Why does the exclusion of public choice analysis from mainstream economics make any difference? The asymmetric treatment of the political process relative to markets diminishes the relevance of economics and leaves students with a romantic, and highly misleading, view of government and the operation of the democratic political process. There are three major reasons why this is the case.
- The omission of public choice from mainstream economics creates a central planning mentality.
- The democratic political process is shortsighted and, if unconstrained, will lead to excessive debt.
- Like markets, unconstrained political democracy has deficiencies.
The imbalance of the mainstream approach also deters understanding of the current economic situation. Economics provides considerable insight on the structure of the institutional and policy environment consistent with growth and prosperity. Stable and predictable policies, rule of law, and economic freedom establish the foundation for gains from trade, private investment, and innovation, which are the key sources of the growth process. In contrast, persistent policy changes, temporary tax-and-spending policies, and discretionary regulatory action generate uncertainty and play into the hands of the rent-seeking special interests. Public choice analysis highlights both of these points. However, because of its omission of public choice, mainstream economics misses the fundamental causal forces underlying the excessive debt, constant policy changes, and crony capitalism that are undermining prosperity throughout the world.
Economic analysis is equally applicable to market and political decisionmaking. It indicates that there is both market failure and government failure. It is long past time that this realism be incorporated into mainstream economics. George Stigler once remarked that a person who considers only market failure is like the judge of a singing contest who immediately declares the second contestant the winner after hearing the performance of the first. This is precisely what happens when mainstream economics treats government as a corrective device and continues to exclude public choice analysis. It is time for the profession to consider the second singer.