Knowledge And Decisions

Another problem inherent in political processes is that the degree of reliability or rigidity desired in a governmental framework, within which individual planning and action can take place, is jeopardized by political incentives to continually adjust this framework for the real or alleged benefit of particular groups of constituents. This is a special case of the concentration of benefits and the diffusion of costs. Everyone with an objective interest in a known and predictable set of laws and policies pays the cost of innovative political activities. This means virtually everyone in the society, including those who benefit from particular subsets of changes. It is not merely so-called “liberals” who innovate; so-called “conservatives” may be equally creative with “tax breaks” or monopolistic concessions for a variety of constituent groups as their political opponents are with expenditure programs and government controls for a variety of their constituents. The point is that political surrogates, for whatever constituent coalition they serve, have an incentive to continually adjust the legal framework — whatever it may be at a given moment and regardless of its merits or demerits — because of specific concentrated benefits and the diffused general costs of reduced predictability.

This is neither a moral comment on individuals nor an exhortation for more citizen knowledge of specific governmental policy. On the contrary, it is an attempt to explain the causes of these phenomena in terms of differentials in the cost of information, differentials in transactions costs, and inherent conflicts of interest built into political decision-making processes. To exhort the individual citizen to make investments in knowledge comparable to those of lobbyists and political crusaders (both of whom have much lower costs per unit of personal benefit) is to urge him to behavior that is irrational, if not physically impossible in a twenty-four hour day. What might be possible, at lower cost, is an awareness of this problem inherent in political decision making, when choosing among modes of decision making.

The competition of political opponents tends to mitigate these problems somewhat, but the terms of this competition are quite different from the terms of economic competition. Political knowledge is conveyed by articulation, and its accurate transmission through political competition depends upon the preexisting stock of knowledge and understanding of the receiving citizen. Economic knowledge need not be articulated to the consumer, but is conveyed — summarized — in the prices and qualities of goods. The consumer may have no idea at all — or even a wrong idea — as to why one product costs less and serves his purposes better; all he needs is that end-result itself. Someone must of course have the specific knowledge of how to achieve that result. What is crucial to economic competition is that better and more accurate knowledge on the part of the producer is a decisive competitive advantage, regardless of whether the consumer shares any part of that knowledge. In political competition, accurate knowledge has no such decisive competitive advantage, because what is being “sold” is not an end-result but a plausible belief about a complex process.

Because of differences in the cost of judging processes versus the cost of judging end results, it is even more important in political than in economic processes to have feedback from the diffused individuals who receive the consequences to the few who made the decisions that produced the consequences.

Where political decision making is broadly defined to include judicial decision making, feedback from those affected is even less effective. Moreover, the cost of a court’s monitoring the consequences of its own decisions could easily be prohibitive, and especially where the consequences include effects on people not party to the legal action, but whose whole constellation of expectations have been changed. However difficult it may be to directly know what is going on in someone else’s mind — such as changing expectations — it has concrete consequences which take place long before the future events contemplated. Restrictions on the future use of property is a reduction in its present value, since one component of its present value is its future saleability. In short, a reduction in property rights is a partial confiscation of property; to take away 10 percent of the value of land is economically no different from taking away 10 percent of the land itself.