Slide 1: Title Slide

Politics, Rationality, and Incentives: The Public Choice Perspective on Federal Government

Speaker Notes: * (Welcome students) * Today, we’re going to talk about the behavior of everyone involved in politics—from voters to politicians to the people running government agencies. * We’ll be using a framework that’s different from what you might see in a civics class. It’s an economic way of thinking about political action.

Slide 2: Where We’ve Been, Where We’re Going

• Previous Lectures:
  • Utility Maximization (People make choices to maximize their well-being).
  • Unintended Consequences (Actions have predictable, but often unseen, side effects).
  • Hayek’s Road to Serfdom (A warning about central planning).
• Today’s Lecture:
  • We will use these three concepts as our foundation.
  • We’ll apply the “utility maximization” model to political actors.
  • We’ll see how this model provides the mechanism for unintended consequences and Hayek’s warning.

Speaker Notes: * Think of today’s lecture as the “operating manual” for the big ideas from our last two classes. * We’re not just saying “unintended consequences happen”; we’re going to model why they happen, based on the rational decisions of the people involved.

Slide 3: The “Public Interest” vs. A New Model

• The Traditional View: “Politics as Romance”
  • Assumes politicians and bureaucrats are “public servants”.[1]
  • Their goal is to find and promote the “common good” or the “will of the people”.[1, 2, 3]
  • This model assumes people’s motivations change when they enter public service.
• The Public Choice Challenge:
  • What if they don’t?
  • What if a person is the same person in the grocery store and in the voting booth?

Speaker Notes: * The “romantic” view is what we’re taught in grade school. It’s a nice idea, but it’s an assumption. * It assumes a “Jekyll and Hyde” model of human nature: you’re a self-interested homo economicus when you buy a car, but you become a selfless homo politicus when you vote. * Public Choice theory challenges this by asking a simple, powerful question.

Slide 4: What is Public Choice Theory?

• Definition: The application of economic tools and assumptions to political behavior.[1, 4, 5]
• Key Concept: Motivational Symmetry [1]
  • The assumption that people’s motivations are the same in all contexts.
  • People are “utility-maximizers” [1, 6]—they act in their own self-interest, whether they are:
    • Consumers (seeking the best product)
    • Voters (seeking… what?)
    • Politicians (seeking votes) [1]
    • Bureaucrats (seeking power, bigger budgets) [1]
• Coined by James Buchanan as “Politics Without Romance”.[1, 4]

Speaker Notes: * This is the central slide of the entire lecture. If you get this, you get Public Choice. * It’s not saying people are “evil” or “greedy.” “Self-interest” can include caring for your family, your community, or your environment. It’s just your set of preferences. * Public Choice simply refuses to grant political actors a special, angelic motivation that the rest of us don’t have. It demands we treat them as rational, self-interested people, just like everyone else.

Slide 5: Rational Choice vs. Public Choice

• Rational Choice Theory (The PREMISE):
  • An individual theory.[7]
  • Assumes individuals have consistent preferences (utility maximization) and will act to achieve them.[8, 9, 10]
  • It’s a “means-end calculated process”.[11]
• Public Choice Theory (The APPLICATION):
  • A collective theory.[11, 12, 13]
  • Applies the rational choice premise to the public sector.
  • Asks: What political outcomes happen when millions of rational, self-interested individuals interact within political institutions? [4, 12]

Speaker Notes: * This is a quick clarification. Rational Choice is the engine (how the individual thinks). Public Choice is the car (how the system moves when you put a bunch of those engines together). * Today, we are mostly talking about Public Choice.

Slide 6: PART 1: The Voter

How does a “rational” person behave in the act of voting?

Slide 7: The Paradox of Voting

• Let’s model voting as a rational investment decision.[14]
• The Formula: \(U = (B \cdot p) - C\) [15]
  • \(C\) = Cost. The cost of voting (time, research, driving).[15, 16] This is positive and certain.
  • \(B\) = Benefit. The personal benefit you get if your candidate wins.[8]
  • \(p\) = Probability. The probability that your single vote will be the one that breaks a tie.[15]
• The Paradox:
  • In any large election (e.g., Texas Governor), the probability (\(p\)) of your vote being decisive is “vanishingly small”.[1, 17] It’s essentially ZERO.
  • The formula becomes: \(U = (B \cdot 0) - C\)
  • The expected utility is \(U = -C\).
• Conclusion: It is irrational to vote.[16, 18, 19] But millions of people do.

Speaker Notes: * Let’s apply the model. Your costs (\(C\)) are real: you have to register, figure out who to vote for, and wait in line. * Your benefit (\(B\)) might be huge—maybe you think you’ll get a \(1,000 tax cut if your person wins. * But what's the *probability* (\)p$) that your vote is the deciding vote? In a state with 10 million voters, it’s basically zero. * So, the massive benefit is multiplied by zero. Your expected benefit is zero. But your cost is positive. * A purely rational, self-interested person should never vote. This is Downs’ Paradox. So why does turnout happen?

Slide 8: Solving the Paradox: The “D” Term

• The model was missing a variable.
• The Real Formula: \(U = (B \cdot p) - C + D\) [8, 14]
  • \(D\) = Duty / Psychic Benefit. The satisfaction you get from the act of voting itself.[8, 14]
• This changes voting from an investment to an act of consumption.[14]
• This is “Expressive Voting”.[15, 20, 21]
  • The Analogy: Cheering for the Dallas Cowboys.[1, 15]
  • Your cheering doesn’t cause them to win (your \(p \approx 0\)).
  • You do it for the \(D\) benefit—to express your identity, show your support, and feel part of the team.

Speaker Notes: * The “D” term is the key. You don’t vote to change the outcome. You vote because it feels good to express your preference. * It’s like cheering at a football game. You pay a cost (ticket, time). Your individual cheer has no effect on the outcome. But you do it for the “D” benefit—the psychic pleasure of being a fan. * This has a big implication: If voters are “cheering” rather than “investing,” they are incentivized to support policies that feel good to support, not policies that are effective.[21, 22]

Slide 9: The Consequence: Rational Ignorance

• If your vote doesn’t change the outcome, what is the rational amount of time to spend researching politics?
• Cost to be Informed: Very HIGH (learning economics, foreign policy, science).[1]
• Benefit of Being Informed: Very LOW (zero, since your vote doesn’t matter).[1, 17]
• Rational Outcome: Don’t waste your time. It is rational for voters to be “poorly informed”.[1, 17, 23]
• This is NOT saying voters are stupid. It’s saying they are rational and use their time on things they can actually affect (like their job or family).
• Result: Voters use “information shortcuts” or heuristics, like:
  • Straight-ticket party voting.[23]
  • Endorsements.
  • Candidate “image”.

Speaker Notes: * This is one of the most important concepts in Public Choice. * Think about it: would you spend 40 hours researching the federal budget if your vote has a 1-in-100-million chance of mattering? No, that would be irrational. You have an exam to study for. * This “rational ignorance” is the precondition for special interest politics. The system only works because the general public is not paying attention to the details.

Slide 10: PART 2: The Political Marketplace

• If Voters are Consumers…
• Then Parties & Politicians are Firms.
• The “product” they sell is policy/platforms.
• The “profit” they seek is VOTES.[24, 25]
• Their goal is to win the election.

Slide 11: Hotelling’s “Main Street” Model (1929)

• The Analogy: A 1-mile beach with customers spread evenly.[26]
• Two ice cream vendors (A and B) want to sell identical ice cream.
• Goal: Maximize market share.
• Customers are “rational” and will go to the closest vendor.[26, 27]

1. “Socially Optimal”: Carts at 1/4 mile and 3/4 mile. Everyone walks a minimum distance. Each cart gets 50% of the market.[26]
2. Incentive to Converge: Cart A realizes if it moves one foot to the right, it keeps all customers to its left and steals center customers from B.[24]
3. Nash Equilibrium: Cart B has the same incentive. The “race to the center” continues until both carts are back-to-back at the exact 50-yard line (the MEDIAN).[26]

Speaker Notes: * This is a famous model from economics that perfectly illustrates political competition.[26] * (Walk through the 3 steps). * This equilibrium is rational for the vendors, but inefficient for the customers at the ends of the beach, who now have to walk half a mile. * This simple model of ice cream carts explains a fundamental law of politics.

Slide 12: The Median Voter Theorem (MVT)

• Applies Hotelling’s model to politics.[1, 28, 29]
• Assumptions:
  1. Two parties (like the US).[24, 25]
  2. Parties only want to maximize votes.[24]
  3. All preferences are on a single left-right line.[24, 30]
  4. Voters choose the candidate closest to them.[24, 28]
• The Prediction: Both parties will converge on the policy position of the Median Voter.[24, 31, 29, 32, 33]
• They will become nearly indistinguishable, offering “an echo, not a choice”.[34]

Speaker Notes: * The “beach” is the ideological spectrum from Left to Right. The “customers” are voters. The “vendors” are the Democratic and Republican parties. * The MVT predicts that any party that moves away from the median voter can be beaten by a party that moves slightly closer to the median. * The rational strategy for both is to “race to the center.” This predicts a bland, centrist political system. * (Ask class): Does this sound like modern American politics?

Slide 13: The Critique: Why Does the MVT Fail?

• The Obvious Problem: We don’t have convergence. We have extreme polarization.[35, 36, 37, 38]
• The MVT is an elegant model, but its assumptions are wrong.
• Why it fails:
  1. Abstention: The MVT assumes everyone votes.[24] But if moderate, median voters stay home, parties will rationally cater to the “militant elements at the edges” who do vote.[35, 39]
  2. Ideology: The MVT assumes parties only want to win.[24] Many activists and candidates care more about ideological purity than winning.[40, 41]
  3. The “Two Medians” Problem: The MVT assumes one election. We have two.

Speaker Notes: * The class should immediately say “No! That’s not what we see!” * The MVT is a powerful model, but it clearly fails to predict our current reality. * Public Choice theory explains this by looking at how our institutions break the MVT’s simple assumptions. The most important one is the Primary system.

Slide 14: The “Two Medians” Problem

• A rational candidate must win two elections, each with a different median voter.[42, 43]

• Median Primary Voter: Far to the left (D) or right (R) of the center.[44]

• Median General Election Voter: Closer to the middle.

• The Rational Candidate’s Dilemma:

  1. Stage 1 (Primary): Must move to the extreme to win the nomination.[45]
  2. Stage 2 (General): Must “pivot” back to the center to win the general election.[46, 47]

• This “pivot” is “flip-flopping” [46], and it’s risky. Go too extreme in the primary, and you are unelectable in the general.[48]

Speaker Notes: * This is the single best explanation for polarization. * To win the Republican primary in Texas, you have to appeal to the median Republican primary voter, who is very conservative. * To win the Democratic primary, you appeal to the median Democratic primary voter, who is very liberal. * Then, after winning, you have to try and run back to the center without being called a flip-flopper. * This creates a “damned if you do, damned if you don’t” scenario. Candidates who are “extremists” are much more likely to lose the general election.[48]

Slide 15: Texas Case Study: 2018 vs. 2022

• 2018 Senate (Cruz vs. O’Rourke):
  • A classic (though close) MVT battle for the center.
  • O’Rourke ran a “purple,” median-seeking campaign.[49, 50]
  • Result: A “narrow” race, exactly as a battle for the median would predict.[51]
• 2022 Governor (Abbott vs. O’Rourke):
  • Not an MVT battle.
  • Abbott faced primary challenges from his right, pulling him away from the center.
  • O’Rourke was “stuck” with policy positions from his 2020 presidential primary (far to the left of the Texas median).[52, 53]
  • Result: Neither could fully pivot. It became a base-mobilization election, and Abbott won easily.[52, 54]

Speaker Notes: * We can see this “Two Medians” problem right here in Texas. * The 2018 race was a classic political fight. O’Rourke almost won by running as a centrist. * In 2022, both candidates were haunted by their primaries. Abbott was fending off challenges from his right. O’Rourke was stuck with positions he took to appeal to national primary voters. * Neither could effectively “pivot” to the Texas median, so the race wasn’t close.

Slide 16: PART 3: The Bureaucrat

• What about the “Fourth Branch”?
• The millions of non-elected government employees in the federal bureaucracy (Dept. of Education, EPA, DoD, etc.).
• How does a rational, self-interested bureaucrat behave?

Slide 17: The “Rational” Bureaucrat

• The “Romantic” Model: The “Public Servant”
  • Neutral, expert technocrats.[3]
  • Selflessly implement the will of Congress.[1, 2]
  • Motivation: The “public good.”
• The Public Choice Model: The “Rational Actor”
  • Motivational symmetry: They are self-interested, just like everyone else.[1, 4]
  • What do they maximize? Not votes, not profits.
  • They maximize personal utility, which comes from:
    • Power & Influence [1, 2]
    • Job Security [2]
    • Prestige [1, 2]
    • A bigger office, more staff, more travel [1, 2]

Speaker Notes: * Again, we have the “romantic” view versus the Public Choice view.[2] * The romantic view is of the selfless public servant. * The Public Choice view says they are rational actors. They don’t seek profit (it’s not a business) and they don’t seek votes (they’re not elected). * So what do they seek? They seek the things that give them a better life: power, prestige, job security, and the perks of the job.[2]

Slide 18: Niskanen’s Budget-Maximization Model

• Economist William Niskanen provided the formal model.[55, 56]
• All those goals (power, prestige, etc.) can be achieved by maximizing ONE simple proxy:
• THE AGENCY’S TOTAL BUDGET.[1, 3, 56]
• A bigger budget is the “master variable.” It is the source of power, prestige, and promotions.[2, 56]
• Mechanism: Bureaucrats have an information monopoly. They know the true cost of their services, but Congress (their “sponsor”) does not.[1, 3]
• Predicted Outcome: “Empire Building”.[57, 58] Agencies will always push for more money and always grow larger than the socially efficient size.[55, 56]

Speaker Notes: * Niskanen’s insight was brilliant. He said all those fuzzy goals can be boiled down to one thing: a bigger budget.[56] * A bigger budget is the only way a bureaucrat “wins.” There’s no profit-and-loss signal to tell them they’re efficient.[59] Success is a bigger budget. * They can get this by telling Congress, “To provide the service you want, this is the (inflated) cost.” Congress is “rationally ignorant” about the details and often has to approve it. * This leads to “empire building”—agencies that seem to grow and grow, regardless of whether they’re succeeding or failing.[57]

Slide 19: PART 4: Government Failure

• What happens when we put all these rational actors together?
  • Rational Ignorant Voters
  • Vote-Maximizing Politicians
  • Budget-Maximizing Bureaucrats
• The result is a set of predictable, inefficient outcomes called “Government Failure”.

Slide 20: “Market Failure” vs. “Government Failure”

• Market Failure:
  • Situations where the free market fails to produce an efficient outcome (e.g., monopolies, pollution).
  • This is the traditional justification for government intervention.[60]
• Government Failure:
  • A parallel concept from Public Choice.[4, 61, 17]
  • When government intervention—even if well-intentioned—also fails, creating its own inefficiencies.[61, 62]
  • The “solution” to market failure (government) often has its own set of failures.[63]

Speaker Notes: * You’ve heard of “market failure.” This is the idea that markets aren’t perfect. * Public Choice introduces the mirror-image concept: “government failure”.[4] * This theory says that just because a market fails, it does not automatically mean the government’s solution will be better. The “solution” can, and often does, make things worse. * Public Choice explains why this happens.

Slide 21: The Logic of Government Failure

• The entire system runs on one core mechanism:
• Concentrated Benefits vs. Diffuse Costs [4, 64]
• The Example: A tariff on imported steel.[17]
  • Concentrated Benefit: A handful of domestic steel companies (like in Pennsylvania or Ohio) get massive benefits, worth hundreds of millions.[64]
  • Diffuse Cost: 330 million American consumers each pay a few extra cents for a car, a soup can, or a washing machine.[4]
• The Political Mismatch:
  • The steel companies are highly motivated to lobby for the tariff.
  • The public is rationally ignorant.[1] You aren’t going to march on Washington to save 50 cents a year.
• Outcome: The rational, vote-seeking politician gives the tariff to the special interest in exchange for support.

Speaker Notes: * This is the other most important slide. If you understand this, you understand 90% of what happens in D.C. * (Walk through the steel example). * The steel company has a concentrated benefit. It’s rational for them to spend $10 million on lobbyists to get a $100 million benefit. * The cost is diffuse. It’s spread across all of us. No one voter has an incentive to fight it. * This mismatch—a loud, motivated special interest on one side, and a silent, rationally ignorant public on the other—explains why inefficient policies get passed and stay passed.

Slide 22: Rent-Seeking

• Definition: The act of spending resources to gain unearned wealth (“rent”) by manipulating politics, rather than creating new wealth through production.[65, 64, 66]
• It is privilege-seeking, not profit-seeking.
• Examples:
  • Lobbying for a direct subsidy.[17, 65]
  • Lobbying for a tariff to block competitors.[17, 66]
  • Lobbying for complex regulations that create barriers to entry for new businesses.[17, 67]

Speaker Notes: * This behavior has a name: “Rent-Seeking”.[65] * “Rent” in this economic sense just means unearned profit. * This is when a company spends its money not on R&D to build a better product, but on lobbyists to get the government to ban their competitor’s product.[65] * It’s a rational investment for the firm, but it’s a total waste of resources for society.

Slide 23: Logrolling

• Definition: The process of legislative vote-trading. A “quid pro quo”.[68, 69]
• “You vote for my project, and I’ll vote for yours”.[70, 71]
• Why? A bill for a single dam in a single district would fail 434-1.
• Solution: Bundle hundreds of these projects into one giant “omnibus” bill. Now, everyone who gets their project votes “YES”.[1, 68]
• Classic Example: The Compromise of 1790.[72]
  • Hamilton (North) wanted the federal gov’t to assume state debts.
  • Jefferson (South) wanted the nation’s capital on the Potomac.
  • They traded votes. Both bills passed.[72]

Speaker Notes: * So how do these special interest projects pass? Through “logrolling”.[73, 68, 69] * This is just vote-trading. * My project (a new dam in my district) has a concentrated benefit for me, but the costs are diffuse for everyone else. Your project (a new research center in your district) is the same. * Neither of our projects would pass on its own. * So, we “logroll.” We bundle them. I vote for yours, you vote for mine. Now we both win. * This isn’t new—it’s how the U.S. capital ended up in D.C..[72]

Slide 24: Pork-Barrel Spending (“Earmarks”)

• Definition: The result of rent-seeking and logrolling.[74, 75]
• An “earmark” is a provision in a spending bill that directs funds to a specific project in a specific representative’s district.[74, 76]
• It’s the ultimate “Concentrated Benefit, Diffuse Cost.”
  • Benefit: The representative gets to “bring home the bacon” and win votes.[76]
  • Cost: Spread across all national taxpayers.
• Infamous Example: The “Bridge to Nowhere”.[75, 77]
  • A $398 million bridge in Alaska to connect a town to an island with 50 residents.[75, 77]

Speaker Notes: * The result of this process is what we call “pork-barrel spending”.[74, 75, 77] The formal name is an “earmark”.[76] * This is the physical manifestation of concentrated benefits. * The “Bridge to Nowhere” is the most famous example, but this happens all the time.[75, 77]

Slide 25: “Bringing Home the Bacon” (Texas Edition)

• This is not a “Red” or “Blue” issue. It is a rational issue.
• All rational, vote-seeking politicians do this.
• Examples from the FY2024 Budget for Texas:

Speaker Notes: * And yes, this happens right here in Texas.[81, 82] * I want to be very clear: This is not a partisan critique. As you can see from this table of 2024 earmarks, both parties do it. * Why? Because it is rational. Rep. Casar (a Democrat) and Rep. McCaul (a Republican) are both rational actors. They “bring home the bacon” to their districts, and their constituents reward them for it. * The cost is spread across 330 million taxpayers, who are all rationally ignorant of these specific line items.

Slide 26: PART 5: Conclusion & Synthesis

• Let’s tie this all back to our starting concepts.

Slide 27: Tying It All Together

1. Unintended Consequences:
   • Public Choice shows they often aren’t “unintended.” They are the predictable, logical results of self-interest.[17]
   • The “unintended” waste from a tariff is a predictable result of rent-seeking.[83]
   • The “unintended” growth of an agency is a predictable result of budget-maximization.[84]
2. Hayek’s Road to Serfdom [85]:
   • Hayek warned that central planning leads to a loss of freedom.[85]
   • Public Choice provides the mechanism for how this happens.[86]
   • When gov’t gains power to “intervene,” it creates a “rent”.[86, 67]
   • Rational rent-seekers (lobbyists) will fight to capture this power.[65, 87]
   • Rational bureaucrats (agencies) will fight to expand this power.[56]
   • This combination creates a one-way “road” of government growth and dependency [86], just as Hayek warned.

Speaker Notes: * So let’s bring it home. * Public Choice refines the idea of “unintended consequences.” These aren’t accidents. They are the predictable results of a system made of rational actors. * And this provides the engine for Hayek’s warning. Hayek warned what would happen. Public Choice shows how it happens, step-by-step. * When government is given the power to pick winners and losers, it creates a powerful incentive for people to stop creating wealth (building better products) and start rent-seeking (lobbying). * This, combined with budget-maximizing bureaucrats, creates a feedback loop of government growth. That is the “road” Hayek was talking about.

Slide 28: Discussion Questions

1. If voting is “expressive” (like cheering for a team), what does that imply about the concept of a “mandate from the people” after an election?

2. The MVT predicts convergence, but we see polarization. Based on the “primary” model, what institutional rule could you change to make candidates more moderate?

3. Is “pork-barrel” spending (like the projects in Texas) a good thing (legislators representing their constituents) or a bad thing (wasteful spending)?

4. If bureaucrats are rational budget-maximizers, how could you change the incentives for a government agency?

5. If “government failure” is as real as “market failure,” how does this complicate the argument that “the government should step in” to fix a problem?

Slide 29: Questions?

Thank you.

Authorship and License

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• Author: Tom Hanna

• Website: tomhanna.me

• License: This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Unless otherwise noted all images are the original work of the author or produced by the author using Perplexity or Gemini.