Political systems provide some feedback via the electoral process, so that laws can be amended, repealed, or given varying amounts of financial support. This feedback is neither as fast nor as universal, nor as immediately coercive as in economic market processes. The growing area of administrative decision making is even more insulated from electoral feedback, and legal institutions at the higher, appellate court levels have been made virtually election-proof, except for the confirmation process. As compared to economic institutions, the virtues of political, administrative, and judicial institutions are not so much responsiveness as reliability. Their decisions are not separate and episodic but precedential: political, legislative, and administrative rulings are in effect until explicitly repealed or declared unconstitutional, and changes in court rulings are self-restricted by deliberate reluctance to needlessly upset precedents. The basic framework of political, administrative, and judicial rulings is categorical-legal or illegal, guilty or innocent-though much ingenuity may go into introducing elements of flexibility and incremental decision making into these institutional processes. Still, these flexible and incremental features are not as integral to such processes as to economic institutions. #51 | | |
Political systems allow affected third parties to influence economic transactions from which their interests are excluded. Political decision making can lower transactions costs by allowing a relatively few surrogates to make and implement decisions reflecting the will of millions who have insufficient individual stake (or resources) to incur the huge costs of devising and transacting some of the decisions they believe in. #52 | | |
Social transactions may generate not only costs external to the transacting parties but also benefits external to those parties. Economic institutions do not bring such benefits to bear on the decision makers. Theoretically, the beneficiaries might bring such considerations to bear through offers of reward to the transacting parties to shape their decisions so as to optimize third party benefits, but in practice the number and dispersion of the beneficiaries, and the corresponding cost of identifying and welding these diffuse interests into a coherent bargaining agent typically prevent this." #53 | | |
A special case of external benefits is "social overhead capital"-invest- ments whose benefits accrue to a wide variety of individuals and institutions which do not themselves incur the cost of making the investment. For example, a sewage system reduces the incidence of disease and debilitation, enabling workers to work more days and earn more pay, and enabling employers to have a more reliable workforce and correspondingly higher profits. Raising children to be honest is an investment made by parents, but among the beneficiaries are credit card companies, self-service stores, and the Internal Revenue Service. The fact that those who incur the costs of the investment are not the same as those who reap the dividends makes it more difficult for economic institutions to achieve the level of investment justified by the returns, and thereby creates a role for political surrogates. #54 | | |
The time horizon of the constituent may he his lifetime, and perhaps that of his children, or even the longer range interest of the whole society as an on-going enterprise. The inherent incentive structure facing a political surrogate emphasizes the time remaining between a given decision and the next election. The opportunity for policies with immediate benefits and longer run negative consequences are obvious, not only in theory but in practice. Similarly, differences in information and transactions costs per unit of benefit between the citizen and organized interest groups, as well as between the citizen and his political surrogate, create inherent incentives for policies with concentrated benefits and diffused costs-even though the costs may be several times the benefits, whether measured financially or otherwise. #55 | | |
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 socalled "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. #56 | | |
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. #57 | | |
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. #58 | | |
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. #59 | | |
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. #60 | | |
Similar reasoning applies to other restrictions on other values not expressed in money terms. Changing expectations of future social relationships of school children bring forth varying present reactions of parents. In some cases, these present reactions may be more vehement than after the future event actually arrives-as claimed by some supporters of "busing," for example-but this merely illustrates the correspondence between economic and noneconomic translation (or inherent equivalence) of future expectations into present costs or benefits. #61 | | |
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Judicial decision making is made necessary by the insufficiencies of language, even if everyone were willing to obey the law as he understood it. Political leaders cannot exhaustively specify the application of the principles they legislate. Moreover, the people may choose to bind themselves and their political surrogates in advance, during presumably more sober periods, against actions they might take in rash moments. This simply means that, beyond some point, flexibility of decision making is deemed harmful and the rigidities of Constitutional limitations are preferred within that range of decisions. This parallels the economic law of diminishing returns, under which a given input has varying effects on output over different ranges, including-beyond some point-a negative effect. If flexibility is considered as an input in decision-making processes, then it too, clearly, has a range within which it is enormously valuable, another range within which it is more moderately valuable, and another range within which it is positively harmful. Otherwise we would leave ourselves unlimited flexibility to take the most sweeping and drastic actions on the basis of the most transient 51 percent majority. Instead special rigidities--"rights"-are deliberately built into the system to apply to such things as life, liberty, and property, where our primary interest is in security rather than in fine tuning the social mechanism to capture fleeting advantages. #63 | | |
Even as compared to formal economic or political processes, judicial decision making tends to be more categorical, rather than incremental. Not only do criminal cases tend to be dichotomized into guilty or innocent, and appellate decisions into constitutional or unconstitutional, the legal precedents apply to all similarly circumstanced individuals-where the similarity is in those articulated characteristics documentable to third parties, whether or not these are the characteristics most behaviorally determinative or philosophically crucial. By contrast, informal social processes can adjust the time, scope, and degree of specialness of treatment of the salient characteristics of each individual person and each episode, as determined by closer knowledge, unrestricted by the inherent limitations of articulation or of secondhand data filtered through legal rules of evidence. #64 | | |
No such close weighing of incremental costs and incremental benefits can be expected in judicial processes whose social benefits take the rigid form of "rights" applicable to categories, and costs take the form of correspondingly rigid obligations. In short, judicial decision making especially at the appellate level, consists of "package deals," in which the package is quite extensive in time as well as space, and has contents which are homogeneous only with respect to articulated, documentable variables-and may be quite heterogeneous with respect to all other behavioral or philosophical considerations. #65 | | |
SUMMARY AND IMPLICATIONS #66 | | |
The most basic of all decisions is who shall decide. This is easily lost sight of in discussions that proceed directly to the merits of particular issues, as if they could be judged from a unitary, or God's eye, viewpoint. A more human perspective must recognize the respective advantages and disadvantages of different decision-making processes, including their widely varying costs of knowledge, which is a central consideration often overlooked in analyses which proceed as if knowledge were either complete, costless, or of a "given" quantity. Decision-making processes differ not only in the quantity, quality, and cost of knowledge brought to bear initially, but also and perhaps still more so, in the feedback of knowledge and its effectiveness in modifying the initial decision. This feedback is not only additional knowledge, but knowledge of a different kind. It is direct knowledge of particulars of time and place, as distinguished from the secondhand generalities known as "expertise." The high personal cost of acquiring expertise, and the opportunities it presents for displaying individual talent or genius, make it a more dramatic form of knowledge, but riot necessarily a more important form of knowledge from a decision-making point of view. Certainly expertise is not sufficient in itself without the additional direct knowledge of results obtainable closer at hand, and at lower cost, by great numbers of individuals who acquire no personal distinction from possession of that kind of knowledge. #67 | | |
"Society" is not the only figure of speech that confuses the actual decisionmaking units and conceals the determining incentives and constraints. "The market" is another such misleading figure of speech. Both the friends and foes of economic decision-making processes refer to "the market" as if it were an institution parallel with, and alternative to, the government as an institution. The government is indeed an institution, but "the market" is nothing more than an option for each individual to chose among numerous existing institutions, or to fashion new arrangements suited to his own situation and taste. #68 | | |
The government establishes an army or a post office as the answer to a given problem. "The market" is simply the freedom to choose among many existing or still-to-be-created possibilities. The need for housing can be met through "the market" in a thousand different ways chosen by each personanything from living in a commune to buying a house, renting rooms, moving in with relatives, living in quarters provided by an employer, etc., etc. The need for food can be met by buying groceries, eating at a restaurant, growing a garden, or letting someone else provide meals in exchange for work, property, or sex. "The market" is no particular set of institutions. Its advantages and disadvantages are due precisely to this fact. Any comparison of market processes and governmental processes for making a particular set of decisions is a comparison between given institutions, prescribed in advance, and an option to select or create institutions ad hoc. There are of course particular institutions existing in the market as of a given time. But there can be no definitive comparison of market institutions-such as the corporation-and a governmental institution, such as a federal bureaucracy. The corporation may be the predominant institutional way of doing certain things during a particular era, but it will never be the only market mechanism even during that given era, and certainly not for all eras. Partnerships, cooperatives, episodic individual transactions, and long-run contractual agreements all exist as alternatives. The advantages of market institutions over government institutions are not so much in their particular characteristics as institutions but in the fact that people can usually make a better choice out of numerous options than by following a single prescribed process. #69 | | |
The diversity of personal tastes insures that no given institution will become the answer to a human problem in the market. The need for food, housing, or other desiderata can be met in a sweeping range of ways. Some of the methods most preferred by some will be the most abhorred by others. Responsiveness to individual diversity means that market processes necessarily produce "chaotic" results from the point of view of any single given scale of values. No matter which particular way you think people should be housed or fed (or their other needs met) the market will not do it just that way, because the market is not a particular set of institutions. People who are convinced that their values are best-not only for themselves but for others-must necessarily be offended by many things that happen in a market economy, whether those people's values are religious, communistic, white supremacist, or racially integrationist. The diversity of tastes satisfied by a market may be its greatest economic achievement, but it is also its greatest political vulnerability. #70 | | |
Decision making through any kind of process involves costs created by the decision-making process itself, quite aside from those costs created by the particular decisions reached. Achieving agreement or resolution of opposing views is never free. Nor should these "transactions costs," as economists call them, be thought of as minor incidental expenses. The transactions costs of choosing a new emperor of the Roman Empire often included tens of thousands of lives and the destruction of whole cities and surrounding countrysides in battles among contenders. The devotion of many rational and publicspirited men of later times to the principle of royal succession, which might seem at first to be only an irrational special privilege, is more easily understood against an historical background of astronomical transactions costs in choosing national leaders. Even one who felt that a given king (or kings in general) had only average intelligence, or even somewhat below average intelligence, might still reasonably choose to bear with royal succession if he felt that the likely differences in leadership were not worth the carnage involved in alternative political processes available at the time. #71 | | |
The rise of modern conditions-notably literacy and mass communications-made democratic and constitutional methods of changing national leadership possible. It does not make agreement on issues a free good, however. Again, the tendency to proceed directly to the "solution" of "problems" from some given viewpoint or given set of values overlooks the crucial point that the diversity of viewpoints and values means that costs of concurrence and the amount of concurrence made necessary by different policies can vary enormously. The net difference between policy x and policy y may be far less than the cost of choosing, or one policy may require far more consensus than the other. The Godlike approach to social policy ignores both the diversity of values and the cost of agreement among human beings. The political and/or economic systems which involve less control from higher authorities reduce the costs of concurrence-which can range all the way up to concentration camps and genocide. To those who feel that their values are the values, the less controlled systems necessarily present a spectacle of "chaos," simply because such systems respond to a diversity of values. The more successfully such systems respond to diversity, the more "chaos" there will be, by definition, according to the standards of any specific set of valuesother than diversity or freedom as values. Looked at another way, the more self-righteous observers there are, the more chaos (and "waste") will be seen. #72 | | |
Ringing calls for a national consensus on this or that are often preposterous in the literal sense of putting in front what comes behind. It is true thatviewed in retrospect-those national consensuses that have in fact been achieved have often been both practically fruitful and emotionally satisfying. This is because, given the enormous cost of consensus, it is unlikely to be achieved, except on something of overwhelming urgency to an overwhelming majority of people. Unity in wartime, when national survival is threatened, is an obvious example. In short, it is the high value involved in the result-survival, in this case-that makes us willing to pay the high cost of consensus. It is not the cost that creates the value, however. Nor can we make other things valuable by incurring large costs for them, such as by trying for a national consensus about them. On the contrary, we satisfy our desires at least cost-which is to say, we can satisfy more of our desires-by minimizing the amount of consensus that is necessary. We easily provide ourselves with food and clothing precisely because there is no consensus needed as to what is the best food or the best clothing. If we had to reach a consensus first, we might destroy ourselves in the process of trying to meet simple basic needs. Man's equally pervasive spiritual needs-whether met in religious or ideological ways-have often led to such mutual destruction, ranging from persecution to wholesale slaughter, when particular religious or political creeds required consensus as part of their tenets. Individualism and pluralism in social, political and economic processes reduce the need for consensus-at the cost of presenting an untidy spectacle of "chaos" to those eager for a consensus in support of their own particular subjective values. The Constitution of the United States implicitly recognizes the very high cost of consensus in some areas by flatly forbidding the government from even attempting to reach a consensus in religious matters. Yet the cost of consensus is implicitly treated as negligible in naive complaints that "the American sys tem seems less well adapted to the mobilization of a positive energetic will."" That failing is sometimes known as freedom. #73 | | |
One of the problems involved in understanding decision making through any kind of institutional process is that the cause of a decision must be distinguished from the mechanism that transmits it. The ancient practice of killing the messenger who brought bad news suggests that this separation of causal factors from transmitting mechanisms is especially difficult in emotion-laden areas. Institutions frequently transmit unwelcome news-such as the unacceptability of one's performance in school or on the job, or the reduced availability of a desired commodity or the unlikelihood of one's political ideals being realized. The question then is whether the institution was itself responsible for this outcome, or was simply a messenger bringing bad news. Attempts to prevent institutions from conveying bad news-e.g., nofail grading, "job security," price controls, etc.-raise the cost of transmitting knowledge and retard the adjustment to that knowledge. #74 | | |
Before attempting to determine the effect of institutions, it is necessary to consider the inherent circumstances, constraints, and impelling forces at work in the environment within which the institutional mechanisms function. The analysis of these impulsions and constraints-i.e., social "theory"must at least supplement the consideration of institutional mechanics. Decision making depends not only on the kinds of processes through which decisions are made, but on the nature of the trade-offs involved. Perhaps the easiest kinds of trade-offs to visualize are economic trade-offs, which can be quantified in money terms, but broader social trade-offs may be even more important, even if expressed in less tangible terms. Economic, social, and political trade-offs will be considered in the next three chapters. #75 | | |
