not mutually-exclusive—view is that these new firms are making lots of money not because they are doing anything particularly revolutionary. Instead, they are doing well because they have found a way around traditional regulations which have rendered incumbent services truly abysmal and consumers are rewarding them for this. In this sense, Uber is profitable because it isn’t a cartelized taxi company. This is generally the view that Mike Munger expresses in his EconTalk with Russ Roberts. This is probably more applicable to Uber and Lyft than to AirBnB or 1000Tools.com since the ride-sharing firms compete with an industry that has obviously captured its regulator.
  • Transitional gains trap: The whole experience offers us an opportunity to illustrate one of Gordon Tullock’s most-valuable and least-appreciated points. When regulators contrive some artificial exclusivity, they allow incumbent firms to earn above-normal profits (rents). But often these firms are only able to earn above-normal profits for a time (a transitional period). That’s because eventually, the value of the rent is “capitalized” into whatever assets must be purchased in order to enter the industry. These assets may include taxi medallions, specially-outfitted cabs, well-connected lobbyists, or any other asset that is necessary to gain access to the exclusive club. This is important because it means that many of the current incumbents had to pay large sums of money for their exclusive position and, net of these payments, they really aren’t cleaning up. Just as Adam is right to say that “regulatory asymmetry is real” we should also acknowledge that, in many cases, taxi regulations that started out as privileges are now more like burdens.
  • Value is subjective: No two customers have the same values and interests. I may want the windows down on a hot day and you may want them up. It’s simply absurd to think that regulators could devise an objective quality-control checklist for firms to follow or that they could properly vet cab drivers better than consumers. Yet that is exactly the approach they’ve taken (see here for just how clumsy it’s been in VA). The customer rating systems are really revolutionary because they collapse these subjective, multidimensional quality scales down to one simple 5-point rating that captures a driver’s ability to tailor his or her services to the subjective needs of each customer. Your Uber ride begins with a conversation between you and your driver about what is important to you (music, temperature, windows, speed, route, etc.) and ends with a 1 to 5 rating. It’s as simple as that.
  • True competition is a discovery process: Regulations “lock in” the status quo technology (again, because they attempt to objectively state every possible quality that customers might care about). But this misses the whole point of competition. As Hayek taught us, true competition is about discovering things you never knew (and never knew you didn’t know), such as that customers like being able to order cars from their smartphones.
  • Empowering Diffuse Interests: Traditional public choice models predict that small, concentrated interests such as an incumbent taxi industry willtypically prevail in a political battle with a large, diffuse interest such as taxi customers. This time may be different though. Wherever it goes, the peer-production economy has quickly developed a large and happy base of tech-savvy customers. Since the firms themselves have tended to innovate without asking for permission, this has often meant that a city will have tens of thousands of loyal peer-production customers long before its regulators can say “cease and desist.” So in a number of places, we’ve seen regulators move to shut down the peer production economy, then we’ve seen customers protest en masse and regulators withdraw their proposals.
  • Safety: Uber and Lyft drivers carry no cash. Customers have an electronic record of the ride and their driver. Drivers have an electronic record of the customer. These simple solutions accomplish what reams of taxi regulations never could: they ensure that both the customer and the driver are as safe as possible.
  • Flexibility: Because they don’t work for the companies, Uber and Lyft drivers work when they want to. Most of them seem to report that this is one of the best features of the job.
  • Beware of Uber too!: As Milton Friedman put it, one must be careful to distinguish being “pro-free enterprise” from being “pro-business.” The goal here is not to allow Uber to be profitable but to allow competition which will enhance the customer experience. We have already seen that when given the chance, Uber—like most firms—will take an exclusive privilege when one is offered. We must be very careful that Uber isn’t let inside the regulatory velvet rope only to put it back up behind them.

The farm bill: a lesson in government failure

As a consumer and as a taxpayer, the farm bill is a monstrosity. But as someone who teaches public finance and public choice economics, it is a great teaching tool.

Want to explain the concept of dead-weight loss? The farm bill’s insurance subsidies are a perfect illustration of the concept. They transfer resources from taxpayers to farm producers; but taxpayers lose more than producers gain.

Want to illustrate the folly of price controls? Sugar supports which force Americans to pay twice what global consumers pay are a fine illustration.

Want to explain Gordon Tullock’s transitional gains trap? Walk your students through the connection between subsidies and land prices: much of the value of the subsidy is “capitalized” into the price of farmland, meaning that new farmers have to pay exorbitant prices to buy an asset that entitles them to subsidies. This means new farmers are no better off as a result of the subsidies. As David Friedman puts it, “the government can’t even give anything away.” The only ones to gain are those who owned the land when the laws were created. But those who paid for the land with the expectation that it would entitle them to subsidies would howl if politicians tried to do right by consumers and taxpayers and get rid of the privileges.

Want to illustrate Mancur Olson’s theory of interest group formation? Look no further than sugar loans. Taxpayers loan about $1.1 billion to producers every year. Spread among 313 million of us, that is a cost of about $3.50 per taxpayer. And who benefits? Last year just three (!) firms received the bulk of these subsidies, each benefiting to the tune of $200 million. As Olson taught us long ago, the numerous and diffused losers face a significant obstacle in organizing in opposition to this while the small and concentrated winners have every incentive to get organized in support.

Want to show how a “legislative logroll” works? Explain to your students that members representing dairy and peanut interests are statistically significantly likely to vote in the interests of peanut farmers and vice versa.

Want to explain Bruce Yandle’s bootlegger and Baptist theory of regulation? Note that catfish farmers want inspection of “foreign” catfish in the name of safety (the Baptist rationale) when the real reason for supporting additional inspections is self-interested protectionism (the bootlegger motivation).

This week’s lesson is on the power of agenda setters to block even modest reforms. Buried in the dross of privileges to wealthy farmers, both the Senate and the House versions of the bill contained a small glimmer of reform. Both included language capping the amount of subsidies that farmers and their spouses receive at “only” $250,000 per year. Right now, House and Senate conferees are working to reconcile the two versions of the Farm Bill passed this summer. And according to the latest reports, they plan to strip these modest reforms that were agreed to by both chambers.

Unfortunately, kids, this is how modern democracy works.

The farm bill vote gives credence to Democrats’ favorite ‘straw-man’ argument

“Republicans favor tax cuts because they want to give money to rich people.”

I’ve heard this argument, in various forms, for years. And I’ve always considered it one of the worst straw-men arguments in politics (right up there with “Democrats oppose foreign wars because they are anti-American”).

For one thing, there are plenty of good reasons for cutting taxes that do not rest on a desire to give money to rich people. Moreover, it’s a rather Orwellian twist of the English language to say that refraining from taking as much from high-earners is equivalent to handing them money taken from others. More fundamentally, though, I’ve always found it hard to believe that any serious person—Democrat or Republican—actually wants to transfer resources from middle and low-income taxpayers to upper-income taxpayers. This wouldn’t be justified on either efficiency grounds or on any standard theory of social justice.

Then came the July 11 House vote on the Farm Bill.

As I noted in my last post, U.S. Farm Policies—namely subsidies, price floors, and barriers to trade—are roundly opposed by economists of almost all stripes. The reason is that subsidies, price floors, and barriers to trade do exactly what the straw-man argument claims Republicans want to do: they transfer resources from middle-income consumers and taxpayers to upper-income farmers and landowners.

For years the issue has been clouded by the strange combination of food stamps and farm subsidies in a single “farm bill.” As Veronique explained a few weeks ago, this facilitated a logroll:

In their famous book published in 1962, “The Calculus of Consent: Logical Foundations of Constitutional Democracy,” Noble Prize Winner James Buchanan and his co-author Gordon Tullock identified this behavior as logrolling — an agreement between two or more lawmakers to support each other’s bill.

Normally, they wouldn’t support the other’s bill if it weren’t for the support of their own bill. The main consequence of this quid pro quo is more government spending across the board and in this particular case; more farms subsidies and more food stamps spending.

Then, on July 11, a funny thing happened. The Republican leadership split up the two portions of the farm bill and—shockingly, to me at least—put the farm subsidy portion of the bill up for a vote without any amendments.

Then, without the support of a single Democrat, 216 House Republicans voted to use government subsidies, price floors, and barriers to trade to transfer resources from middle income consumers and taxpayers to upper-income farmers and landowners.

I’m not sure what their motivations were, but the vote certainly makes it seem as though the Republicans in Congress who voted for it want to give money to rich people.

James M. Buchanan: Realistic Optimist

This week we mourn the passing and celebrate the achievements of James M. Buchanan. There have already been many moving and informative tributes. Alex Tabarrok offers a nice summary here. I was fortunate to take one of the last classes Buchanan taught. Even though he was well into his eighties, I found him to be sharp, enthusiastic, and more than a little intimidating to this graduate student.

I’m sure people will be debating Buchanan’s contributions and legacy for quite some time. One aspect that seems unsettled is the degree to which Buchanan’s legacy is optimistic or fatalistic. An old exchange I had with Matt Yglesias highlights the optimism I found in Buchanan’s work:

Back in 2011, in a post titled “Against Public Choice, For Public Virtue,” Matt declared: “I don’t really “get” public choice and think I never will.” He argued:

The observation that malgovernment is a major source of human ills is quite correct, but embracing fatalism about it only exacerbates the problem. What’s needed are efforts to push societies in the direction of taking honor and civic obligation more seriously, not less so.

In a post responding to Matt, I made the case that public choice is no more fatalistic about government failure than other branches of econ are fatalistic about market failure:

Consider a problem from normal economics: the tragedy of the commons. Armed with empirical and theoretical reasons to expect that fishermen will over-fish a common pool, we should plan accordingly. We should examine the incentives of fishermen and think of ways to improve or alter these incentives (e.g., assign property rights over the pool, or impose a Pigouvian tax). To my knowledge, few if any economists would council that we ought to spend our time begging fisherman to pretty please stop overfishing. That is likely to be a fool’s errand.

The idea is much the same with public choice. Armed with empirical and theoretical reasons to think that politicians might do bad things, we should plan accordingly by placing some things—such as the establishment of religion—beyond the reach of politicians. I suppose we could ask Congress to pretty please not establish a religion but in my view it is better to make it illegal for them to do so.

James Buchanan, Gordon Tullock, and the other founders of Public Choice and its close-cousin Constitutional Political Economy didn’t stop their analysis after they found that politicians sometimes behave badly. Like James Madison before them, they thought of constructive ways to make political actors behave better, sometimes by placing certain decisions beyond their reach.

There is nothing fatalistic about that.

 

How Receptive is the “Left” to Public Choice Arguments About Cronyism?

Arnold Kling writes about our new project on cronyism:

You can think of the project as having two goals. One goal would be to clarify for conservatives the distinction between being pro-market and being pro-business. I think that some progress toward this goal is possible.

The other goal would be to persuade liberals that deregulation can be a way to reduce the power of big business. On that goal, I am much less optimistic. You can talk all day about regulatory capture and how big government serves entrenched interests. And what the liberals will come back to you with is, “Yes, that is why we need campaign finance reform and to elect politicians who believe in stronger regulation.”….

I picture liberals as having an unshakable belief in the power of moral authority. That is, if you exert enough moral authority, you can overcome any problem. Or, to put it in negative terms, if any problem exists, it is because not enough moral authority has been exerted to try and solve it.

A post by Matt Yglesias from last October would seem to support Arnold’s claim that liberals are unlikely to be persuaded:

The observation that malgovernment is a major source of human ills is quite correct, but embracing fatalism about it only exacerbates the problem. What’s needed are efforts to push societies in the direction of taking honor and civic obligation more seriously, not less so. You want politicians and civil servants to feel worse, not better about behaving cynically.

Call me naive, but I still think that some liberals are open-minded enough to be receptive to the public choice view. Why? Because many liberals don’t apply moral-authority arguments when they talk about conventional economic problems. There, like others, they think about incentives.

When a liberal (or at least a liberal economist) sees a tragedy of the commons, he doesn’t waste his time begging fishermen to pretty please stop overfishing. Instead, he plans accordingly. He thinks about the incentives that these fishermen face and comes up with solutions (for example, Pigouvian taxes or the assignment of property rights). As I wrote back in October:

The idea is much the same with public choice. Armed with empirical and theoretical reasons to think that politicians might do bad things, we should plan accordingly by placing some things—such as the establishment of religion—beyond the reach of politicians. I suppose we could ask Congress to pretty please not establish a religion but in my view it is better to make it illegal for them to do so.

James Buchanan, Gordon Tullock, and the other founders of Public Choice and its close-cousin Constitutional Political Economy didn’t stop their analysis after they found that politicians sometimes behave badly. Like James Madison before them, they thought of constructive ways to make political actors behave better, sometimes by placing certain decisions beyond their reach.

There is nothing fatalistic about that.

When it comes to government-granted privileges to entrenched interests, we shouldn’t wring our hands and beg governments to pretty-please stop pandering to the wealthy and well-connected.  We should plan accordingly. We should think of the incentives of politicians and come up with institutional solutions (for example, by forbidding politicians from handing out particular favors to particular firms or industries). If there are liberals who understand the power of incentives when it comes to microeconomics, I believe there are liberals who will understand the power of incentives when it comes to special interest politics.

There’s one more reason to be optimistic. My colleague Adam Thierer has assembled an interesting compendium of expert opinions on regulatory capture. The quotes show experts interested in grappling with incentives, not lecturing on the basis of moral authority. It is telling how many of the experts are more-naturally categorized as left-of-center than right-of-center.

———————

Update: Arnold Kling responds here.

Trapped by Government Privilege

The right to operate two New York City taxi cabs has just been sold for $1 million apiece.

In order to operate a cab in New York City, the government requires drivers to affix little aluminum plates called medallions to the hoods of their cars. According to the article:

There are 13,237 medallions in the city; new ones, when issued, are sold at auction. But the medallion pool is rarely expanded, creating a scarcity that helps keep values high.

By restricting the supply of legal cabs, the policy effectively raises the price of a ride. It also leads to what Matt Yglesias calls “endemic taxi shortages in the outer boroughs.” As Felix Salmon notes, though, even if the city issued more medallions, fares wouldn’t go down since another city policy regulates those.

(Image courtesy of Stuart Miles / FreeDigitalPhotos.net)

Salmon then asserts that “utter chaos” would result if both policies were removed because riders would have to haggle with cabbies every time they rode. This seems like a rather absurd concern. Do you haggle with the local gas station operator every time you fill up? Is there utter chaos because magazine prices at newsstands are set by the market and not by regulation? Matt Yglesias adeptly dispatches with Samon’s concerns, writing:

In fact in Stockholm they’ve done what Salmon says can’t be done, and taxis are allowed to charge whatever price they like. The main solution to the problem he identifies is that most cabs are affiliated with one of a few large taxi companies that have posted fare schedules.

Let’s dig a little deeper into the economics of this. Both the price control and the medallion requirement seem to benefit cab companies at the expense of riders by raising prices above what the market would naturally bear. But as Gordon Tullock pointed out in a classic 1975 article called “The Transitional Gains Trap,” the cab operators really aren’t better off in the long run:

[T]he capital value of the monopoly profit has been fully taken into account in the industry. New entrants enter only by purchasing the medallion, with the result that they get only normal profits.

In other words, those who want to charge monopoly prices must pay dearly for the privilege of doing so. And today the going rate is about $1,000,000. This is essentially the same story with any type of rent-seeking activity. If you want the government to give you a competitive advantage against your competitors, you can ask for a subsidy or a tax on your competitors, but expect to spend a lot of money lobbying for these favors. In fact, as Tullock argues, you should expect to spend so much money that in the end, you will only make a normal profit! Indeed, that’s why protected industries like autos, steel, agriculture, and green energy do not systematically make above-normal profits. (In pointing this out, David Friedman has opined that “the government can’t even give anything away.”)

But the story gets worse. Now let’s imagine that the government tries to do the efficient thing. Let’s imagine it listens to Matt Yglesias or me and deregulates the taxi cab industry. Well you can bet that the poor person who just paid $1,000,000 for the right to charge a monopoly fare is going to be more than a little resistant to any policy change which would make his fares go to the competitive level. In fact, the political resistance would be so great that Tullock called the entire policy a “trap” concluding:

The moral of this, on the whole, depressing tale is that we should try to avoid getting into this kind of trap in the future.

Think of this the next time you hear about a proposal that is likely to benefit one group at the expense of others.

 

Matt Yglesias Should ‘Get’ Public Choice

Matt Yglesias says he doesn’t ‘get’ public choice and thinks he “never will.” He writes:

The observation that malgovernment is a major source of human ills is quite correct, but embracing fatalism about it only exacerbates the problem. What’s needed are efforts to push societies in the direction of taking honor and civic obligation more seriously, not less so. You want politicians and civil servants to feel worse, not better about behaving cynically.

Unlike Matt, I think he is sufficiently open-minded to update his prior beliefs, so here is my attempt to help him ‘get’ it. In my view, public choice does not exhort politicians to feel better about behaving badly. It just exhorts us to expect them to behave badly in certain circumstances and to plan accordingly (often by changing their incentives). In this regard it really isn’t all that different from normal economics (a point raised by one of Matt’s commenters, my friend Michael Makowsky).

Consider a problem from normal economics: the tragedy of the commons. Armed with empirical and theoretical reasons to expect that fishermen will over-fish a common pool, we should plan accordingly. We should examine the incentives of fishermen and think of ways to improve or alter these incentives (e.g., assign property rights over the pool, or impose a Pigouvian tax). To my knowledge, few if any economists would council that we ought to spend our time begging fisherman to pretty please stop overfishing. That is likely to be a fool’s errand.

The idea is much the same with public choice. Armed with empirical and theoretical reasons to think that politicians might do bad things, we should plan accordingly by placing some things—such as the establishment of religion—beyond the reach of politicians. I suppose we could ask Congress to pretty please not establish a religion but in my view it is better to make it illegal for them to do so.

James Buchanan, Gordon Tullock, and the other founders of Public Choice and its close-cousin Constitutional Political Economy didn’t stop their analysis after they found that politicians sometimes behave badly. Like James Madison before them, they thought of constructive ways to make political actors behave better, sometimes by placing certain decisions beyond their reach.

There is nothing fatalistic about that.

What is Economic Freedom and What Can it Say About Prosperity?

My post in the NYT’s Room for Debate blog elicited a good number of comments and questions. So today I thought I might elaborate on the most-important of these questions: What exactly is economic freedom and what do we know about the way it affects prosperity?

First, its impact. The economists Chris Doucouliagos and Mehmet Ali Ulubqasoglu recently reviewed 45 studies examining the freedom-growth relationship. They concluded:

[R]egardless of the sample of countries, the measure of economic freedom and the level of aggregation, there is a solid finding of a direct positive association between economic freedom and economic growth.

Studies also find that economic freedom tends to be associated with a whole host of other factors that humans tend to value such as:

  • Higher income levels: Faria and Montesinos (2009) Dawson (1998), De Haan and Siermann (1998), De Haan and Sturm (2000), Cole (2003), Gwartney et al. (2004) and Weede (2006);
  • Lower poverty levels: Norton (2003);
  • Less volatility in the business cycle: Dawson (2010);
  • Better environmental outcomes: Norton (1998), ch. 2);

even:

  • Fewer homicides: Stringham and Levendis (2010); and 
  • Greater levels of reported happiness: Ovaska and Takashima (2006)

But what is economic freedom?

The concept is quite old, dating back to well-before Adam Smith. For his part, he called it “a system of natural liberty” and gave us a view of what he meant by it when he wrote:

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.

This, however, is still pretty vague.

So in the last quarter-century, a number of economists have focused on defining and—importantly—measuring economic freedom. There are now a number indices of economic freedom at both the national and sub-national levels. Among academics, the most-widely cited of these is the Economic Freedom of the World index, the latest of which is authored by Professors James Gwartney, Joshua Hall, and Robert Lawson. This index grew out of a series of conferences initiated by (Nobel Laureate) Milton Friedman and the Fraser Institute’s Michael Walker in the mid-1980s to early 1990s. Other attendees included economic luminaries such as “Lord Peter Bauer, Gary Becker, Douglass North, Armen Alchian, Arnold Harberger, Alvin Rabushka, Walter Block, Gordon Tullock, and Sir Alan Walters” (a number of whom have either won Nobel prizes in own their right or are likely to in the years that come). Out of these conferences, a consensus began to emerge that the four cornerstones of economic freedom were:

  • Personal choice,
  • Voluntary exchange coordinated by markets,
  • Freedom to enter and compete in markets, and
  • Protection of persons and their property from aggression by others.

From these conceptual cornerstones, the authors of the index began to gather data with an eye toward objectively measuring the degree to which the laws of different nations permit (or don’t) the exercise of economic freedom. Their index includes factors such as government consumption spending as a share of total consumption, top marginal income tax rates, the degree of judicial independence, growth in the money supply, taxes on international trade, and regulation of private sector credit (among 17 other components). The index now covers more than 140 countries, with data on many going back to 1970. And now there are literally hundreds of peer-reviewed articles that are based on this index or one of many others like it.

Since the publication of this index, a number of others have gotten in on the game. There are now indices that measure freedom at the sub-national level, the most-recent of which is Sorens and Ruger’s Freedom in the 50 States, published by Mercatus (the next addition of which is coming out soon). 

As I have recently noted, these state level indices suggest that economic freedom is a powerful predictor of prosperity.

So that, in a nutshell, is economic freedom.

Nobel Laureates on Local Governance and the Importance of the Constitution

Last night, the Mercatus Center, among other organizations, hosted a panel discussion on James Buchanan’s contributions to social philosophy and political economy. In addition to Buchanan (the 1986 Nobel laureate in economics), there were two other economic Nobelists on the panel: Elinor Ostrom (2009 Laureate) and Amartya Sen (1998 Laureate).

Professor Ostrom’s closing remarks (at around 32:00 in the video) are particularly germane to this blog. She quoted James Buchanan and Gordon Tullock in their seminal work, The Calculus of Consent:

“Both the decentralization and size factors suggest that, when possible, collective activity should be organized in small rather than large political units. Organization in large units may be justified only by the overwhelming importance of the externality that remains after localized and decentralized collectivization.” (pp. 114-15).

Ostrom then declared:

Boy, if I could get that up on the wall of every university I visit and get it into the textbooks on public policy and urban governance, I would be thrilled. 

Then, she addressed the importance of a constitution:

But somehow, we have forgotten this core idea…A lot of people and students come in and, when asked “what is democracy,” they say, “It is voting; democracy is defined by voting for officials, not by people being engaged in constitutional decision making.” And people have lost the idea of a constitution. Some of my students come in and think “well that’s just a piece of paper written by dead, old white men at a national level.” The idea that citizens would craft their own rules and really struggle with how to get things organized at a local community as well as all the way up, has been lost.

I think that Professor Ostrom’s diagnosis is spot-on. Many—students, journalists, and especially policymakers—almost worship the notion of voting (see professor Holcomb’s From Liberty to Democracy for a nice treatment of the evolution of this idea). To them, if 50 percent + 1 favor X, then X is by definition correct.

And note that this cuts across the political spectrum. On the left, you have a lot of people who are willing to say that if a majority thinks that smoking ought to be banned—even on private property—then it ought to be banned. The right is no stranger to this notion either. A lot of conservatives are willing to say that if the majority favors banning certain bedroom activities, then those activities should be banned. And if a court steps in to overturn the ban, then it is automatically a case of judicial activism (irrespective of what the law does or does not actually say). 

In contrast, Buchanan emphasized the “external costs imposed by collective action.” These are all the burdens that can be imposed on an individual as a result of collective action. Mundane examples are regulation or taxation. But, sadly, horrific examples abound: slavery, subjugation, and racial or sexual discrimination have all been imposed by majority vote at one time or another. In other words, Buchanan took seriously the possibility that democracy might impose costs on individuals.

The founding fathers took this notion seriously too. As Madison put it, “I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations.” And as Franklin is purported to have said (though I understand that he may not have actually said this): “Democracy is two wolves and a lamb voting on what to have for lunch.” 

If democracy can lead to bad outcomes, the solution is not monarchy or despotism. According to Buchanan and Madison, the solution is a Constitution: a document that carefully circumscribes the powers granted to the majority. Yes, the majority rules, but under a constitution, they only possess those enumerated powers that are granted to them (ideally, according to Buchanan, these powers would be granted by unanimous consent). Moreover, powers are distributed across different political units (branches) and levels (federal and state). By organizing collective action in small, dispersed political units, Buchanan argued, we can diminish the expected costs that individuals might bear.

Our particular constitution may, indeed, have been written by a bunch of old, dead white guys. But that hardly diminishes the value of a written constitution. Nor does it mean that it should become a “living, breathing, document,” as some would have it. After all, if its meaning changes with whatever gloss the majority chooses to put on it in any particular time, then what is the purpose of a written constitution anyway?