[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]