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

Chapter Fourteen: Decision-making in Democracy: Public Choice 355 CHAPTER FOURTEEN ANSWERS 1. A. False, public choice theories model individual decision makers as acting in their own subjectively perceived self-interest. B. False; while once true, the Federal government now dominates government spending. C. False, as seen in Figure 14.1 . D. False; impact is growing over time, exemplified by growth in the list of regulations in the Federal Register. 2. Because the costs of becoming informed exceed the benefits. There are some non- trivial costs, while the benefit in terms of doing something about the issues are almost zero (that your informed vote will matter). 3. No. Unless those principles are shared by his constituents. Otherwise he will be unable to compete for votes and campaign contributions from informed special interests. 4. Private market transactions can clearly identify costs and benefits, mainly by reducing the transaction to over one unit (such as purchasing a soda), while collective choice issues are often “bundled” in a politician, some of whose positions cannot be determined, nor can they be depended upon to stay constant. Further, if there is dissatisfaction with a politician, the feedback loop is delayed as well as bundled with feedback from other issues. Further, the incentive to provide feedback is muted (rational ignorance), unlike a private market transaction. 5. This statement just awarded the singing position to the first singer, without listening to the second. It assumes that government action will automatically improve on a poor market outcome. That assumption is not merited; one should engage in a comparative institutional analysis—with an “eyes wide open” understanding of what both outcomes are likely to be. 6. Special interest groups have concentrated interests which enable them to overcome the rational ignorance problem that you or I have. Further, their concentrated interests makes it easier for them to organize to participate in the political process. 7. Perhaps only one action at a time can be voted on. But if that happened, we’d never get the government running—there is simply far too much government activity. 8. The deadweight loss is not the only waste—if there is a profit to a monopolist, the monopolist should be expected to spend up to the expected value of the profit in pursuit of the monopoly in socially unproductive rent seeking activity. 9. The concern is that higher tax rates have not historically yielded higher tax revenues. The burden of proof ought to be on the part of those proposing higher taxes to explain why they believe that will generate higher revenue.