Buchanan, Economics, and Politics

[Author Affiliation]Paul H Rubin, * Samuel Candler Dobbs Professor of Economics, Emory University, Department of Economics, 312E Rich Building, 1602 Fishburne Drive, Atlanta, GA 30322-2240, USA; E-mail: prubin@emory.edu1. IntroductionMy work has been greatly influenced by Jim Buchanan. Much of my early work was in public choice (see, e.g., Kau and Rubin [1979, 2002]). Of course, this field would not exist without The Calculus of Consent (Buchanan and Tullock 1962). More recently, my research has gone in different directions, but it still bears Jim's influence.I take as my text today a statement from Jim Buchanan's great Presidential Address to the Southern Economic Association in 1963: "Economics is the study of the whole system of exchange relationships. Politics is the study of the whole system of coercive or potentially coercive relationships" (Buchanan 1964, p. 220). I agree with this statement. But in this tribute I want to extend this analysis a little bit. I want to point out some additional differences between thinking about economics and thinking about politics.Some of this analysis is based on my work on the biology of politics (Rubin 2002, 2003). Based on that work, I have come to the conclusion that in some sense political thinking is more basic to our minds than is economic thinking. That is, when faced with an interpersonal issue that does not involve family or sex, an individual untrained in economics is more likely to treat it as a political issue than as an economic issue. Indeed, one of our tasks as economists is, or should be, to educate our students and the public about the distinction between economics and politics. Pinker (2003), not an economist, argues that economics is one area where human intuitions are lacking, and that it is important to teach economics for this reason.2. Characteristics of Political versus Economic ThinkingHere are some of the relevant characteristics of political thinking as contrasted with economic thinking:i. Politics is about competition for resources, while economics is about cooperation to generate surpluses.ii. Political thinking tends to be zero-sum division of a fixed pie. Economics allows for positive sum interactions.iii. Politics is an "us versus them" conflict. We are a tribal species, with tribal competition. Economics is universal; trade with anyone is beneficial.iv. Perhaps because of its "us versus them" nature, politics is dichotomous: win or lose, good or bad. Economics is continuous: more or less, how much.v. Political processes are controlled by specific active agents--the chief, the king, the general. These agents may be heroes or villains, but they are purposeful agents. Economics deals with processes, as the market process or the "invisible hand."vi. Politics focuses on motives; economics focuses on net outputs.I now discuss each of these issues in turn.CompetitionThe most important error in economic thinking is associated with one of the most fundamental concepts of economics: competition. As Buchanan argues in his Address, the fundamental unit of economics is the transaction, and transactions are cooperative. Competition is important, but it is a tool to improve cooperation. Buchanan, among others, points out that in the purely competitive model, there is no competition, but we do not fully understand or analyze the implications. Even in nonperfectly competitive environments the degree of competition is overestimated. Firms in this environment do compete with each other, but they are competing for the right to cooperate with consumers and suppliers, including workers. A monopolist is a firm with an exclusive ability or right to cooperate with consumers in some market.We focus on competition rather than cooperation because of our political bias toward looking at markets through the lens of politics. Competition is between firms, which are actively striving to accomplish some goal. …