Tue, 18 Mar 2003

Democracy is not always representative

Dave Farber runs a mailing list called Interesting-People. He mostly publishes things that interest him (even things he disagrees with), and which he thinks will be interesting to people he finds interesting. With over 10K readers, you could say that he runs the grand-daddy of all blogs. I'm going to spare the contributor who opined the following from any direct embarrassment, but if you really want to know who said it, you can examine Dave's archives.

At this point, all the economists in the audience start to twitter. It's well-known at least among the economically savant that in fact democracies do NOT necessarily represent the 'will of the people'. Let's take an issue and call it X (hoary, I know, but run with it). With any issue put before a legislature, people will not be affected equally. Some will benefit greatly, some perhaps little. With some issues, some benefit greatly, and others are harmed little.

Transfer payments, always a popular action among the representative set, are like that. Take a circle of a hundred people, each with a handful of nuts. Go around the circle and take a nut from everybody. Throw away fifty nuts. Pick someone at random and give them fifty nuts. They will be happy. Everyone else won't care much. This is the problem in a nutshell (buh-dum-dum).

Economists have noticed that a democratic government often does not accurately express the 'will of its people'. The problem is that the incentives to improve society are perverse. There exists a type of friction in the marketplace called transaction costs. Every time you make any kind of trade, there is always some waste. It's precisely analogous to friction in physics. A part of what you want is lost in the transfer.

When the value of a transaction is exceeded by the cost of the transaction, the transaction doesn't occur. More is destroyed by pursuing that transaction than is gained. When 99 people lost a single nut, they didn't care enough to stop that particular transaction. The cost of doing so was worth more than the value of the nut. On the other hand, the person who got the fifty nuts was very happy. They had a concentrated interest in the nut deal.

There are many cases in a democratic government where the cost to the multitude is small enough that they just don't care. The effort needed to stop X (remember X? This story is about X) is below the pain caused by X. On the other hand, the party who benefits from X is very interested in ensuring that X happens. They'll be willing to spend money to cause X to happen (those are the fifty nuts that got destroyed).

There are many, many examples of this effect. After reading this, I'm sure that you can name some. It's completely bogus to say that a democratic government follows the will of its people. That activity is observed more in the theory than the practice.

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