Milton Friedman's Belated Public Choice Art of Economics

In trying to influence policy, economists have typically adopted a public interest view of government. They have written as if government officials, whether elected or appointed, were selflessly dedicated to achieving the public's welfare and as if the role of economists were simply to figure out how to do so--to decide what is the right to do and to persuade people dedicated to the public interest that it is the right thing to do....I'm no exception to my generalization about the typical approach of the economist in dealing with public policy.--Milton Friedman (1986) "Economists and Economic Policy" Economic Inquiry 24.1: 1-2. [HT Scott Ashworth]

The art of economics, also known as the 'art government,' is presented here as presupposing public interested economists and public interested government officials or statesmen, both serving the public's welfare, or 'salus populi' in Cicero's (and Locke's) famous phrase. Let's call this 'the standard view' of the art of economics. 

It's worth noticing, of course, that on the standard view it is by no means obvious what counts as the public's welfare and how it is related to knowledge the economists may possess. It's also worth noting that the standard view presupposes skill in the art of rhetoric because it requires skill in persuading those government officials that serve the public interests that what the economist advices is indeed "the right thing to do." By using 'rhetoric' I don't mean to suggest the standard view disparages science communication. But rather to suggest that government officials are not expected to become expert economists on the standard view.

As an aside, I don't think it's a rhetorical trick (in the bad sense) that Friedman includes himself as past adherents of the standard view (which he associates with J.M. Keynes). In the 1986 essay, he gives examples of his past behavior, and the standard view is also espoused (recall my recent post) in his famous (1953) "The Methodology of Positive Economics" (which goes curiously unmentioned). The standard view is characteristic of the Benthamite, radical-utilitarian tradition (which often models the public official as a 'philanthropist').

In 1986, Friedman claims to have rejected the standard view under the influence of public choice (he explicitly mentions Anthony Downs' (1957) An economic theory of democracy and Buchanan & Tullock's (1962) Calculus of Consent.) One insight Friedman takes from public choice is that decision-makers are also self-interested in the same way businesspeople are (and for Friedman this is no criticism).

But, and this is a crucial point, for Friedman the public choice perspective does not mean that public officials are busy lining their own pockets or even consolidating individual power. But rather that public officials conceive of the public interest, in part, in terms of the interests of the institutions they serve. My point is not about the stipulated absence of pecuniary motives in some public officials. But rather that in Friedman's thought there is a shift from self-interest understood as individual advancement toward self-interest understood as one's institutional advantage; it is quite explicit but goes unremarked by Friedman (who spent some time in government): in trying to shape public policy, "[economists] are dealing with human beings," Friedman writes, "who pursue their own interest whether they be politicians whose self-interest is to get re-elected, or members of bureaucracies whose self-interest is to have the bureaucracy bigger and more powerful." (4)

My interest here is not to deny that some bureaucrats identify strongly with the agencies they serve (say, in virtue of esprit de corps, or an enlarged conception of their selves/identity). All I note it is odd that the politician's self-interest is theorized in terms of re-election (and, not say, advancement  in the party) or the interests of the body they serve, whereas the official's interests are not theorized in terms of advancement through the government bureaucracy but rather the agency they work in. The slide among such perspectives is not uncommon in the reception and development of public choice theorizing. I return to this at the end of the post.

Be that as it may, the public choice perspective does seem to change the character of the art of economics. For now it has, as Friedman notes, to presuppose the interests of those who are to be persuaded. It is worth adding here (with the help of Foucault's Birth of Biopolitics) that there is a sense in which this revisionary understanding of the art of economics/government is simultaneously also a return to the art of government of the 18th century which appealed to the self-interests, properly understood, of that element within the ruling classes whose interests naturally align with the public's (in Adam Smith and Benjamin Constant this is the propertied class). 

Given this public choice perspective, Friedman posits three ways that economists can practice the art of government:*

1. Drawing on near unanimity among professional economists, where it exists, to persuade the general public of some general principles of economics (free trade, tariffs are bad, etc.). (p. 5) Friedman leaves unexplained why this Enlightenment move would follow from the public choice perspective, but it follows naturally from the idea that politicians are elected by the public (in democracies). This assumption also operates in the next way:
2. Studying institutional arrangements that can promote the general welfare and advocate those to the general public (e.g., a constitutional amendment that prevents a tariff).  Friedman offers different kind of examples: (i) the example of a constitutional amendment appeals to Friedman because it involves a singular public opinion 'crusade' and then government policy is tied by it (and so the topic is removed from political life). Others involve the imposition of policies that change or remove the interests of bureaucrats and elected officials. An example of the former is (ii) to persuade officials to cut agencies in order to cut functions from the government. Friedman recognizes that this is, in non-trivial ways, less efficient than cutting government budgets modestly across the board. But such budget cuts that leaves bureaucratic lobbies intact. (p. 6) An example of the latter is (iii) a balanced budget amendment changes part of the interests of elected officials, who now must seek re-election not just by increasing spending on their constituents, but also by negotiating complex trade-offs with many other elected officials. 
3. It is to wait for moments of "crisis" to advocate changes that serve the public interests. The underlying idea is that bad political circumstances open the way toward the acceptance of good economic policies. (Friedman's favorite example is the breakdown of Bretton Woods and the acceptance of floating currencies with flexible exchange rates.) The point is not that during a crisis economists suddenly become more persuasive to office holders or the public (Friedman explicitly denies it). But rather that during a crisis "drastic action" (7) may be required. (It is worth noting, given the recent association of his name with 'crisis capitalism,' that Friedman's example does not involve the overthrow of governments!) Friedman here implies that the job of the economists is to work out the details of possible institutional arrangements on sound economic principles in advance of their adoption which may only occur once the political time is ripe. (This is very much anticipates the dynamics of reason of Michael Friedman in which philosophers of science anticipate Kuhnian crises and help imagine future science.) Such anticipatory economics is not empirical but a kind of model world building (of the sort that Stigler advocated back (recall) in 1965). 

Now anyone who is reflected a bit on public choice of philosophy of science, will note that these three ways leave aside the interests of the economists. (In Gordon Tullock's (1966) famous example, some economists get bought to argue for tariffs.) At the close of the article, Friedman addresses the issue as a kind of 'paradox' of economists (in terms that are about two decades behind the then research frontier).

Here, and this picks up my earlier argument above, it is worth noting that Friedman treats economists as a class with shared professional interests not as individual celebrity or Hscore seekers. (Friedman does not use 'class!') And he suggests that this shared interest or interest in the advancement of the profession, leads to the advocacy of policies that establish the value to governments of hiring economic expertise (the example he offers is of antitrust policy requiring economic expertise for its implementation and he also notes that Keynesian tax policy also requires such expertise).

Friedman does not solve this 'paradox'. And his response to it is not especially sophisticated. His main response to the 'paradox' seems to be a kind of transparency requirement--namely to state the enlarged incentives of the theorist, as members of a professional class or discipline, when advocating public policy. This kind of disclosure is not an especially far-reaching requirement on professional economists. But it is also worth noting that, unlike by now some standard conflict of interests disclosures, it is by no means a norm to remind the public of such enlarged interests when one pleads one's case to it (think of all public health interventions of our age) and this makes me suspect that it is worth trying it as a policy.

 

*He also mentions a fourth way (involving the abolition of the military draft), but while he describes it in depth he undertheorizes it (in part because it turns on charismatic leadership). And so I leave it aside in this post.