[Paleopsych] FRB of Richmond: Interview with James M. Buchanan

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FRB of Richmond: Interview with James M. Buchanan
Interview - Federal Reserve Bank of Richmond
http://www.richmondfed.org/publications/economic_research/region_focus/spring_2004/interview.cfm
[Bioblography appended.]

Region Focus
Spring 2004

Interview

James Buchanan
---

Economists have long treated people in the marketplace as rational
actors pursuing their own self-interest. But, until the mid-20th
century, it was common to view people in government in a very
different light. They were perceived as selfless public servants who
acted on behalf of the general interest. Such a distinction, argued
James Buchanan, was unnecessary and incorrect. People in the public
sector are self-interested just like everybody else. Using this basic
assumption, Buchanan and others were able to apply the tools of
economics to politics. This line of inquiry soon become known as
"public choice" and spread rapidly throughout the United States,
Europe, and Asia. The majority of public choice theorists are trained
as economists, but more and more come from the ranks of political
science.

Most of Buchanan's academic career has been spent in Virginia: first at the 
University of Virginia in Charlottesville, then at the Virginia Polytechnic 
Institute in Blacksburg, and later at George Mason University in Fairfax. As a 
result, he and his colleagues are often referred to as members of the "Virginia 
School." In the early 1960s, Buchanan was one of the founders of the Public 
Choice Society (PCS). The PCS holds annual meetings where papers are presented 
and discussed. It is also loosely affiliated with the academic journal Public 
Choice, which was long edited by Gordon Tullock, one of Buchanan's most 
frequent collaborators.

Buchanan was awarded the Nobel Prize in Economics in 1986. Although he
is now in his mid-80s, he still pursues an active research agenda and
continues to lecture regularly. Aaron Steelman interviewed Buchanan at
George Mason University on February 2, 2004.

RF: Public choice is often described as "politics without romance." Could
you please describe what this phrase means?

Buchanan: I actually used that as the title of a lecture I gave at the
Institute for Advanced Studies in Vienna in 1978. I think that if you
had to boil public choice down to three words, that's a pretty good
description, but on the other hand it's not complete either. The
phrase captures the idea that public choice does not look at politics
through rose-colored glasses -- it is skeptical that the actions of
people in politics are necessarily focused on promoting the public
interest. Instead, it takes a more hard-nosed, realistic view of
government. But what it leaves out is that we must have a legitimizing
argument that politics is worthwhile -- that politics is an exchange
in the sense that we give up something but we also get back something.

RF: Public choice is now a recognized subdiscipline within economics. But
when you first started doing work in public choice, how was that research
greeted by the profession?

Buchanan: It was certainly outside the mainstream. I think many of my
colleagues at the University of Virginia didn't particularly like
using economics to analyze politics. But I have to say that when
Gordon Tullock and I published The Calculus of Consent in 1962, the
book received quite warm reviews by both economists and political
scientists. And, between the two groups, I think the book's impact was
greater among political scientists in the following respect: They had
further to go. Economists were familiar with the tools we were using
and the basic assumptions about rationality that we were making, but
to many political scientists, these ideas were rather novel. Also, I
think you can't leave personalities out of this either. Bill Riker was
very active in introducing public choice and positive political
economy to other political scientists and to his students at the
University of Rochester. The fact that he came onboard very early was
extremely important.

RF: People working in the public choice tradition are often referred to as
members of the "Virginia School." Could you please explain how and when that
term came into being?

Buchanan: Mancur Olson came up with that term. He was the one who
first characterized us as the Virginia School -- I don't know exactly
when but it was probably sometime in the mid-1970s, after we had
already moved from Charlottesville to Blacksburg. It was fine by us.
So we went with it, as did other people. But we didn't coin the term
ourselves.

RF: Richard Wagner, who was one of your students at the University of
Virginia and has been your colleague at both the Virginia Polytechnic
Institute (VPI) and George Mason University, has written that VPI was the
most fertile place for public choice scholarship. Do you agree?

Buchanan: I think you have to look at this on different dimensions.
The public choice program originated at the University of Virginia
from 1956 to 1968. Warren Nutter and I set up the Thomas Jefferson
Center for Studies in Political Economy. The research program at the
Center was broader in scope -- it wasn't confined to public choice per
se. That was a very productive and exciting time. We had a great group
of people there: Ronald Coase, Leland Yeager, Tullock, and Nutter were
all on the faculty. And, without question, we had the best graduate
students I have ever worked with -- really top-notch kids.

We were never that productive in terms of producing good graduate
students at VPI. But the public choice program became more developed
there. We enjoyed tremendous support from the university
administration, which in some ways had been lacking at Virginia. And
Tullock, who had left Virginia a few years before I did, came to VPI.
He and I started collaborating on a lot of projects, and we set up the
Center for the Study of Public Choice along with Charlie Goetz.

One of the things that I think was really important about VPI was the
unique atmosphere and geography: We were all located close to each
other and had constant interaction. Plus, at VPI there was a young man
named Winston Bush whose enthusiasm and intellect really inspired a
lot of interesting projects, such as our work on the political economy
of anarchy. Winston was a great mathematical economist, who
unfortunately died quite young in a car accident, but for a few years
was a real live wire who really kept things going. We also had a great
visiting fellow program. It wasn't unusual for us to have eight or
nine visitors at one time. So, in the sense of sheer output, I think
Wagner is right: VPI was the most productive place.

RF: At last year's meetings of the Public Choice Society in Nashville, I was
struck by the large percentage of participants from continental Europe. Did
public choice take off internationally during the period you were at VPI?

Buchanan: Yes. Many of the visiting fellows who came to Blacksburg
were from Europe or Asia. It was also around this time that they set
up their own organizations: the European Public Choice Society and the
Japanese Public Choice Society. In some ways, the Europeans were more
eager to work on constitutional political economy issues than were the
Americans. In fact, I think that if the Nobel Prize were decided by
American economists, I never would have been awarded it. My work has
been much more warmly received in Europe than in the United States.

RF: Could you describe how Frank Knight and Knut Wicksell have affected your
thinking and career?

Buchanan: They were certainly the two most important influences on my
work. Knight's influence was more as a role model than as someone
whose work I tried to build on, although he certainly made very
important contributions of his own. Knight and I had very similar
backgrounds: He was a farm boy from central Illinois who spent some
time in school in Tennessee and who ultimately rejected the religious
milieu in which he had been raised. I really liked his attitude toward
the world and his willingness to question anything and anybody. He had
a real passion for ideas.

Wicksell, on the other hand, was more of an accidental discovery. I
was going through the stacks of the old University of Chicago library
after I had finished my dissertation and I ran across his
dissertation, which had never been translated from the very difficult
German. In that book, he was saying things that I felt inside me but I
never dared to say. He really reinforced a lot of things that were
sort of inchoate in my thinking. The central idea I got from Wicksell
is that we can't improve politics by simply expecting politicians to
do good. There are no interests other than those of individuals, and
politicians will pursue their own interests just like anyone else, by
trying to get re-elected, advance their careers, and so on. This means
that economists ought to stop acting as if they were advising
benevolent despots. If you want to improve government, you must try to
improve the rules of the game rather than the individual players.

RF: Looking back over the past 40 years, what do you think are some of the
most important contributions that public choice theorists have made?

Buchanan: I think that the most important contribution, by far, is to
simply change the way that people look at politics. I often have been
asked if public choice had a causal influence in the decline of
confidence in politics and politicians compared to, say, 40 years ago.
My answer is: yes and no. Once governments began, in the 1960s and
1970s, to overstep their bounds and take on projects that ultimately
proved to be great failures -- and this is true not only in the
socialist states but also in the democratic states of the West --
public choice came along and gave people a systematic way to analyze
and explain these failures. So public choice wasn't the cause of
distrust in government but it did help us understand the deficiencies
of the political process. It changed the way that we look at
collective action.

RF: "Rent seeking" is one of the more common terms one encounters in
articles written by public choice theorists. Could you give a basic
description of what that term means?

Buchanan: "Rent seeking" is a very basic concept: If there is value
out there, someone is going to invest time and effort trying to attain
it. The same is true with "profit seeking" -- if there is profit to be
had, people will go after it. But the term rent seeking applies to a
special kind of value -- value that is created artificially through
the political process.

Gordon Tullock has a great ability to take personal experiences and
translate them into ideas. He had spent some time in China and while
he was there he noticed that the Chinese imperial bureaucracy had
these very severe standards that people had to pass in order to be
admitted to the civil service. Candidates would spend a tremendous
number of hours studying and learning this stuff. But most of the
effort was completely wasted, because only a few could obtain a
government position. This was a prime example that Gordon used.
Likewise, let's say that the government can issue a monopoly on the
production of playing cards. Then a lot of people are going to spend
time courting the government to get that privilege. It may be rational
but it's socially wasteful. The point was so obvious, but also so
important, that once it was made it became a standard term used by
economists and especially by public choice economists.

RF: Public choice scholars, of course, are quite concerned with procedural
issues, and have done important work explaining how various constitutional
rules affect political and economic outcomes. Yet it seems that public
choice theorists have been less successful explaining the conditions
necessary to sustain those rules. Consider the United States, for instance.
In the area of economic regulation, Congress' authority is virtually
plenary. What accounts for the breakdown of the constitutional order in the
United States?

Buchanan: I think that we have had a breakdown in the traditional role
of the judiciary and how the judiciary views itself as part of the
larger political structure. We began to get that with the post-New
Deal courts, which let the legislative branch do pretty much whatever
it saw fit. Why did that happen? I'm not sure. Part of it is ideology.
Law schools started to teach students that the Constitution was
malleable -- that it said whatever judges claimed it said. The
judiciary then became much more activist, as judges began to use their
own political views as a basis for making decisions. This process has
turned us much more toward a simple majoritarian-type political order.
So I think that's part of the reason for the breakdown. But as for a
more generalizable explanation, I don't have one.

RF: Many commentators frequently decry voter turnout rates of, say, 50
percent as "too low." But, actually, it's surprising that this many people
go to the polls because the chance of being instrumental is virtually zero.
Does public choice have a good explanation for why people vote?

Buchanan: That is one of the central puzzles we have faced since
Anthony Downs and Gordon Tullock raised the question in the 1950s.
>From a purely rational standpoint, people don't have much of an
incentive to vote but, as you said, about half of them do. Why? I
think this gets us into social psychology. People may vote simply as a
means of expression rather than as a way of influencing the outcome of
an election. They also may feel some sort of duty is involved. But,
given the framework that economists would traditionally look at this
sort of question, it's hard to come up with a satisfactory answer.

RF: How would public choice explain political outliers -- people who get
elected to Congress even though they run on quite radical platforms, either
from the right or the left? According to median voter theory, it seems,
these people shouldn't be chosen by the electorate.

Buchanan: This is another good question to which we don't have an
adequate answer. It may just be that these people act very differently
in Washington than they do in their own districts. The average voter
is not going to pay much attention to what politicians say in front of
certain activist groups, but they may pay attention to what these
politicians have to say when they come home to campaign.

RF: Many people who have done important academic work in the public
choice tradition have subsequently gone on to hold high-level
appointed offices in the federal government. Is there something ironic
about this, in your view? Or is this training useful?

Buchanan: I'm not sure that it helps much. If you're on the inside,
maybe you don't want to be trained in public choice. For instance, if
you are going into the bureaucracy, perhaps you wouldn't want to have
read the public choice literature on bureaucracy. I certainly wouldn't
get excited about more public choice people filling government
positions. Absorbing and doing are quite different things in this
context. I think that there is little doubt that public choice has
been enriched by people who have used government experience to inform
their academic work. But I don't know that public choice has done much
to influence the way that government officials actually behave.

RF: How would you describe the differences between the
allocationist-maximization paradigm, within which many neoclassical
economists work, and the catallactic-coordination paradigm, within which
most of your research has been done?

Buchanan: Economics, as it was transformed by Paul Samuelson into a
mathematical discipline, required practitioners to have something to
maximize subject to certain constraints. This contrasts with the
catallactic-coordination paradigm, which starts out with individuals
simply trading with each other. You examine this process and build up
into a system of how markets emerge and become integrated. It's a very
different conceptualization of the whole economic process.

I have argued, at least in the last three or four years, that the
really big contributions to come will be from game theory. For a long
time, I think economists didn't really understand what game theory was
all about. The core insight, it seems to me, is that people choose
among strategies and out of that emerges outcomes that are not part of
anyone's choice set. It is a different way of looking at economics and
it gets us to focus on fundamental issues of economic coordination
that have been neglected. This, I think, is the direction that formal
economic theory ought to take.

RF: A recent article in PS: Political Science and Politics titled "Are
Public Choice Scholars Different?" discussed the results of a survey given
to members of the Public Choice Society (PCS), American Economic Association
(AEA), and American Political Science Association (APSA). The survey asked
for opinions on a wide variety of economic issues. The differences between
PCS and AEA members were relatively small on most questions, but in a few
cases, they were statistically significant. For instance, PCS members found
the following proposition substantially more agreeable: "Government does
more to protect and create monopoly power than it does to prevent it." Does
this, in your mind, confirm the widely held notion that public choice
theorists are more suspicious of government action and more friendly toward
market solutions than economists generally?

Buchanan: Yes, to some degree. But a continuing critique of public
choice is that the whole research program is ideologically driven. I
think that is completely wrong. It all goes back to the first question
you asked about public choice being described as "politics without
romance." If you look at politics in a realistic way, no matter your
underlying ideological preferences, you are going to come out more
negative than you started. There are many public choice people whose
normative views are not at all market-oriented. But, as scientists,
they reach conclusions that may not particularly support those
normative preferences.

RF: What do you think of the various "heterodox" schools of economics that
are challenging the basic assumption of neoclassical economics?

Buchanan: For more than 20 years, I have predicted that you would see
more collaboration between psychologists and economists. That
prediction is finally becoming realized with the widespread emergence
of "behavioral economics," as characterized by the work of Dick
Thaler, Bob Frank, and others. They pick out particular anomalies and
use them to try to chip away at the neoclassical edifice. Many of
those anomalies are interesting, but they are just that -- anomalies
and thus not very generalizable. I don't think that behavioral
economics is a spent force yet, but I don't know how much further they
can go with it, because what they have to offer are critiques rather
an alternative program of inquiry. Still, I'm sympathetic to the idea
that economists have pushed this homo-economicus model too much.

RF: In a series of articles on what he calls "rational irrationality," Bryan
Caplan has tried to reorient public choice to focus more on voter-driven
political failure and less on the perverse influence of special interests.
What do you think of this line of inquiry?

Buchanan: I don't know Caplan's work very well. But I think there is
something to what he is trying to argue. For instance, I think there
is the following bifurcation in the choice process: We may want to do
things collectively that we are not willing to sustain privately. It
may be true that the welfare state represents what people actually
want. They may want the government to take care of everybody and so
they vote for candidates who run on such a platform, including the
higher tax rates needed to pay for it. At the same time, given those
high levels of taxation, they may decide to quit working, like the
Swedes, and spend time at their summer home. So even though they voted
for the whole program -- on both the spending and taxation sides --
they are not willing to support it through their private actions.

RF: What, in your view, is the proper role of government?

Buchanan: Well, I think the state should fund the classic public goods
and you could probably do that with government spending at a level of
roughly 15 percent of gross domestic product (GDP). But I'm not
willing to say that that is all government should do. As long as
government grows within a proper set of rules, then I would rather not
put limits on its size. I am reluctant to say, for instance, that
having public spending at 40 percent of GDP -- which is about what we
have now -- is necessarily wrong.

RF: Why do so many voters hold views that are at odds with mainstream
economic theory?

Buchanan: Part of the blame falls on economists. As scientists, we are
incredibly attracted to grapple with interesting puzzles that may have
little immediate practical application. And, indeed, we are rewarded
for doing that through greater academic promotions and greater
prestige within the profession. So that type of work has a lot of
private value to economists. Contrast that with making basic economic
truths -- such as the benefits of free trade -- accessible to a wider
audience. Economists gain very little from doing that -- for instance,
it probably won't get you tenure. But there is an enormous public
value associated with having an economically literate society. We need
more Bastiats who are willing to talk to the public. As it stands,
economists are losing the battle.

Biography - Federal Reserve Bank of Richmond
http://www.richmondfed.org/publications/economic_research/region_focus/spring_2004/interview_biography.cfm

Biography

James Buchanan

Present Position

Distinguished Professor Emeritus of Economics, George Mason
University, and Distinguished Professor Emeritus of Economics and
Philosophy, Virginia Polytechnic Institute and State University

Previous Faculty Appointments

Virginia Polytechnic Institute and State University (1969-1983);
University of California at Los Angeles (1968-1969); University of
Virginia (1956-1968); Florida State University (1951-1956); University
of Tennessee (1948-1951)

Education

B.S., Middle Tennesee State College (1940); M.A., University of
Tennesee (1941); Ph.D., University of Chicago (1948)

Selected Publications

Author or co-author of more than 20 books, including The Calculus of
Consent: Logical Foundations of Constitutional Democracy (1962); Cost
and Choice: An Inquiry in Economic Theory (1969); The Limits of
Liberty: Between Anarchy and Leviathan (1975); and Better than
Plowing: And Other Personal Essays (1992)

Awards and Offices

Winner, 1986 Nobel Memorial Prize in Economic Sciences; Fellow,
American Academy of Arts and Sciences; Former President of the
Southern Economic Association, Western Economic Association, Mont
Pelerin Society, and Public Choice Society