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Public Interest and Private Interest

What motivates elected representatives and others in government? The public-interest view of government sees government as composed of individuals who are motivated by a desire to serve the public by doing what is "right." The government emerges as an instrument that will (or can) improve society. Unintended and unexpected consequences of government actions do not seem to arise in this view of government.

A public-interest view of government is probably most often a normative theory of government rather than a positive theory. It appeals to those who want to discuss how the government ought to act, and appears often in political rhetoric and on editorial pages. When one wants a positive theory that explains why governments do the things that they do, the public-interest theory becomes nebulous. No proponent of this view has ever written a scholarly summary of the view. To some extent, its opponents have invented the public-interest view as a way of making sense of a variety of often-stated positions. For example, without this invented view, it is difficult to explain the thinking of those who reason that the mere finding of a problem in the private sector establishes a case for government intervention. Even the exact meaning of the term "the public interest" is not clear. Economists often assume it means economic efficiency, but other definitions are possible.

The contrasting view is the private-interest of economic theory. In this theory, those who are involved in government have the same motivations that those in the private sector have; that is, they are motivated by a narrow concept of self interest: wealth, fame, and power. If what is in the public's interest is also in the private interest of government decision-makers, the public interest will be served. If there is a conflict between the public's interest and the private interest of governmental decision-makers, the public's interest will lose. It is the incentive structure that determines behavior, with bad performance by government indicating a bad incentive structure, not a problem with motives.

In democracies, the private-interest view of government assumes that politicians want to be elected (or re-elected). This is the public sector equivalent to the private sector assumption that businessmen try to maximize profit. Further, just as businessmen must respond to customers, and thus often are forced to do those things that the customers want, so politicians must respond to voters. This need to respond to voters can force politicians to enact socially beneficial programs.

However, decisions of elected politicians need not be economically efficient. Consider what happens if the politician must vote for the three policies shown in the table below. The table shows the percentage of the population that supports and opposes each policy, and these positions can represent the percentages of the population that are helped and harmed by the policies. Initially, one would suspect that a politician would vote against all three policies. However, if those who favor each policy have strong opinions and will base their votes in the next election solely on how the politician votes on that one issue, it may be in the interests of the politician to vote for all three policies.

Three Policies
% in Favor
% Opposed

One cannot say whether or not voting for these minority positions is economically efficient. It may be that the gains to those who favor them are large and the losses to those who oppose them are small. Then, this voting through elected representatives is a way of taking into account intensity of preferences. On the other hand, recall that voters are rationally ignorant. They may not strongly oppose the policies because they do not take the time necessary for them to understand that the policies harm them.

Thus, there is no guarantee that policies made by representatives pursuing their own interests will be in the interests of the society. Rather, the theory of public choice leads one to expect that there will be a bias toward those programs that have visible benefits and hidden costs and against those that have hidden benefits and visible costs. In the economic view government can fail just as markets can fail. Just as there is no guarantee that the market will make self-interest serve the public interest, there is no guarantee that the institutions of government will force self-interest to serve the public good.

The economic theory of government may seem extreme because it eliminates any role for ideology or decisions based on selfless motives. Although is difficult to believe that these factors play no role in any government decisions, the economic theory is an attempt to build a scientific theory, one that makes risky predictions. If one does not restrict the motives that the actors can have, all outcomes are possible and the theory is unscientific. The economic theory is an exploration of how much of government activity can be explained on the basis of particular incentives, given narrow self-interest. It is still not clear how successful the economic hypothesis is in explaining government behavior, but it has had an effect on what people expect the government to be able to accomplish.

Next we take a look at how this theory of government applies to taxation.

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Copyright Robert Schenk