No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fourteen: Decision-making in Democracy: Public Choice 353 GREAT ECONOMISTS IN HISTORY JAMES BUCHANAN 1919-2013 Only a few great economists are able to not only influence the broader profession, but also start a school of thought as their legacy—Nobel Laureate James M. Buchanan did both, and is well worthy of recognition as a great economist of history. While economist Duncan Black wrote the first work in what is now called public choice, it was Buchanan who applied economic logic to political organization and policy more than any other economist. Buchanan studied under the legendary Frank Knight at the University of Chicago, being converted from a libertarian socialist to a free market zealot. He was also strongly influenced by reading Knut Wicksell’s writings. Renowned in the field of public finance, Buchanan applied economic logic to how the political “rules of the game” should be formulated. With his brilliant colleague Gordon Tullock, Buchanan authored Calculus of Consent, which described the economic logic for how constitutional rules would be determined. What are the voting rules? Is unanimity required, and is it even workable? Viewing political decision-making as an exchange was novel prior to Buchanan, and his work has shaped both the economics profession and political scientists. Political scientists now almost overwhelmingly teach the rational choice model (i.e., the optimizing methodology of economics applied to political markets), in no small part due to Buchanan’s pioneering efforts. His work on public finance, while widely recognized before, deserves even a closer look in light of today’s current fiscal crisis. Buchanan and Wagner’s Democracy in Deficit is a preeminent history of how the U.S. conservative approach to public finance was subverted in the wake of the Keynesian revolution. Keynesianism had a bias towards deficit spending, and since “we’re all Keynesians now,” we are living with significantly higher debt problems. Understanding how we got into our current mess may help us understand how to get out! While Buchanan’s analytical technique is conventionally neo-classical (he was a Chicago School Ph.D. after all!), he was very much influenced by the Austrian School of Economics, having fully considered the arguments of Von Mises and Hayek. Buchanan’s Cost and Choice is thoroughly subjectivist per the Austrian tradition, where Buchanan notes that costs are subjective not objective, and the implications to social welfare analysis are profound. Since costs are only known and experienced by the decision maker subjectively—and only felt at the moment of choice—there is no basis for any aggregate social welfare analysis. The epitome of a gentleman, Professor Buchanan (from whom I was privileged to take a class) was gracious to all of his students and willing to consider all counterarguments. He was also well known to be at work early and put in a full day, a definite role model for future professors who may succumb to the lie that the best part of teaching is June, July, and August! Photograph of James Buchanan 6