Behavioral Economics Ep. 5: What You Need to Know About Public Choice – Learn Liberty


[MUSIC] Economics gives us insight as to how
humans behave when our unlimited desires collide with our limited abilities. These insights enable us to predict how
car buyers will alter their behavior when gas prices rise, how students will alter
their behavior when the government subsidizes college loans, and how
cigarette manufacturers will alter their behavior when the government
regulates vaping.>>Public choice is a field of economics
that takes what we understand about human behavior and applies that knowledge to
humans who behave in the public sector, politicians, bureaucrats,
lobbyists, and voters. But because the humans who
occupy the public sector are not different from those who
occupy the private sector, we can use economic principles to
predict how these humans will behave.>>For example, voters have less
incentive to engage in the voting process when the benefits of getting their way
in the voting booth are small, but the cost of casting a vote is large. This can lead to people voting for
policies that are bad for society.>>Suppose 100 people are asked
to vote on a proposed law. The law says that the government will
tax 90 of these people $10 each, burn half of what’s collected and give
what’s left to the remaining 10 people. If we allow these people to vote on
the law, what will be the outcome? The 90 who would be taxed don’t like
the law and will vote against it, the 10 however stand to gain $45 each,
they like the law and will vote for it. The proposal will be defeated
by a vote of 90 to 10.>>But now,
suppose that it is costly to vote, it is costly just to stay aware of
the laws that the government is proposing. It is costly to read the laws, it is costly to understand how
the laws will affect you, and it is costly to physically get up, go to a
polling station, vote, and come back home. In our thought experiment, we can simulate this voting cost by
charging each person $15 to vote. It doesn’t matter how you vote, yes or no,
but to vote at all, you have to pay $15. Who will want to vote? The 10 people will definitely want
to vote, if this law is passed, each will gain $45, that more
than covers the $15 cost to vote. What about the 90? They won’t vote, the law is clearly bad
for them, but the cost of living with the bad law is less than the cost
of voting against the law. So the 90 will all stay home. The law will pass by a vote of 10 to 0,
and society will be worse off.>>This is called the principle of
concentrated benefits and dispersed costs. The law represents a cost to society, one
group of people will pay $900 in taxes. The law also represents
a benefit to society, another group of people will receive $450. The cost to society is greater than
the benefit to society, and so society would be better off
if the law were defeated. But it isn’t defeated, why? Because the $450 benefit is shared
by a small group of people, so each person in the small group has
a strong incentive to vote for the law. But the $900 cost is spread over
a large number of people, so each person in the large group has a
lesser incentive to vote against the law. And if the incentive to vote against
the law is less than the cost of voting against the law, those against
the law won’t bother to vote.>>The principle of concentrated benefits
and dispersed cost can create a strong incentive for people to vote for
laws that actually are bad for society. This is just one example of how public
choice economics can help us to understand better the behavior of
people in the public sector. In the same way that economics
helps us to understand and predict the behaviors of consumers and
producers in the private sector, it also helps us to understand and predict
the behaviors of voters, politicians, and bureaucrats in the public sector.>>And the better we understand how
humans behave, the better able we are to appreciate the appropriate role of
government in a society of individuals made interdependent through
the relationships we call the economy. [MUSIC]

Maurice Vega

24 Responses

  1. So I just watched all five of these videos and, if you were so inclined, could do a ton more of these video and I will watch every one.  Good stuff.

  2. What's the reasoning behind keeping these unlisted? Do a video on that, as i would imagine you could get more exposure with general people searching key words. Though I suppose a trade off is getting everyone on the internet trolling comments and down voting instead instead of the people who genuinely want to absorb the information.

  3. You forgot that the bureaucrats got the other $450 in some manner. This money did not disappear. It is how they keep their worthless jobs.

  4. I would like another example. The production quality is so compelling (involving of the viewer), the time flies by. I think 8 minutes would be OK on these.

  5. Why would you assume 0% of the 90 would not vote for issues which affect them directly? What an horrific "fact" you attempt to share in this video. I'm not saying the law would pass, but we also shouldn't assume 0% of those who have to pay.

  6. Essentially, what you have is a scenario where many people relinquish the power of their vote and give it to the fewer hands that are more willing or able to invest. Curious, wouldn't this lead to a slippery slope where a few guys can vote for laws that make voting increasingly more inconvenient for people, so that they may maintain their power?

    So say, what if we were to make it to where voting was cheaper? More accessible? Where all the relevant information you needed was provided and the nearest voting both was closer to home?

  7. Good video! A reverse example is anti-gun legislation. Government and various state supporters are consistently foiled in their recent attempts to enact more anti-gun legislation. Why? Because there have already been so many infringements on the right to keep and bear arms that "shall not be infringed" that gun owners perceive all future threats as fundamental losses of their liberty that they will not tolerate. Additional losses have a high perceived cost. On the other side are politicians and a large number of people who believe in the power of government rather than individual liberty. They have an incentive to advocate for anti-gun laws and vote for them, but the cost of not having these laws enacted is less than the cost of enacting them to those who support the individual right. The proponents of anti-gun laws are expressing great frustration because they do not understand the economics. They believe they are in the majority and they can continually pass increasing infringements on the rights of the large minority of gun owners, not realizing that they have reached an equilibrium point. They're up against an exponentially increasing cost they're attempting to impose on their political opponents. People fighting for their rights are more strongly motivated than people advocating for some general concept of how they'd like society to be structured.

    It may be difficult in practice to assign the costs in such scenarios, but it's interesting to apply economic principles in the analysis of such problems. It's also useful to run this analysis in reverse – observe the economic outcome and then infer the costs to the participants.

  8. This is why voter ID laws are bad. Yeah, most people already have ID for other reasons, but for those who don't, the ID requirement simply adds to their cost to vote.

  9. These types of videos I respect. To me context is everything, so by understanding why we have something in place (like a law, policy, or social norm), whether good or bad, it is still just as important to have a better understanding of that something when putting up a topic for discussion or debate.

  10. Okay, just had an epiphany after watching this series…

    What was covered in the vid is probably why things like Uber tend to have a big impact on taxi cartels for example. There is actually something to gain from starting up a rideshare company for those that do so, and people can see by example that alternatives are possible.

    In other words, 1) there is a greater ratio of benefit that goes to the people that challenge a bad policy and 2) the costs of the bad policy become more obvious to people paying the "dispersed cost" of inflated taxi prices…

    A similar approach to social security reform might be convincing more people to start IRAs so they benefit directly from supporting alternatives to what we pay into now.

    Voting on those issues is more of an uphill battle because most of the benefit goes to people who didn't campaign against the bad policies.

    Seems like political reform has to be tied to something more than just filling out a ballot to overcome the rational ignorance/irrationality problem… Do that and Wagner's law could become less of an obstacle for us o.0

  11. There is a fatal flaw in the thought experiment of the income tax. The 450 burned, are not, in fact, burned. State expenses come back into the economy as wages or other costs that would be paid to national firms and individuals that provide goods and services to government.
    Say for instance that $50 of those $450 government expenses are paid to foreign private agents, thus the remaning $400 returns to individuals in society. But, if there is social valuation of equality of outcomes (which makes sense if these 10 people are extreme poors), then is posible that the real loose in money of $50 (money that dosen't ends in hands of members of that 100 individuals society) is less valued than the gain in social equality in society. Only in a world were individuals don't value equality, there will be no argument in favor to the law. Therefore, is not obvious that the law itself would be indubitably bad for society.

  12. I would like to say just thank you for the huge amount of so important topics discussed on this channel. I really cant stop listen and dig further on what you are talking about! Thanks again!!

  13. American constitutional mechanisms for placing property beyond majority rule were crafted in part for the explicit purpose of protecting enslavement.

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