James Buchanan died on Wednesday, at age 93, and the world lost one of its most creative economic thinkers. Though a free-marketeer to his bones, he made his biggest mark and won the Nobel Prize in 1986 for his work studying economic incentives in government.
With Gordon Tullock, Buchanan developed what became known as "public choice theory." Buchanan described it as the application of the profit motive to government: "It presupposes that if there is value to be gained through politics, persons will invest resources in efforts to capture this value."
This may seem obvious after the special-interest tax bonanza that Washington doled out last week while raising taxes on millions of other Americans. But in the early 1960s, the notion that politicians were anything but unselfish public servants was, well, under-appreciated. Public choice, he wrote, was nothing new but "incorporates an understanding of human nature" that prevailed in the 18th century.
In our own times "market failures were set against an idealized politics," Buchanan wrote in 2003. Public choice provided "a set of theories of governmental failures," or as Buchanan called it, "politics without romance."
So, for example, he could explain why bureaucracies had an incentive to expand their turf in order to increase their financial resources and power. Or why politicians keep tax rates high so they can dole out special credits and exemptions for those who would reward those same politicians. Or why pork-barrel politics is the abiding concern of legislators.
Buchanan acknowledged that public-choice analysis had not "dislodged the prevailing socialist mindset in the academies." But he could rightfully claim to be a major influence in helping the public understand why the modern state produces such poor outcomes. His work should be required reading for everyone in a government job.
