Democracy--The New Communism

In our last discussion of public choice theory, I talked about the relationship between freedom and equality. Today, I'd like to focus on one facet of American life where equality reigns: voting. Ever since the 1960s and the end of the civil right movement, all American citizens have had equal access to voting in public elections. Indeed, Americans often praise free elections, calling them the "staple of modern democracy" or some other fancy mantra praising its success.

However, as economics tells us, equity comes at the price of efficiency. Voting is no different. The fundamental flaw of equal voting is that it fails to take into into account how much something is wanted.

Allow me to give an example. Say, for example, that you have a society of 3 people: A, B, and C. The government wishes to offer a public good that costs $30, and uses a vote to determine whether this good will be offered. Because our society has 3 people, each person will bear $10 in taxes to pay for this public good. Let's assume that A benefits $5 from the public good, that B benefits $5 from the good, and that C benefits $100 from the good. In this case, A and B will vote "NO" to the proposition because their tax burden is greater than their benefits gained, while C will vote "YES" because he receives a benefit of an amount greater than that of his tax burden. If you'll notice, the benefit to society as a whole is $120 while the cost to produce this good is only $30! It doesn't take an economist to say that this good will make society better off. However, as we have already established, both A and B will vote against this proposition; in other words, this public good will NOT be provided because of democracy and equality vote even though it increases society's well being as a whole.

Now consider the exact same case, except now, A values the good at $11, B values the good at $11, and that C values the good at $3. Using the same cost benefit analysis as above, we would arrive at the conclusion that A and B both vote for the public good, yet C votes against. However, note in this case that the benefit to society is $25, while the cost of implementation is $30, a net loss! However, both A and B will vote for this measure, creating the majority needed for its approval even though the measure will decrease society's well being as a whole.

So from this simple model, we are able to conclude that in certain circumstances, fair voting can lead to a public good that detracts from society's well being or block the passage of a public good that will increase society's well being. Just as with communism, the guarantee of equality has detracted from economic efficiency.

So what is the solution? If democracy is to politics what capitalism is to economics, how can we insure an efficient solution to a problem that seems to put democracy more akin to communism?

The answer, surprisingly, is quite simple: allow people to buy votes from each other. In our first case, because C benefits $100 from the public good, he could buy A or B's vote for $10 and still have an economic profit of $80. In the second case,C is suffering a loss of $7, so he will choose to pay either A or B $2 and the measure will not pass.

Does the idea of of buying votes seem unethical to you? You'd not be the first. But from an economic perspective, a well regulated market for votes would be an effective way of allocating resources for public goods... sort of.

I'll explain in my next post.