Buchanan, Olson, and the Economic Case for Direct Democracy

Two economists working on public choice give us, between them, a fairly complete diagnosis of why representative government produces the outcomes it does. Neither set out to argue for direct democracy. Both arguments point there anyway.

Buchanan: The Deficit Is Structural

James Buchanan's charge against representative democracy is that it is fiscally irresponsible by construction — it overspends and does not cover its deficits.

The mechanism runs through Keynesian economics, and it is worth being precise about where the failure lies. Keynes did not licence permanent deficits. The theory has two phases: government spends into a downturn, and then, when conditions improve, it runs surpluses and pays down what it borrowed. The counter-cyclical logic requires both halves.

Only the first half ever happens.

This is not a flaw in the economics; it is a flaw in the institution asked to execute it. Spending is popular and paying down debt is not. A politician facing election in three years has no incentive to run the surplus, and every incentive to leave it to a successor. Keynes assumed a state that could be trusted with a two-phase plan, and we gave the plan to an institution that is structurally incapable of executing the second phase. Today's debt levels are the accumulated evidence.

The direct-democracy corrective is straightforward. A public that can vote directly on spending has to face the bill in a way that a representative choosing between re-election and fiscal prudence does not. This is not a claim that publics are wise. It is a claim about who bears the consequence of the decision, and when.

Olson: Why Small Groups Win

Mancur Olson supplies the other half, and it explains something Buchanan's account leaves open — whose interests the overspending serves.

Concentrated interests beat diffuse ones, reliably, and the reason is arithmetic. A manufacturer in a specific industry has an enormous amount riding on one specific piece of regulation. It is entirely rational for him to spend heavily — in time, money, and attention — to shape it. Meanwhile the cost of that regulation is spread across the whole population, a few currency units each. For any individual member of the public, learning about it is not worth the afternoon.

So a small group with a large per-head stake defeats a large group with a small per-head stake, every time, without anyone behaving corruptly. The asymmetry is in the structure of the incentives, not in the character of the participants.

The Knowledge Gap Runs the Same Way

Olson's second point is the one I find more damaging, because it undercuts the standard defence of the whole system.

The general public has no incentive to learn the facts of any specific issue. The minority whose interests turn on those facts has every incentive. This produces a permanent asymmetry of knowledge that mirrors the asymmetry of influence — and it applies not only to the substance of policy but to the candidates. The interested minority knows exactly where each candidate stands and what he has done before. The public knows a slogan.

And here the argument closes on itself. Voters face very few choices — usually two. With only two options on the ballot, there is no incentive to study either of them in depth, because no amount of study will produce a third option, and the difference between the two is rarely large enough to repay the effort. Rational ignorance is not laziness. It is the correct response to the choice architecture in front of you.

Where This Lands

Buchanan says the institution cannot restrain its own spending. Olson says the institution is systematically more responsive to concentrated interests than to diffuse ones, and that the public cannot close the resulting knowledge gap because it would be irrational to try.

Both diagnoses describe an institution whose failures are structural rather than personal — and both suggest the same class of remedy. Decide issues rather than select personnel, decide them often enough that learning about them pays, and make the group deciding the same group that bears the cost.

Following a lecture in the "Thinking About Capitalism" course.