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Can America’s Electoral System Be Fixed?
February 6, 2001
Robert D. Cooter, Randy T. Simmons, Alexander T. Tabarrok

Contents

Introductory Remarks by David Theroux

Good evening ladies and gentlemen. My name is David Theroux and I am the President of The Independent Institute. I am delighted to welcome you to another one of our Independent Policy Forums. Tonight’s program as you may well know is entitled “Can America’s Electoral System Be Fixed?” Everyone seems to have survived the recent elections, the political circus in Washington, not to mention Florida is just part of that.

As many of you know, The Independent Institute sponsors programs like this roughly on a monthly basis, and we feature many top speakers, scholars, and authors of important new books. I wanted to take this opportunity to thank Mondavi Winery for donating the wine that many of you hopefully enjoyed this evening, and The Customer Company who is one of the co-sponsors of our seminar series. For those of you new to the Institute, hopefully, you may have picked up a packet of information that provides some background information about who we are and what we do.

We are an academic research institute. We concentrate on public policy and political economy. And as a result we produce many books. We have a large number of fellows throughout the social sciences around the world, especially in the United States, at different universities. We also publish a journal called The Independent Review; this is the current issue, which is actually the issue on politics, and there’s a rather provocative essay which I recommend to any of you here called, “A New Democrat? The Economic Performance of the Clinton Presidency,” which I hopefully, think you’ll find rather provocative and instructive.

The Institute’s mission is a bit different from many research institutes that deal with public policy, and many academic programs that deal with public policy. In the packets you will also find a sheet about tonight’s program. The program includes a number of forthcoming events that I’ll mention briefly.

The very next event, “Losing the Race? Black Progress, Freedom and Independence,” will be on March 20th. The program will feature John McWhorter who’s an Associate Professor of Linguistics at the University of California, Berkeley. He’s become rather well known and highly visible because of a new book of his called, Losing the Race: Self-Sabotage in Black America, from St. Martin’s Press.

In addition, for the Spring and later in the year, upcoming speakers include the TV and radio talk show host, Larry Elder, who will be speaking on his book, also from St. Martin’s Press, called Ten Things You Can’t Say in America. We’ll also be holding a program about the bestselling historian, Thomas Fleming, who’ll be speaking about his new book from Basic Books called The New Dealers’ War: FDR and the War Within World War II.

Later in the year, we’ll present a program with the renowned psychiatrist, Thomas Szasz, who will be speaking about his new book called Pharmacracy. Tom incidentally also has an important article called “The Therapeutic State,” which will be in the next issue of The Independent Review. Also, economists Richard Vedder from Ohio University and John Merrifield from the University of Texas will be speaking [July 5th] on “Why the Public Schools Are Failing and What Can Be Done,” based on a new book and monograph that each of them, respectively, have done on education.

For this evening, however, we’re very pleased to feature three speakers who are going to be speaking on the issue of politics. The two books we’re featuring, I cannot more strongly recommend, if you have not had a chance to review or purchase them. The first is the brand new book called The Strategic Constitution, from Princeton, by Bob Cooter, who’s one of our three speakers tonight. The second book, Beyond Politics, which is co-authored by Randy Simmons and Bill Mitchell.

Beyond Politics is a book that is widely used in college course readings around the country, and by many groups to explore, and actually to teach, the public policy, the political economy, and the public choice of politics.

In 1969 at the height of the anti-war movement in the U.S., the late bestselling author, Karl Hess, wrote a seminal essay in Playboy magazine on the future of America entitled, “The Death of Politics.” Hess, who some of you may well know, had earlier begun as a speechwriter for Barry Goldwater. He penned the now famous line, “Extremism in defense of liberty is no vice; moderation in pursuit of justice is no virtue.”

In leading conservatism, Hess had become a leader of the anti-war movement of the 1960s. He later moved through being different times, as a member of the Black Panthers here in Oakland. He was a member of the leadership of Students for Democratic Society. He was an editor of The New Republic, an editor of Ramparts magazine, and a member of the Libertarian Party. He founded a farming community in West Virginia, along with an assortment of other disconnected vocations.

He was convinced that with the outrage of what he considered the American warfare/welfare state, both in Vietnam and at home, the evidence of the failure of the political approach to addressing real social ills had become so evident that the case was overwhelming for a voluntary civil society. And that was what he was going to try to address in his life, although as a journalist, he did it in a certain way. Certain ways reminiscent of certain kinds of journalists, I should say.

As he stated, “power and authority as substitutes for performance and rational thought are the specters that haunt the world today. They are the ghosts of old and superstitions of yesterday.” To Hess, electoral politics was a charade that masks an interdynamic that always rewarded what he considered an oligarchic core of people, who, in turn, socialized the cost of their privileges onto the masses through government power.

Now in Hess’s case, it apparently took a Vietnam war for him to come to this view. Today, most public-choice economists would agree with Hess, as would many other people. Electoral politics, as many have begun wondering from the recent presidential action, is far more than a process of simply voting for a listed candidate, and popular culture in some ways reflects this reality.

For instance, in the enormously popular TV show, “Survivor,” the surviving contestants from week-to-week, and ultimately at the end, are not determined by whether they can survive in a hostile environment on a desert isle or in the middle of the Australian Outback. That’s really strictly secondary. That’s really sort of the theater, the backdrop. The real test of survival is whether they can manipulate within a politically controlled commons whose tragedy of condition is that their fate is determined strictly by majority rule at the end of each week.

What kinds of incentives are produced, and what kinds of outcomes result from such a system? In our society, why are so many of the most critical decisions of our lives including health, education, welfare, the environment, and many other areas removed from the control of individual choice and placed within such a decision-making system? Is this beneficial? Is such a system better equipped to address such matters? What kind of problems and benefits result by pursuing such a choice dynamic?

In the recent presidential election, in case you don’t know exact totals, there was a total of 105,380,929 votes that were tallied for 51.2% of the voting age population in the presidential race. Of this number, just under 48% voted for Gore—I’m sorry, just over 48% voted for Gore—and just under 48% voted for Bush with another 4% voting for all other presidential candidates combined. What became an issue of Florida began to disturb people as to why a trivial number of votes, whether they be dimpled chads or not, should determine what they must pay in taxes, or whether women have reproductive rights, or whether the front page of newspapers for almost every day for the next four years will always have the same man’s face staring at them in the morning, is a question that many people still have difficulty with.

Is the system equitable? Is it just? Is it honest? Is it rational? Is it racist? Is it economically efficient? There are many other questions. Tonight, we can only address some of them, but we have an excellent panel of experts to begin the work.

So I’d like to begin by introducing our first speaker. Those of you familiar with the work here at The Independent Institute will find him to be no stranger. Alexander Tabarrok is the Vice President and Research Director here at The Independent Institute. He is the assistant editor of The Independent Review. He received his Ph.D. in Economics from George Mason University, and he has taught at the University of Virginia and at Ball State University. He’s recipient of numerous awards. He’s the editor of two forthcoming Institute books, one being Entrepreneurial Economics from Oxford University Press, and he’s also co-editor of The Voluntary City from the University of Michigan Press. He’s the author of other books and monographs, a contributor to numerous books as well as to leading scholarly journals. I’m very pleased to introduce Alex Tararrok. [Applause.]

Alexander Tabarrok

Well, thank you, David. So I think the prediction that we had there was that Richard Hatch will one day be president. Let’s hope that’s not quite right.

Well, the recent election has of course brought new urgency to the demand to reform our democracy, but before jumping into reform, I think it’s important to understand on a larger level what democracy can and especially what democracy cannot achieve. We’ll evaluate reforms more realistically if we understand some of the universal limitations which exist on all forms of democracy. For example, we heard a lot in recent weeks and recent months about the will of the voters. It was vitally important, we were told, that all the votes be counted so that the will, the true will, of the voters be known.

Well, what I want to do today is show you at a quite general level that the idea, the very idea of the will of the voters is completely incoherent. Now I want to do this sort of as a general way of thinking about the voting system. We can think about it as what a voting system does, and this is in your handout and I’m also going to put it up here for those of you who don’t have the handout.

Well, what a voting system does is it takes individual preferences, it puts them into a black box, and out of that you get some sort of social outcome. These are, say, A B, D, C, and E would be like candidates or policy options, and so this is the ranking of some voter, this is the ranking of another voter, so voter one ranks the options, B is the best, D is the next best and so forth. And those preferences go into the voting system, and out comes some voting outcome.

Figure 1: A voting system aggregates individual preference rankings into a social ranking.

Well, what I’m going to show you today is that there’s often very little relationship, even at a theoretical level, between what goes in and what comes out. And sometimes, sometimes the relationship between what goes in and what comes out could be downright bizarre—irrational, paradoxical. And I’m going to show you that as well.

So let’s begin, I want to hold preferences constant, so preferences over here are constant, and we’re going to look at, well, what difference does it make when you have different voting systems? OK. What is the difference between the different voting systems make to the outcome?

And to simplify, I’m just going to use a simple, three-candidate policy election with the candidates or policies labeled A, B, C. So let’s suppose that we have some voters. We have 39 voters who rank the candidates. Thirty-nine voters rank the candidate A first, C second, and B third. Twenty-four rank the candidates C first, B second and A third. And 37 B, C, A. And if you want to think that these numbers add up to 100, so if you want to think about this as 39% of the voters are ranking the candidates A is the best, C is next best, and B is third, that’s fine. Twenty-four percent and 37% for the others.

Table 1: A Simple Election Example

Number of Voters 39 24 37
First a c b
Second c b c
Third b a a

Well, what happens on a plurality rule? Well, under plurality rule, which is the system we’re most familiar with, only the top candidates, only the top preferences are counted. You only get a vote for your top preference, top ranked candidate, so it’s pretty easy to see what happens under our standard voting system. A wins—A gets 39 votes. B comes in second—B gets 37 votes. And C comes in third with only 24 votes. So under plurality rule, we have the outcome A is preferred to B, is preferred to C, is the preferred. A comes in first, B comes in second, C comes in third.

    Plurality rule (weights 1,0,0) : a > b > c

Now if you look at this however you might say to yourself, “Well, wait a second, A doesn’t actually look like it’s the best candidate. Maybe A is not the best candidate.” Well, why not? Well, A actually has the most last-place votes. 61% of the voters or 61 voters [=24+37] actually rank A last. So if A is the best choice, it’s certainly a divisive winner. Right? We might want to look for a more unifying winner, and on those grounds you might think, well, what about C? C has got some good things going for it. C is not ranked last by any voters at all, and C has 24 first place votes.

So to get at this sort of reasoning, to get at this sort of idea there have been developed what are called positional voting systems or weighted voting systems. And the idea is that, sure, you put the most weight on your top ranked candidate, but you also have some weight, some votes for the second ranked candidate, and maybe some for the third and fourth and fifth, if there are more candidates.

So a well known scheme of this type is called the Borda Count, after the mathematician John Charles Borda, who was actually quite an adventurer and played a role in the American Revolution; but talking about him would get us too far apart, but he’s an interesting guy. So what Borda said was, let’s give, we have a three candidate election, let’s give two votes to the top ranked candidate, one to the second ranked candidate, and zero to the third candidate. OK?


Well what happens if you do this? Well, if you do this, the outcome then is C wins the election, B comes in second, and A comes in last. So we haven’t changed preferences here at all. All we’ve done is changed the weighting, and we have a complete reversal of the election outcome.

    Borda Count (weights 2,1,0) : c > b > a

So which one of these represents the will of the voters? Is A the best candidate according to the voters? Or is A the worst candidate? Clearly, there’s no certain answer to this question because both of these outcomes represent the voter’s preferences; the same preferences of the voters.

Now—nor is this the end of the story—because you might say, well, why should we give the top ranked candidate two and then one and zero. When you’re voting, or when sportscasters, sportswriters vote for most valuable player in basketball, the top three candidates are given weights of 10, 7, and 5. And it’s another voting system. Someone else could argue, well, no, we should give more weight to the top ranked candidate. Let’s give votes of 7, 1 and 0. Why not? What happens if you did that? Well, under this no-name system, the 7, 1, 0—lo and behold—it turns out that B wins the election, and A comes in second and C comes in third.

    No Name (weights 7,1,0): b > a > c

It’s actually possible to find out what are all of the possible outcomes. There are an infinite number of weighted voting systems, but quite easily we can find out what every single possible outcome is. And if you do that there’s actually one other outcome, which is that you can have B, C, A. B, C, A is also a possible outcome. Of course, B comes in first, A second, C third, B, A, C, that’s the same as B, C, A, if all you care about is the top ranked candidate. OK? But in many elections, the runner up matters, for, like, Miss America, for example. Or if you have a series of elections. For example if you have a run-off type of procedure, then it matters which candidates go to the run-off. Whether it’s B and A which go to the run-off, or whether it’s B and C. That can change the final outcome.

So here we have four different outcomes. We have a voting system under which each candidate wins plus we got some ties in there. So you can see that a lot is possible simply by changing the voting system.

In fact, this actually gets much worse if you expand the number of candidates. If you have 10 candidates, which is not an unreasonable number, if you think about the whole electoral system, primaries and moving on to final elections, if you have 10 candidates, then simply by changing the voting system, it turns out that from a single set of preferences without changing preferences at all, from a single set of preferences, you can get 3,265,920 different possible rankings. Remember all we’re doing here is changing the voting system and not changing preferences at all.

So what we see is that the voting system itself can radically change the outcome of the election. And so far we’ve only looked at weighted voting systems. There are many other systems, such as run-off elections as I already mentioned. Or cumulative voting under which the voters get to choose their own weights for the candidates.

So far I’ve looked at what can happen when preferences are held constant, and the voting system changes. Now what I want to do is look at some of the strange relationships between preferences and outcomes that can occur even when the voting system here is held constant. And the first sort of paradox I want to talk about is one you’re all familiar with. You’re so familiar with it that you might not realize really how bizarre or odd this issue is.

Irrational Choices 1: The Relevance of Irrelevant Choices

Everyone knows that under that under plurality rule, the outcome of an election between two candidates can depend upon whether a third candidate is running. OK? So if Nader had not run, then Gore might be president right now. Well, the more you think about this, the more odd this property of voting systems becomes. For example, imagine that you went into Baskin Robbins, and you see that they have chocolate, strawberry, and vanilla ice creams available. And you decide that you would like chocolate. Chocolate is your top choice. But then you notice that before you have a chance to put in your order, the owner puts a sign in the window, and the sign says, sorry, no vanilla today. Well, it would be pretty strange if you then said, now I want strawberry. Right? If chocolate is your best choice when you have a choice of chocolate, strawberry and vanilla, then chocolate should also be your best choice when you simply have a choice of chocolate and vanilla. Right? If you’ve behaved differently, if you didn’t still choose chocolate, we would say, you’re nuts. Right? You’re kind of irrational. Right?

And yet groups behave in this way all the time. Right? Democratic groups. If we have a choice of Clinton, Bush, or Perot, then the voters may choose Clinton. But if we change it to simply Clinton and Bush, we can choose Bush. OK. That is definitely a possible outcome, and one which has happened, similar outcomes have happened in the past. So it’s simply as if the voters, with a choice of chocolate, strawberry and vanilla to choose chocolate, and with a choice of chocolate and strawberry, they choose strawberry. OK. Very, very strange. Very odd. What it shows is that groups, democratic groups, can behave very irrationally if we evaluate them in the same way as we evaluate the choices of individuals.

Irrational Choices 2: Why Everyone Can be Disappointed with Democracy

Here’s another way in which group choice can be irrational. One response to this defective plurality rule is to say, well, let’s have a different system. Let’s vote on the candidates in pairs. So what we’ll do is vote on the candidates in pairs, and we’ll let the winner of each pair go on to the next round of the elections. OK? And we’ll continue voting until all the candidates have been voted upon at least once.

Well, unfortunately, using this method, they can be elected that everyone prefers less than some other choice. So think about the following, consider the following situation and suppose we have—here are our choices, we have three voters, L, M and R—left, middle and right, if you like, and we have the choices Happy, Sneezy, Grumpy, Bashful, Sleepy, Sneezy, Doc, it’s—?

David Theroux

Dopey.

Alexander Tabarrok

Dopey, right, don’t forget Dopey. It’s sort of like the Republican primary or something like that. Right? You can fit the faces however you like. All right. [This example is from Thinking Strategically by A. Dixit and B. Nalebuff, W.W. Norton, 1993.]

Table 2: Rankings for President by Voters L, M, R

Voter L Voter M Voter R
1st Happy Grumpy Dopey
2nd Sneezy Dopey Happy
3rd Grumpy Happy Sleepy
4th Dopey Bashful Sneezy
5th Doc Sleepy Grumpy
6th Bashful Sneezy Doc
7th Sleepy Doc Bashful

So let’s suppose that we begin voting. We have Happy versus Dopey. OK? Well voter L, he ranks Happy first above Dopey, so voter L will vote for Happy. Voter M prefers Dopey to Happy, so voter M will vote for Dopey. Voter R ranks Dopey the highest, so again voter R will vote for Dopey. So we have two votes for Dopey and one for Happy, so Dopey wins. OK? If you then do Grumpy versus Dopey, Grumpy wins. I won’t go through it all. Sneezy versus Grumpy, Sneezy wins. Sleepy versus Sneezy, Sleepy wins. Bashful versus Sleepy, Bashful wins. And finally if you have Doc versus Bashful, then Doc wins the election. OK?

We’ve now voted upon all the candidates. Wait a second, look, at the end of our voting agenda, Doc is the winner. But look at the preferences of the voters. Every single voter prefers either of Happy, Grumpy, or Dopey to Doc. OK? So take a look at voter L. Voter L prefers Happy to Doc. Voter M prefers Happy to Doc. Voter R prefers Happy to Doc. So what we have is the amazing outcome that under democracy, a candidate, which everyone regards as inferior to some other candidate, has won the election. OK? I hope this sheds light on political events. [Laughter.] Right?

Now suppose we begin by voting on Happy v. Dopey > Dopey wins

Grumpy v. Dopey > Grumpy wins
Sneezy v. Grumpy > Sneezy wins
Sleepy v. Sneezy > Sleepy wins
Bashful v. Sleepy > Bashful wins
Doc v. Bashful > Doc wins.

At the end of our voting agenda Doc is the winner. But look carefully at the preferences of the three voters. Every voter would have preferred either Happy, Grumpy, or Dopey to Doc. Majority rule has led to an outcome which everyone regards as worse as some other possible outcome.

Conclusion: Far from choosing the best outcome, majority rule with pairwise voting can lead to a choice which everyone regards as worse than some other possible choice.

Irrational Choices 3: The Failure of Positive Association

Here is a third way in which group choice can be irrational. And in many ways I find this the most sort of stunning of all. It’s a little bit involved, but you don’t have to follow all the numbers, just trust me on the numbers, the numbers add up, and you could just see what the result is, what the theory is, and this is just an example.

I’m going to deal with a plurality rule election with a run-off. So the idea here is that you vote on all the candidates. If no candidate gets more than 50% of the vote, then the top two vote getters go on to a run-off. And we use this for council elections in San Francisco, for the Russian presidency, for many primaries it’s used there quite a bit.

Table 3a: Failure of Positive Association

# of voters 6 6 6 4 2 3
First A C B B C A
Second B A C A B C
Third C B A C A B


So let’s suppose we have the following example. Six voters rank the candidates A, B, C. A is ranked first, B second, C third. Six rank them C, A, B, and so forth. Well, on the first round of the election you get the following. A gets 9 votes, B gets 10, and C gets 8. So none of the candidates get more than 50%, so A and B, the top two vote-getters, go on to the run-off, the second round of the election. OK. If you run the run-off what you find is that A gets 15 votes and B gets 12. A wins the election. Great.

Now, here’s where we get interesting. Suppose that before the election, A had given a really great speech. OK? He had convinced some voters that A was a better candidate than B. And in particular, let’s assume that three of the four voters who ranked the candidates B, A, C, suppose that three of those four change their minds, because A gave a great speech they now change their minds so that they rank A, B, C. So A moves up. They thought B was the best, they thought A was second best, now they think A is the best and B is second best.

Let’s also assume that the two voters who ranked the candidates C, B, A, changed their minds because of this great speech, and they now rank the candidates C, A, B. So they had put A last, now A moves up, A is ranked second. OK. So all that has happened is that A has moved up in some of these voter rankings. And if you do that, the new preference rankings are these. OK. What then happens?

Table 3b: Failure of Positive Association

# of voters 9 8 6 1 3
First A C B B A
Second B A C A C
Third C B A C B


In the first round of the election, A gets 12 votes, B gets 7 and C gets 8. So the top two vote getters (A and C), go to the run-off. And in the run-off, A gets 13 votes, C gets 14. C wins the election now, even though A’s speech did nothing but raise him in the rankings of individuals, he now loses, so the candidate A, was actually better off giving a lousy speech. A was better off when fewer people thought highly of him. By giving this great speech, by having him move up in preference rankings, he has actually moved down in the outcome.

And this is called the failure of positive association, because what you would hope is that moving up in individual rankings would move you up in the social ranking. You’d hope that if individuals push you up, then the voting system will push you up. And what we see is that this is not true. That is not always true. It’s not necessarily the case. By moving up over here, you can actually move down over here. OK. This paradox of positive association, or failure of positive association actually implies that a voter who wants A to win is sometimes better off voting against A. This is another interesting aspect of elections.

All right, well, what are we to make of all this, giving you a number of examples. What’s the deal? Well, clearly, democracy is not good at representing the will of the voters, an entirely incoherent idea. Nor is democracy so good at making rational choices. We see that if a person behaved in the way that a democratic group behaves, we would call them irrational.

Well, given all this, one would then ask logically, “well, what is democracy good for?” And obviously in the time allotted, I can’t give a complete answer, but I’m going to throw out a couple of suggestions, because democracy certainly has several good points.

First, democracies tend not to murder their own citizens. Well, not murdering your own citizens, it’s sort of the least one could expect of a government, but when it comes to government, we often get less than the least. So, that’s pretty good, not murdering your own citizens, good. And given the history of genocide in this century, it’s an important aspect of governments.

Second, democracies tend not to starve their own citizens or to let them starve. It’s interesting the Nobel prize-winning economist, Amartya Sen has pointed out that even in countries like Bangladesh, during the mass starvation in the 1970s, the actual average amount of food per capita in Bangladesh at the time when millions were starving, was actually above average. It was not unusually low. The reason people starve in the modern world is not because there’s not enough food in the country. It’s either by deliberate design government is preventing people from buying food, or they don’t have enough income for some reason or another. There’s a war or some disaster. OK? And what happens, and what we see is that in democracies don’t let a large group of citizens starve, for sort of obvious reasons. But again, it’s a kind of a minimum you would hope of government, but we often don’t get the minimum, so that’s pretty good.

Third, democracies tend not to go to war against one another. The democracies will go to war against non-democracies, but they rarely go to war against one another. They kind of work things out diplomatically. That’s the usual result. And again, given the importance of war, given the devastation that war can bring to a country, that’s a pretty important fact to know.

Finally, democracies appear to be compatible with free markets and with a free press, which is again, responsible for some of the earlier things I’m talking about, but also has some independent value.

Now, one thing to notice about all of these advantages of democracies, is that they’re more about avoiding bad things than they are about creating good things. Essentially, democracies exclude or greatly reduce the probability of a number of very bad things from happening. The best thing about democracy is that the threat that politicians face of being thrown out of office acts as a check on government power, much like a bill or rights, or Federalism. Democracy is not a good way of making choices. It cannot express the will of the people in any coherent or consistent manner, but by reminding politicians that they can lose power, democracy can prevent the most gross abuses of government power from occurring. And since the most gross abuses of government power often to do occur, that’s a powerful argument in favor of democracies, even though it’s one that you might not hear from many democrats. Thank you. [Applause.]

David Theroux

Thank you, Alex. Our next speaker is Robert Cooter. Bob is a pioneer in the field of law and economics. He is the Herman F. Selvin Professor of Law at the University of California at Berkeley. He began teaching at Cal in the department of economics in 1975, and moved to Boalt Hall School of Law in 1980. He’s been a visiting member of the Institute for Advanced Study at Princeton University and has held a Visiting Research Professorship at Northwestern Law School.

Professor Cooter is also a recipient of the Guggenheim award and the Max Planck Research Prize. He’s one of the founders of the American Law and Economics Association, and he’s served as its President from 1994 to 1995. In 1999, Professor Cooter was elected to the American Academy of Arts and Sciences. In addition to his very important book, The Strategic Constitution, which again, I urge everyone to get a copy tonight, he’s an author of a leading textbook, Law and Economics, with Professor Thomas Ulen. The book is also translated into other languages including Spanish, Italian, Japanese, Chinese, Korean. He’s also co-editor of the journal, The International Review of Law and Economics. I’m very pleased to introduce Bob Cooter. [Applause.]

Robert Cooter

Well, The Independent Institute is devoted to improving the quality of public discourse. I think it’s a complement to be invited to talk to you as well as an act of optimism. [Laughter.].

Now, Mark Twain said, “No man’s life liberty or property is safe while the legislature is in session.” And we know the legislature is very often in session. So, in addition to this rather pithy statement about what problems there might be with electoral democracy, Alex Tabarrok has given us I think a very powerful and elegant demonstration of some of the paradoxs that arise in voting, which have led to some skepticism about the very notion of what it would mean to have a good government—in particular about the notion that there could be such a thing as a “will of the voters.”

Now, as for me, in politics as in airplanes, what I like is a uneventful trip. And it seems to me that if we just step back and we think about the things that we care about that our state might give us—such as liberty—it’s very important to me. Another thing that’s important to me is prosperity. I want a framework of property rights, good management of the currency so that I can prosper, and I want certain public goods, too. I’d like to be able to breathe the air. I’d like to be able to take a walk in the park and I like to be safe from foreign invasion.

If we step back and we think about these rather modest, uneventful goals that we would like achieved, American democracy looks pretty good. I mean, we’ve had an unprecedented run of liberty and prosperity, I would say, in the history of the world. And I think this is an enormous achievement. And one of the difficulties that this achievement faces is how did we do it? I mean, you heard Alex’s talk. Democracy is crazy. You can get any result from any kind of changes in the rules, anything is liable to happen. How do we do it? How do we get these good results?

Well, that’s why I wrote this book. See, I’m an unrepentant democrat. I believe in democracy. I think it is the best system. It’s got problems. It isn’t a panacea. You can ruin your state with a democracy as you can with other systems. Nevertheless, I still think it’s the best system, and so I wanted to try to figure out why.

Originally I didn’t have in mind writing a book. I have this book on The International Review of Law and Economics, and I had in mind writing a chapter on Constitutional law and economics as a way of extending the topics in the existing book, and I felt a little bit, to compare the insignificant to the great, I felt a little bit like Tolstoy. Tolstoy originally intended to write a book about the Decembrist Revolution, this revolt which failed in 1824, I believe it was. But to set the stage, he had to talk about the invasion of Russia by Napoleon, and so over a thousand pages later, at the end of War and Peace, this insignificant character appears who’s the Decembrist right? That’s what happens to you when life intervenes. [Laughter.]

Well, I intended to write this little chapter and then I started reading all this stuff that Alex was talking about and I said, “What is this?” I’d studied with Ken Arrow, the guy who invented the impossibility theorem, the most powerful generalization, but—and I knew that he’d set the field back 30 years—it took the greatest genius to set the field back 30 years. Nobody else could show what a profound mystery it was that democracy works. But he proved it was a profound democracy, because he could produce this theorem that seems to say it won’t work. So, I couldn’t write—all right, so I wrote this book. Now, I do want to point out to you that in it’s—with its attractive blue cover it makes a very tasteful gift at under $50. [Laughter.]

OK, so how is it that democracy works? Well, I think it gives us the things we want, the most important things that we want, like liberty and prosperity. And of course, I’m an economist, so I take inspiration from the private economy. I say, “What is it about the private economy that makes it work?” And the most important thing that makes the private economy work is competition. A good organization of competition can supply private goods in abundance to people. It requires some management. You can’t mess up the money supply too badly and you’ve got to keep the budget in line. But if you have some minimal conditions, a competitive economy will bring you prosperity. And in this respect, it is as Adam Smith said, that the private interests of people, who are competing for wealth is aligned with the public interest. And my feeling is that must be the key to democracy. Indeed my definition of democracy is that it is a form of government that’s competitive, or to be more precise, it’s the form of government that’s based on popular competition.

So in my opinion, you can produce good results in politics if you get the competitive mechanism to work right. Now the thing about politics is, it’s a lot harder to get the political mechanism to work right. And that’s because government is a natural monopoly. The sociologist used to define a government as that institution which has a monopoly on the use of force, or perhaps a monopoly on the use of the legitimate force, but anyway, what’s clear is that the state has tremendous monopoly powers. Much stronger than any private monopoly.

I mean, what would you rather live under? Would you rather live under the tyranny of a monopoly in the steel industry or would you rather live under the tyranny of a dictatorship? Clearly, the dictatorship is much worse for the people who are subject to it, and of course, it’s enormously more profitable for the people who control it; even more profitable than the most profitable economic monopoly. So it’s really a trick. What you have to do is you have to organize politics so that you have competitive politics, and the competition is to control the monopoly powers of the state, and the fact that the officials will have monopoly powers, yet they do not use them to end the competition by which they obtained office. That’s a very tricky matter.

Now, this book is devoted to trying to explain how it is that you organize a competition, a popular competition for government in such a way that it does work, that it’s stable and it produces the ends that most people would have their state to produce.

Now, I can’t explain much of what’s in the book. An awful lot of it is devoted to analyzing alternative forms of democracy, like the difference between plurality rule and majority rule. Or the difference between having three branches of government or four branches of government, or the difference between having a Bill of Rights and not having a Bill of Rights. Or the difference between putting property in the Bill of Rights or not putting property in the Bill of Rights, and so forth. Much of it is an analysis of these smaller features that keep the competitive order working and make it work better in some conditions rather than in others.

But what I do want to do today is to, first of all, characterize what I think are the four most basic forms of competition and say briefly how two of them work.

Now, the first form of competition that’s most important is competition for jurisdiction, because in a good democratic society, you should be able to move from one place to another, and by moving from one place to another, you should be able to change your jurisdiction. And even better, you should be able to move your juridical jurisdiction, as say when a corporation changes its headquarters from California to Delaware and becomes a Delaware corporation from a California corporation. You should also be able to sign your contracts to stipulate which court will have adjudication over the disputes that may arise with you. When you have this form of competition, competition for jurisdiction, the different competing states have to try to give people what they want, because if they don’t give people what they want, they lose them. They lose the jurisdiction over them.

So, in any democratic society, it’s important to get the federal structure right, if you will. The structure of the relationship between the units to each other, such that they are, in fact, in a good competition, competition with each other.

Now, the second form of competition that I want to mention to you is a competition over issues. Sometimes we get to vote directly on issues. That’s what we call direct democracy. More often, we don’t get to vote directly on issues. We vote for offices, for people to fill offices and the people who fill the offices then vote on the issues for us.

So, the competition over issues in a direct democracy and the competition over office, which involves an indirect competition for issues, are two other forms of competition. And it’s these two that I want to compare to each other, but before I do that I am going to mention the fourth form of competition that I won’t be discussing and that’s competition over the interpretation of the laws.

As you know, the primary interpreter of the laws in the United States is the court system, and in the court system, there is a competition between the parties in a legal dispute to try to convince the court to adopt one interpretation rather than another. I’m particularly concerned with those processes in The Strategic Constitution because it’s my view that the present jurisprudence, the present way that cases are argued before our courts, is inferior, because it’s insufficiently consequentalist. That is to say, in my opinion, there is far too much focus on expressive values in court litigation and not enough on trying to connect how the rules will relate to the things that we really care about, like liberty and prosperity. But that I’m going to forego in discussion with you today. I just mentioned it to you because it is a theme of the book, and I want to discuss instead the competition over issues and the competition over offices, which is typically organized through elections, and I want to suggest how we might view the kinds of problems that Alex discussed, because they have troubled me greatly. Indeed, they were especially the catalyst for this book.

Well, one way of looking at an election is: it’s the way you make a public choice. There are some things that you can’t do by yourself, like when somebody says, “Are you coming with me?” Well, I mean, you can’t come with someone by yourself. If you come with them, you come with them, and there are many collective choices that we have to make as a society about what we’re going to do. And one way of thinking about an election is: it is the way we make our collective choices. And if we think of it in that way, we immediately get into all the paradoxes that Alex went through.

But there’s another way of thinking about the way we make our collective choices through our representative democracy. And that is that the actual vote is not in fact the choice, it’s the confirmation of the bargain that was struck among our representatives. That is to say, when we elect our representatives, we send them to the legislature to bargain on our behalf, and when they bargain on our behalf, they’ll try to cobble together some kind of compromise that’s good enough, that’s good enough for an uneventful trip. And if they fail, if they can’t cobble it up, then we’re going to have some kind of instability, the kinds of instabilities that Kenneth Arrow focused on. We’re going to have these strange and paradoxical results that Alex discussed, but it’s often the case that parties can in fact avoid those outcomes through some kind of bargain that they strike among themselves. And it’s a characteristic of bargaining in economic theory that it has no “rational solution.” That is to say the characteristic of a bargain in economic theory is parties can, by cooperating together, create a surplus that they can share. But, there is no strictly rational way to distribute that surplus, and the problem of the bargain is to figure out who is going to get how much of the surplus that’s created by cooperating together. That’s what our representatives, I think, are very often engaged in, and when they roll logs and they put things together, they can produce outcomes which are favorable to us.

However, all too often, our elected representatives are not our honest agents. They are not, in fact, bargaining on our behalf. It’s not that easy to set up a system of competition for office, such that the elected officials do not have their ends diverted in ways that are quite unattractive to the electorate. And I think that’s what Mark Twain had especially in mind when he said, “No man’s life, liberty or property is safe while the legislature is in session.”

And in the circumstances where we cannot, in fact, trust our elected agents to bargain for us, in those circumstances, we may want to do something which is not in principle as good as bargaining. In the sense that you can’t get as good results, but you also don’t get as bad results. What we can do is: we can revert to direct vote on the issue.

Now, one of the characteristics of every system of direct democracy that I know of—the two primary examples of direct democracy are California and Switzerland—and in those two systems, where you have a direct vote of the population, the vote is restricted to a single issue. It’s difficult to roll logs in a ballot referendum if the ballot initiative or the referendum combines two definitely different issues, like say, education and police, then the courts are not going to allow it. They do in principle, insofar as the law works.

What you do is what I call “factOrring.” That is to say, you factor out the issues and you vote on them one at a time. And when you factor out the issues and vote on them one at a time, you tend to get a very stable and determinant result that is, in theoretical terms, determined by the medium voter. That is to say, usually if you have some single dimension of choice, then people’s preferences will be arrayed in such a way that there’s one voter who’s in the middle, with an equal number to the left and to the right. And that is the alternative that can defeat all the other alternatives if you vote only along that dimension of choice.

And that is, I think, a result that we get from our referendum system. In principle it’s not necessarily as good as what you could get from bargaining. Let me give you an example. Suppose I cared intensely about the schools and you care intensely about the police. Then we might, through our representatives, strike a bargain where I’ll support you on the police and you’ll support me on the schools. And that kind of bargain you can’t do in a referendum. You can’t bargain—you can’t make such a deal across issues. You’re going to vote straight on the schools, and you’re going to vote straight on the police. Nevertheless, it’s not so bad. It’s not so bad, and it’s particularly not so bad when you don’t trust your representatives to bargain for you. Then it starts to look pretty good, and in fact, I am a big defender of direct democracy.

I had a conversation not too long ago with a very good friend, a very intelligent woman who’s a lawyer. And she thinks that direct democracy is terrible, against the system. She says, “The voters don’t know what they’re doing. They don’t know what they’re doing when they vote in these propositions that we have.” And I said to her, “Well, who is your state senator?” And she said, “Well, actually I don’t know who my state senator is.” [Laughter.] And I said, “Well, who’s your state representative?” Well, she knew who her state representative was, and I said, “Well, tell me, how has your state representative voted on one single issue this year?” She didn’t know how her state representative had voted on one single issue this year. So I said, “So, you’re going to tell me that you know more about what your state senator is doing when he’s bargaining for you, than you know when you’re voting directly on a ballot issue. I don’t think so.”

In fact, I think we know pretty well what’s going on in those ballot initiatives. Well enough to stay towards the center of the distribution of political opinion and to get outcomes that aren’t too bad, provided of course, it’s very important here, that we cannot vote to redistribute other people’s property to ourselves, because we’re constrained by the Federal Constitution that wouldn’t allow that.

So, in my opinion, democracy is a good system. It’s a pretty good system. In America, it’s working quite well to give us an uneventful trip. We’re enjoying prosperity. We’re enjoying liberty. But I do think it could be improved and one of the improvements that I would like to make is to extend and deepen the system of direct democracy. Thank you. [Applause.]

David Theroux

Thank you, Bob. Let me introduce our next speaker who is, as I mentioned before, Randy Simmons. Randy is a Research Fellow at the Independent Institute, the co-author of this book, Beyond Politics. He’s also Professor of Political Science—his main job, I should say—and Director of the Institute of Political Economy at Utah State University. He received his Ph.D. in Political Science from the University of Oregon and he’s been a policy analyst in the Office of Policy Analysis at the U.S. Department of Interior and a Fellow of the National Science Foundation. In addition to being the co-author of Beyond Politics, he’s also the co-author of a forthcoming Institute book called Political Ecology, which is the application of the book he’s done in the past to the field of bio-diversity and endangered species. He’s also contributed to numerous other books and numerous academic journals. I’m very pleased to introduce Randy Simmons. [Applause.]

Randy Simmons

Thank you, David. Something that I don’t advertise to people like David is that I have another title and that is that I’m a City Councilman. I’m in my sixth year of serving on a city council. I’m from a town of 5,000 people. I know most of my constituents and every Tuesday night—it’s Tuesday isn’t it? [Laughter.] Every Tuesday night, when I go to city council meeting, I go home afterwards thinking what great things I’ve done for the citizens of my city. [Laughter.]

I’d like to start by extending the conversation that Bob started about looking at markets and looking at the political system, but specifically, let’s look at voters and think about the differences that we find when we’re voting for a politician versus when we go to the grocery store and vote with our dollars.

When I vote with my dollars, I go to the grocery store and I buy cookies. Now, I think the best cookie, mass-made cookie in America is the Pepperidge Farm Mint Milano. [Laughter.] And I go to the grocery store, and I take a package off the shelf, and I pay for them and I get them. When I vote, however, I only get what I want if 50% of the rest of the voters vote with me. If I vote Democrat, I only get Democrats if 50% of the other voters vote with me, so that there’s 50% plus one, at least, so that I get my choice. So, think about it this way. When I go to get the Mint Milanos, my dollar vote is decisive. I get what I pay for. In politics, my vote is decisive only if nobody else votes or if there’s a tie. Otherwise, my vote doesn’t determine the outcome.

Actually there was an election once, a school bond election in Oregon, and there were only two votes. It was a married couple, and an older couple, and it was a tie vote. [Laughter.] But generally there are other people who turn out and vote. But thinking about how close this past presidential election was, when we look at what was going on in Florida, we’re within 500 votes or maybe we’re within 936, or maybe it’s down to 250, depending on who’s counting on what day. But your chances of being the deciding voter in a Presidential election are about one in 12,500. One in 12,500 is nearly zero. I haven’t looked at the data on getting struck by lightening, but I have a colleague who claims that your chances of getting struck by lightening on your way to the polls are greater than your chances of determining the outcome. Its not the way you determine the outcome when you’re in the grocery store.

When I go to the grocery store, I compare prices. I compare what money my wife tells me that I can spend, because I know I have to go home and account to her [Laughter.]. Just did that last night, sitting at the computer with Quicken and having her say, “You spent that?” So, there are some checks on what I can do. However, often what can happen at the ballot box is that I can hope that other voters, taxpayers, especially the wealthy taxpayers, are going to spend, are going to be charged for the things that I think government ought to be doing. And so, I’m not having to compare prices and income the way I am in the private market. I can indulge my good intentions. I hope people were indulging good intentions when they were voting for me.

This is one that college students understand really well: If you spend all your money on pretzels, there’s no money left for beer. [Laughter.] But when you’re in the ballot box, it’s perfectly rational to be thinking: This politician is going to reduce my taxes, but increase spending on defense, which is something that I really like. So when voters talk about being in favor of reducing taxes, and they’re often in favor of increasing spending on something that they like and they don’t have to face the opportunity costs that college students do when they say, “Well, if I spend all my money on pretzels, there’s no money for beer.” So we have to do a balancing. There is very little balancing often that happens in most political systems.

I have a strong incentive to try and gain information about products, when I’m in the private market. Pepperidge Farm does make some cookies that I think are nasty. [Laughter.] I found that out one time, I don’t need to go back. But I’ll sample, I’ll try things. I find things that I like. I try and find information when I buy.

Now, we would hope that voters try—those of us who are democrats, and I’m a democrat, small “d”—that is I believe in democracy. I like democracy. I’d prefer democracy by far to any other system that I know of, except for one where I would be king. [Laughter.] We would hope that voters actually do gain information, but if your chances of effecting the outcome of the election are essentially zero, why invest a lot of time in finding out about candidates? There’s very little incentive. There’s less incentive in politics to find out about candidates than there is to find out about what kind of car to buy. Look at the time people spend trying to figure out what’s the best computer to buy, and compare that to how much time they spend looking at the difference between two candidates who are separated by about this much on the political spectrum.

So, the question we get to at the end is, why do people vote at all? Two general arguments about that. One is that you vote for the candidate who’s closest to you. Now, think about American politics being divided along a single dimension. It’s generally an economic dimension. On the left, my left, not yours, would be people who want government involved, directly involved in the economy. On the right are people who say government shouldn’t have anything to say about the economy at all. American voters are distributed over that distribution in some kind of normal distribution, a bell-shaped curve, and most of the voters are located near the center.

Now, this could be a good thing. This is one of the points that Bob made. Because that’s where the voters are, that’s where politicians tend to go. It’s like when Willie Sutton was asked why he robbed banks, he said, “That’s where the money is.” Politicians move to the center towards that median voter.

Now, once you have somebody who’s there, once you have Al Gore and George W. Bush separated by about this much on most policy issues, if you’re located there in the center, you’re going to get the same thing. You’re going to get what you want regardless of who wins. Because they’re both located essentially where you are. But how about if you’re caught out here in the tails of the distribution or the wings of the distribution, as it’s sometimes called. The people who are out there on the wings of the distribution wing are “nuts,” and (but not if you’re one of these people like me, who believes that government shouldn’t have anything) should have almost nothing to do with the economy, so you’re located clear out here, and you look through this policy space, and you look way down there, it’s like looking at two telephone poles that are way off in the distance. You really can’t tell which is in front of the other one. And so you say, “Jeez, why should I vote?” Or if you’re at the other tail of the distribution, you look down there and it’s the same problem.

So the only people who should vote according to that model are people who can tell a difference between the candidates. But that requires that you’re going to have to study them. And studying them takes time and you’re not likely to affect the outcome anyway, so it can be a problem for you.

There’s another reason to vote, however, and that’s—anyone who watched the Super Bowl in their living room, just a show of hands. Did any of you yell during the game? It was the Ravens and the Giants. [Laughter.] I yelled in my living room. I cheered. I really liked the Raven’s defense. They couldn’t even hear me. My cheer wasn’t affecting the outcome of that game at all, but I’m sitting in my living room cheering. I’m feeling like I’m part of that process and I’m cheering for it. I really like basketball. When I go to a basketball game, I sit in the stands and I go home hoarse afterwards from yelling at the referees. [Laughter.] They can’t hear me, but I’m yelling.

So another way of thinking about voting, it’s like cheering. We’re cheering at a democratic game. We’re at the game. We’re part of it. It’s an emotional activity. But if it’s an emotional activity, as opposed to an intellectual activity, we don’t sit down and do the kind of calculations that Alex was saying we’re doing. If we’re not doing that strict calculation, but we’re just kind of cheering, then think about what that means for the people who are trying to get us to vote for them.

When I run for city council, I don’t send out this brochure that lists the entire city budget and tells people what I believe about everything. I happen to love baseball. I really like Little League baseball. I coach Little League baseball. So my literature talks about how much better it is to build baseball parks than it is to build youth detention centers. Maybe there’s a correlation, I don’t know. [Laughter.]. But I’m appealing to their emotions. I want them to feel good about me, and if they feel good about me, they’re likely to turn out and vote for me.

One of my all time favorite political ads was the Ronald Reagan ad in 1984, remember. Some of you were actually around in 1980, so you remember the double digit inflation. You remember these claims of malaise in American politics, and remember Jimmy Carter as being somebody who meant well, but when he addressed the nation he dressed in a sweater sitting in front of a fire and he didn’t look very Presidential. He looked like the uncle that you maybe liked or didn’t like.

And along comes Ronald Reagan and he never stands with his hands in his pockets. He’s always standing at attention, always looking Presidential, always wearing the Presidential-type suits, and inflation starts dropping and we have all this talk about the Reagan Revolution.

So in 1984, he’s running for re-election, and they hired the company that does the Ernest & Julio Gallo wine ads, the guy with the incredible voice. You know, the voice you would kill to have. This wonderful deep voice. And the ad shows this little girl running across dewy grass, obviously early morning, the sun’s coming up and she’s in a little frilly dress—my wife tells me that stuff is called toile. And so she’s running across the grass and it’s sort of slow motion. You can see these little drops of dew coming up every time she hits the grass. And she gets into a swing and her Dad comes and gives her this big push and the voice, that incredible voice says, “It’s morning in America.” What did that have to do with any issue in the world? [Laughter.] But you sure felt good. It was a wonderful ad.

Another of my favorites is Senator Orrin Hatch. Orrin Hatch is one of my senators. I actually know who both my U.S. senators are and since I’m meeting with them fairly often, I know my state senator and rep. But Orrin Hatch, when he was first elected, was obnoxious and abrasive. [Laughter.] Orrin Hatch can continue to be that way. He was being challenged by somebody who was the former mayor of Salt Lake City, a mountain climber, a family person, really a great guy. And everybody assumed that Orrin Hatch was in trouble, because you listen to Orrin speak and it has this nasty edge to his voice. And so it’s 1982, when he was running for re-election, he is playing on the Reagan Revolution, and so the front page of one of his print ads showed Orrin Hatch leaning over the dais like he’s lecturing somebody, slightly out of focus next to him is Ted Kennedy. Right behind Ted Kennedy is this long-haired hippie freak staffer. I mean fuzzy hair sticking out here, beard, and the Hatch—the statement at the bottom said “America turned a corner in 1982, let’s not turn back.” [Laughter.] And, boom, this is playing in Utah, so this print ad is being distributed in Utah.

The other thing that they did with Orrin is that they worked him all day in Washington, put him on a red-eye to fly him home, had somebody next to him and keep him awake, kept asking him questions. It must have been a tough thing to do to keep him awake. But he succeeded in keeping awake most of the flight back to Utah. They’d then put him on a little tiny airplane and flew him down to Moab; and then from Moab over to Richfield; from Richfield down to St. George; and St. George back up to Salt Lake. They got him to Salt Lake at about six or seven o’clock in the evening and he was completely wiped out. They put him in a recording studio, turned down the lights, put him actually on a sofa, and then they‘d just him ask him questions and let him do stream of consciousness about how much he loved America. And how important his family was. And how important Abraham Lincoln was.

So then they had this really mellow Orrin Hatch voice, to put as backdrop to all of his ads. In one of the ads he’s talking about family. Now, Utah’s a Mormon state. You’re surprised at that, I know, but one of the things the Mormon Church does is that Monday evenings are supposed to be family home evenings. Everybody comes home and you do little family activities, some lessons of some kind maybe, but you don’t go elsewhere. You’re doing it with your family.

So, one of the ads they run, and here’s Orrin talking in this really calm, smooth, wonderful voice, about how much he loves his family, but when they show him, he’s at the counter in the kitchen, they’re popping popcorn, kids are around, the dog’s there. He takes a piece of popcorn and throws it in the air, the dog leaps up and grabs it. And there’s this manual sitting there on the table, a book at least the same shape as the Family Home Evening Manual. Not a single issue there, but we’re feeling really good about Orrin.

So, what this says to me is that voters can be manipulated as fans, and so we need to worry possibly about that. We need to worry about all the things that Alex said, and we need to think seriously about the issues that Bob raised about the value of direct democracy, because in direct democracy, you’re voting on one thing. You’re not voting on this bundle that’s represented by Orrin Hatch or by Ronald Reagan, or by Al Gore.

Freedom happens depending on the rules of the game. We’ve had great rules in the United States. We could potentially do better, but we’ve certainly done well. The competition that exists between parties and between various groups is really important. In Federalist 10, James Madison said, “We can’t do away with factions. Factions will always form. What we can do is try and control our effects.” And his argument was the Bob Cooter argument. You make factions or interest groups compete against each other. Compete out in the open. You create a system of government where they have to compete with each other so that at least their worst excesses get controlled, and some of the good ideas are going to make it to the top.

Second point, voters are fans, you can’t have a game without fans. And we can do things that one reason for institutions—like The Independent Institute—is to provide the kind of education that would allow us to be more informed voters. To think more seriously about what we do. To be able to see through some of the political ads that we see and to encourage us to think more seriously about how it is that we spend our votes, even though there are not huge incentives to spend them really carefully.

We have to recognize that political systems are in fact political. Political absolutely to the core. And so we should expect politics to happen in political institutions. That’s why we have the U.S. Constitution. That’s why the separation of power. That’s why the division of power are so important. It is because they are ways of creating competition among various levels of government, within governments, so that we can control. So that my voters are able to at least have some ability to control my excesses as their city councilman.

We have regular elections. That’s important. We need to think more seriously about things like issues like term limits. There are lots of people who are opposed to term limits. A lot of people who are in favor. I happen to be in favor of them. I’ve been in office for six years. It’s a lot easier to spend money after six years than it was in my first year. I don’t ask nearly as many questions. And I study this stuff! And I found myself acting just like my models say that the voters are going to act.

So, the title of my book may be Beyond Politics, but my message is really that we can’t escape politics. The best we can hope for is to create rules that restrict politics so that we get Bob Cooter’s uneventful trip. Thank you.

David Theroux

So we have time for questions. By the way, it was Dennis Mueller, the economist, who actually calculated that the probability of being killed in a car accident on the way to the polling booth is higher than anyone’s ability to impact the outcome of an election. I’d like to open up the floor to questions and if you’d wait for the microphone from Penny, because we’re recording this for our website and so forth. Penny, right here. And please indicate who your question is addressed to, and make your question short.

Audience Member #1

Mr. Cooter, about direct democracy—I guess the California Legislature is very big on that—based on the number of propositions which were put on the ballot by their legislature. Can you tell me what the point of that is? I thought we were paying them [to make decisions].

Robert Cooter

Yes, well sure. It’s the same reason that politicians are often so bland, because look, if you’re coming into the Presidential election, and you’re the candidate who’s ahead, then when you give a speech, no one can figure out what your views are on anything. When you’re coming into the presidential election and you’re the candidate who’s behind, then you must take a stand on controversial issues. So, I think the reason why the legislature is quite happy to pass difficult, controversial issues off to the voters is because they don’t really quite know what’s going to happen, but they are quite confident that if nothing happens, they’ll get re-elected. [Laughter.]

Audience Member #2

I haven’t heard any mention about the intellectual and moral effects of democracy. What happens to candidates who are made officials as a result of democracy? What happens to the voters, with respect to democracy? Are they smartened, or are they dumbed? And I’d love to have you all comment on the intellectual and moral effects of democracy.

Robert Cooter

Well, sure I’m glad to start. Well, first of all, I think that, with respect to politics, the selection effect of political competition is extremely powerful. So that regardless of what the character is of the people who start in the process, the system will select very powerfully for certain types who come out at the end of the process as the victors, and politics is characterized by two things.

First of all, very, very short-run goals in relationships, and secondly, what is directly related to that: The need for an enormous amount of trust. That’s why I think we care so much about the image of politicians. Because we know that in a representative system, they make so many decisions over which we will have no knowledge, it’s important to us that we should feel that they have really good character. On the other hand, the system of very short-run goals and a harsh competition, militates exactly against that kind of character. So, in my view politics tends to filter for people who are particularly good at manipulating images but not particularly committed in their moral views.

Now, with respect to the electorate, I think politics has a rather different effect. There’s some very nice empirical research by Bruno Frey, the founder of the European Public Choice Movement, in which he argues, that—and I think pretty conclusively with good data—that direct democracy improves people’s identification with their state and it improves their sense of loyalty and control over that state. So, in my view, the participation in politics by voters tends to make us rather more public-spirited if it’s a good one, if we feel as when we do, and I think in direct democracy that we’re having an effect. And at the same time, I feel the participation in politics by politicians is not particularly salutary. [Laughter.]

Randy Simmons

I really don’t know what I would to that. I thought it’s a great analysis of—

Robert Cooter

Simmons is the exception. [Laughter.] I’m sure the exception.

Randy Simmons

I should listen to my wife and not run again, but I wanted to be mayor this time.

Audience Member #3

Have you changed as a result of being an office holder?

Randy Simmons

Have I changed as a result of being an office holder? I try not to, but as I said, I don’t ask the kinds of questions after six years that I asked in the first year. It’s just a lot easier to accept things the way they are and have them go on and not challenge underlying assumptions, and that bothers me.

Alexander Tabbarok

Let me just add one thing about the effect of democracy on the voters, on the people. I think one potentially negative idea is that people can get the idea that we are in control. That the populace are the ones determining things, and therefore, anything which happens is OK, because well, at least we voted on it. That was our choice. It was a democratic choice, therefore, it must be OK. Certainly that’s sometimes the case, but when we had the American Revolution, there was a king, and everyone knew that the king didn’t necessarily have the interest of the people at heart. And sometimes we forget that the politicians are sometimes like the kings. And so, it’s important in a democracy, to separate yourself from those in power, because sometimes they’re not the same things. Sometimes they are, but they’re not always, so I think one slight danger of democracy is falling too much into the trap of believing the rhetoric that the people are really in charge and are ultimately behind what’s going on, because often that is not the case.

David Theroux

One thing I might add to that is as some of you may know, the Nobel Laureate Friedrich Hayek wrote a book called The Road to Serfdom, and in it he has a chapter called, “Why the Worst Get on Top,” and his thesis—that does not disagree with that of the people in this panel—is that the more authority, more sovereignty a state has, including a democratic state, the more a public choice economist would describe the rent-seeking behavior. In other words, a shifting of costs onto other people. In other words, you create a commons through this authority of collective power, and as a result, the benefits accumulate to those who have the most interest at stake over the minor reforms that are pursued. So those people work very hard to pursue those reforms, and they can distribute the cost, disseminate it to the public, or to those who are demonized, through the public process. What happens in Hayek’s opinion was that, the person or persons who are able to work themselves to the top of the system like that are not the kind of person that can be successful in normal private institutions of civil society. On the contrary, they would be shunned by people in civil society, because you have to be deceptive, you have to manipulate people, you have to be dishonest and to work yourself through a Byzantine kind of system, and of course, history is full of these stories, the Machiavellian kind of figure. So it may well be that Hayek was right, that the more power this political process accumulates, at the center, the more likely you have a decline of values and culture. Another question? Wait a second. You’re next. Fred and then—

Audience Member #4

Thomas Schwartz wrote a book, The Logic of Collective Choice, in which he said that voting in small groups is different than voting in very large groups. How would democracy change if the whole world were organized in little villages and people only voted within your own little villages? Would the outcome be better or worse and would that indicate some kind of direction for reform?

Robert Cooter

Well, once my answer to that is: that’s what the United States looked like under the Articles of Confederation. And under the Articles of Confederation, we had an economy that was in the toilet because each little group was voting to protect itself from every other little group. And so the Madisonian argument is that you have to create a Federal system where these interests have to compete with one another so that they can’t create the problems that we had under the Articles of Confederation. But, you’re right, the argument is that small groups act differently than large groups, and we often make the mistake of thinking well, because we act this way in a family, we’re going to act this way in a large society, and large societies, depending on the rules of the game, can be every bit as predatory as the bully down the street, but it depends on the rules of the game and I think that was what Madison’s genius was.

Audience Member #5

All of the material so far has skirted one issue, and that is the political party structure and how it operates, and I think that could be a very significant factor that needs to get addressed. So, therefore, I’m going to toss a loaded question to you three guys to say, what should be done in that area?

Robert Cooter

Oh, sure, yes, well, that’s a very good question, because when we talk about our state, we tend to focus on the Constitution and the laws and not on the political institutions that are equally important in determining outcome. For example, in the Soviet Union, you had a beautiful constitution, but you had one monopolistic party, so in effect, there was no political competition at all. So I think the question of how you organize a political competition is most important.

Now, my own view is that we have considerable evidence over some time that in spite of the discontents we may feel, there are tremendous advantages to a two party system in organizing the competition. The chief advantage of the two-party system in organizing the competition is it solves a typical problem in representative government which is that when you get elected, you then don’t do what you said you were going to do, because you say that you can’t, because there are too many people opposed to what you want to do. And therefore, you had to do something else. But with the two-party system, you can more or less, when you win the general election carry out your platform, you can carry out your program and that’s a huge advantage, I think, of a two-party system.

So I admire a two-party system, but I also think that the stability of it, the very stability of it, which is in many ways its virtue, tends to produce a political class. A class of professional politicians with their own interests vested in that political order, and that’s one of the reasons I would like to reach them by direct democracy. I know one of the results in Bruno Frey’s work is that with direct democracy for example, you always get lower salaries for public officials than you do in a system where the voters cannot vote on what their salaries should be.

Randy Simmons

One thing to know about the American system is that because we have a first pass to post-voting system, that is the person getting the most votes wins, and gets the seat, we will only have two parties. You’ll get a third party maybe on the right or a third party on the left, but they’re not competing because they get 5% of the vote, you don’t get five percent of the seats. So, that party cannot sustain itself and actually ever win. We’re only going to have two major parties unless we change the rules, and I don’t want to change the rules, because it gets us into the kinds of problems that we have, well, we have in Israel today, which will fall apart again in six months. I think the stability that Bob talks about in his book, the importance of a strong two-party system is really important to the kind of stability we need.

Audience Member #6

Certainly one of the most striking features of democracies in this last century has been the growth in their reach, in what government seeks to do and ultimately, what ways in which it constrains its citizens. Do you see this as inherent in the democratic process, and if so, or for that matter, if not, what can be done about it to limit this tendency?

Alexander Tabbarok

I don’t think it’s inherent in the democratic process. I think we have a number of accidents of history which were involved, especially the Great Depression, and ideological change. I think that the writer and philosopher Ayn Rand once said that most of the public is social ballast, by which she meant that most of the public will go where they’re taken by the intellectual leaders and by the ideological leaders. It doesn’t happen overnight of course. It happens over a long time frame, but I don’t see any reason in principle why we can’t move back towards a less intrusive government. We had a democratic government for well over a hundred years in the United States. And even at the turn of the 20th century, the portion of GNP used up by government was not that much higher than it was at the time of the Revolution. So for a very long period of time, democratic government was completely compatible with almost complete free markets and with very little government involvement, and I don’t see why we can’t get back there. There are problems, but I don’t think they’re inherent in democracy. There are simply problems of ideology and values and people have to change their minds, and that’s all there is to it.

Robert Cooter

Can I add something to that? Yes, in a couple of weeks The Independent Institute is going to have a meeting concerned with the decentralization of law through means like the common law. I think this is a very important topic. One of the things that Americans seem to have lost through the experience of the New Deal is an appreciation of the way in which a disciplined judiciary can in fact be left to make certain kinds of rules, rather than having a legislature do it, because the rules that are made by the judiciary in a common law process, the rules that have given us a law of property and torts and contracts, are really quite different in character from legislation, and I think there’s an intellectual problem here. I think that the universities haven’t appreciated the importance of the decentralization of law making. It’s really quite interesting. Most people nowadays assume that you cannot have central planning of the economy, but you must have central planning of law. And I think that’s incorrect, and I think we are correcting the intellectual errors that are involved in that point of view, and I hope that it is going to have an effect in time, both on the way the judiciary works and also on the way the people in the legislature react to what the judiciary does.

David Theroux

If I can just add one quick little thing before the next question to what Bob said, and that was that we’re sort of going in and out of. I think, a key point about the issue of politics and it gets back to what Bob just said and also what Randy said earlier about when he goes into a grocery store to buy cookies. Part of it is the issue of the sovereignty of this political institution. In other words, a crucial aspect of this is the question: Is this institution one based on voluntary association? In other words, an institution based on contract or is it an institution in which some group of people impose their order, their rule-making, on other people, which is what Bob is essentially referring to, is that if rules in society through the common law developed sort of organically as a sequence of consensual decisions that people made as they face problems, that’s quite different from some group invading and conquering a group and imposing rules on them. Or a group in Sacramento, every other day just deciding on—at will, or dependent upon interest groups who influence them—what laws we live under and what we owe them in taxes, or what have you. And one of the great examples of the insanity of such a system is the current electric power situation.

And, the question is, what is a decision making process that is just and rational and effective to achieve liberty and prosperity and all these things that we’re talking about, or do you create an institution that sort of is predatory? which is what, I think, Larry was sort of wondering about. Do you create an institution that’s predatory, that does tend to create incentives for people to use the power of the police force, essentially, to redistribute wealth to themselves, to the detriment of the people at large?

So I think the issue of contract and the issue of property, i.e., a proprietary nature, are two really key elements to a problem within what Alex referred to and others, which is a big difference between if you do walk into a grocery store and you decide you’re going to buy Orowheat bread versus Wonder bread. It’s your choice as Randy was pointing out, your vote and you get what you want. It’s also the producer’s choice. The grocery store makes the decision. The decision is not made by taking a vote of the people in the grocery store. It’s not determined by taking the vote of the people in the city or the nation or any other way. And so, it’s a question of how decision-making can most optimally be decided based on pursuing the values that we’re interested in which is the values of rights and prosperity and so forth. Anyway, further questions? Right here, this lady.

Audience Member #7

I’ll just toss this out to the three of you, or anyone that wants to address it, even David. I’ve recently in the last six months become involved in proportional representation. And it seemed like a good idea to me, because I think that there’s a lot of ideas out there from the third parties that are not getting addressed with the monopoly that the Democrats and the Republicans have on the politics of the U.S. So just hearing you talking about you like the two-party system and leaving the third parties out, I would like to hear more critique or your specific opinions about the proportional representation.

Alexander Tabarrok

Should I start?

Robert Cooter

Go ahead.

Alexander Tabarrok

The most desirable feature, especially when you first look at in proportional representation, is that you get to vote for a party who’s quite close to your ideals. And that party gets some power in Congress, in the Legislature. But you also have to look at the second step and that is what actually happens to policy? OK? Just because you have more parties in the Legislature, doesn’t mean that the policy becomes more representative of the voters overall.

When you have just two parties, you do have a tendency towards the—what Bob referred to as the median voter—the voter where 50% think they should have more X, and 50% think they should have less X. So you get towards a policy of the median voter.

When you have proportional representation, then you have greater power, you give greater power to the wings of the distribution of voter preferences. So, if you have a big left wing, then with proportional representation, you get more power to the left wing. All right? And that may be that the left wing does not represent a large number of voters, a large number of people. But nevertheless, on proportional representation, as compared to when you simply have two parties, you pull people towards the left. If you have a right wing, well then, the exact opposite happens. You pull people towards the right.

So, in either case, what happens is you tend to pull people towards the area where people have strong preferences perhaps. When you pull people towards minority preferences, but overall, that doesn’t necessarily represent the will of the voters any better. It may in fact represent it worse. So the virtue of the two party system is precisely that everyone thinks it’s terrible. Everybody thinks something better could be done, and that tells you that well, you’re just about in the middle. You’re at the point where 50% think you should have more X, more of government spending, 50% think you should have less government spending. In that sense, the recent election was an exact example of what you expect with two parties, and is an indication that democracy is actually working very well. OK? Because when you’re right in the middle, well, that says that you’re right where you want to be. If you have proportional representation, then you’re going to be pushing towards one of the wings. And that may not be representative of the mass of the people.

Robert Cooter

Well, first of all, there’s plenty examples of systems of proportional representation that do work. I mean, Germany works pretty well. Spain works pretty well, but it’s characteristic of these systems that they do have mechanisms for holding down the number of parties. I mean, in Germany, it’s the funding rule. If you fall below a certain percentage of the electorate in a particular election, you don’t get funded by the state in the next election, which usually means death. In Spain they actually weight the votes so that if you get—the smaller of the proportion of votes you get, the smaller proportion—a proportion of seats that’s even smaller than the proportion that you got in the vote. So there’s various ways of doing it, and what’s clear is this. When you get a great deal of coalitional politics, what happens is, the signal to the electorate, the informational signal about what anybody favors, becomes extremely muddied.

Let me give you this example. Suppose that I’m a politician and I’m speaking before a group of citizens who favor X, and they say to you, “Well, why Mr. Cooter, did you vote against X?” And I say, “Well, look, I really am your friend. I really favor X, but I had to vote against X, because it was the only way I could get Z, which you really cared about. And I did in fact vote for Z.” Well, at that point, you say to yourself, well, did he favor X or did he not favor X? Well, when coalitional politics gets quite convoluted, all these bargains are struck, and it’s really hard to know what anybody stands for or what anybody favors.

Now, with respect to a two-party system, you pretty much better know what people stand for and what they’re going to do. You also understand that it’s not necessarily what they stand for, in the sense that they’re inner being isn’t committed to this value. It’s what they’ve done to win the election. Nevertheless, when they won the election, there’s some discipline on them to do what they said they would do, because they have the power to do it. And if they don’t do it, they can’t claim they didn’t do it because they cut a deal, etc. That ploy that muddies the communication is less available to them.

So I guess what I would say to you is I agree with Randy, we’re not likely to have a successful third party in the United States. It’s actually called Duverger’s Law. You can read about it in the book if you want to know why exactly we’re not lucky to have a two-party—a third party succeed. But if we did, it wouldn’t be too bad if we still kept the number down and we didn’t get really bad coalitional politics, but you get real bad coalitional politics, you can’t understand what anybody stands for.

Audience Member #8

I think this is going to be for Mr. Cooter. Often we hear the elected official in a two-party system say that he’s making decisions based on his own moral imperatives, because while he can’t make decisions because X amount of electorate say to do it or don’t, you trusted him to make moral decisions, and he’s using his own moral imperative. You were talking about judges who rely on the common law system and our precedent of common laws to make decisions. Don’t they often make those decisions on their own moral imperatives, too, and what’s the difference?

Robert Cooter

Yes, OK, well, first of all, if a politician had the responsibility of judges, they would have to recuse themselves from every vote. And that’s to say, the characteristic of judicial decision making is that you have to recuse yourself if you have a direct material interest in the issue that you’re deciding. Whereas politicians typically have a direct material interest in the issues that they are deciding. So, in fact we have two very different structures of decision making here. I think the idea of the courts, the reason we create judicial independence and go to such extremes to isolate judges, or insulate them from politics, is so that it doesn’t cost them personally, in terms of their narrow self interest, in terms of their money or their power, or their wealth of themselves and their relatives. It doesn’t cost them anything to decide one way rather than another. In that respect, they’re put in a position where it doesn’t cost them much to do what they think is right.

I guess, I don’t know whether this is an optimistic or a pessimistic view about humanity, but I have the view that most people will do what they think is right if it doesn’t cost them anything, and that some people will do what they think is right if it costs them a little, and some people will do what they think if it costs them a whole lot, and they’re the ones you don’t want to hold public office. But, yes, that’s right, because democratic politics is not being a judge. Democratic politics is making compromises and making bargains. So that I think it would be quite unrealistic to think that the same quality and standards of moral fidelity, and the same degree of integrity and authenticity in expressing your views, is to be found among the judiciary in elected politicians.

David Theroux

One last question. This gentleman right here in front.

Audience Member #9

Well, I’d like to say that I think if they repealed the Sixteenth Amendment, that they would solve a lot of these problems. Why don’t we repeal or why aren’t we for the repeal of the Sixteenth Amendment, then you wouldn’t have campaign finance reform problems. You might have third parties, elected Senators from states that had new thoughts on the subject and—

David Theroux

Randy, do you have any comments about that?

Randy Simmons

OK, we were just sitting here trying to debate, the Sixteenth is the direct election of senators and the Seventeenth was income tax?

Audience Member #9

No.

Randy Simmons

The other way around.

Audience Member #9

Seventeenth was—

Randy Simmons

Which did you mean? Income tax or direct election of senators?

Audience Member #9

Election of senators.

Randy Simmons

OK, Seventeenth.

Audience Member #9

I always get them mixed up.

Randy Simmons

[Laughter.]. Well, so did we.

Robert Cooter

I think we’d rather repeal the Sixteenth. [Laughter. Applause.]

Randy Simmons

But you would substantially change the dynamic of how people are selected to be Senators if we went back to them being selected by state legislatures, and you might get a broader set of representation than we currently get, but I don’t know. I’ve not seen any data that can tell us what it was like before and what it’s like after.

Audience Member #9

Well, you didn’t have campaign finance reform problems, because the Senator was picked by the legislature, and so, he was picked without the impugning; he’s not spending money. He may have promised favors to the various people in the legislature, but it wasn’t a campaign. You didn’t get money from everybody who wanted a favor.

Randy Simmons

But I can see James Carvelle constructing some really clever media campaigns to try to influence the legislature.

David Theroux

But, I mean, if I join an organization, a club, or if I buy stock in a company, and I agreed to the rules of that organization, and they suddenly claimed that they have a right to my house, there’s a problem, and that’s part of what I think we’re trying to aim at is that, decision making has to reflect the consensual nature of the citizenry and the rules have a huge impact on the outcomes of this organization, or the kind of decisions that are made in society based on the way it’s structured, and all three of our panelists have pointed that out. I have to close with this and I want to especially thank our three speakers, Bob Cooter, Randy Simmons, and Alex Tabarrok, for their wonderful presentations and join me in thanking them. [Applause.]

These are not trivial questions, and you can see that. There’s a great deal more that can be said and that’s why I strongly encourage you to get copies of these books [The Strategic Constitution, Beyond Politics, Entrepreneurial Economics]. These are decisions that affect all of our lives and the people we know and our children, so these are important issues. Copies of both books are upstairs. For those of you who have not gotten a copy, both Randy and Bob would be delighted to autograph copies for those who would like to get their copies autographed.

END OF EVENT



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