Knowledge And Decisions

The simple fact that governments are run by human beings with the normal human desire for personal well-being and individual or institutional aggrandisement must be insisted upon only because of a long intellectual tradition of implicitly treating government as a special exception to such incentives and constraints. This tradition stretches from the impartial “philosopher king” of Plato to the exalted “statesman” of the mercantilist literature of two to three centuries ago to the public spirited government as conceived in modern tracts that bill themselves as “empirical social science and not value statements”³³ In this modern literature, as in their historic predecessors, governmental take overs of decisions from other institutions are treated as themselves sufficient evidence — virtually proof — that such actions are needed to “remedy deficiencies”³⁴ of other decision making processes which are “irrational” in some way.³⁵ A mere enumeration of government activity is evidence — often the sole evidence offered — of “inadequate” nongovernmental institutions,³⁶ whose “inability” to cope with problems “obviously”³⁷ required state intervention. Government is depicted as acting not in response to its own political incentives and constraints but because it is compelled to do so by concern for the public interest: it “cannot keep its hands off” when so “much is at stake,”³⁸ when emergency “compels” it to supersede other decision making processes.³⁹ Such a tableau simply ignores the possibility that there are political incentives for the production and distribution of “emergencies” to justify expansions of power as well as to use episodic emergencies as a reason for creating enduring government institutions.

This ignoring of political incentive structures extends to the effects of government action as well as its causes, often “pretending that the effect of a law and appropriation will be what their preamble says it should be.”⁴⁰ Much complaint about bureaucratic “inefficiency” or “stupidity” presupposes that bureaucrats are pursuing the goals stated in the preambles to the legislation authorizing their existence, rather than responding to the incentives created in the “details” of that legislation. Not even physical or engineering efficiency can be calculated without first defining a goal. Where bureaucrats are pursuing their own individual or organizational goals, they are hardly being “inefficient” — much less “stupid” — in terms of other goals that other people wish they were pursuing. This is not merely a matter of verbal fastidiousness but of practical policy: replacing the allegedly “inefficient” or “stupid” people with more intelligent people, or people with a record of efficiency in private industry, could not be relied upon to improve the implementation of the social policy described in preambles, as long as the structure of incentives and constraints remains the same.

The importance of actual institutional characteristics as a guide as to what to expect is obscured by the common practice of defining political institutions by their hoped-for results: the Environmental Protection Agency, the Equal Employment Opportunity Commission, the Defense Department, etc. The change of the latter name from “War Department,” which describes what a military organization actually does or prepares to do, to “Defense Department” — presumably incapable of ever launching a military attack — was symptomatic of this pious obfuscation.

Incentive structures are important in explaining political behavior, not only in a static sense but in following dynamic changes of political patterns. Incentives operate not only by guiding the actions of given people, but by changing the mix of people drawn to particular activities. Very different kinds of people may be attracted or “selected” — in an impersonal Darwinian sense — by one set of incentives than by another. Used car dealers tend to differ from Red Cross volunteers. Movements for political change — that is, insurgents in general, whether moderate reformers or violent revolutionaries — are essentially attempts to change incentive structures, however much they may choose to describe themselves in terms of their hoped-for results. But prior to the achievement of any success — whether reform or revolution — people who man insurgent movements are “selected” in a Darwinian sense under an entirely different pattern of incentive structures from the incentive structures that they are advocating. Insofar as the insurgency becomes successful, the new incentives tend to select a different mix of persons. For example, socialists under capitalism may differ from socialists under socialism.