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National Review, Dec 31, 1986 by David R. Henderson

Buchanan's Prize

WHEN FRIEDRICH HAYEK won the Nobel Prize in economic in 1974, I thought it was a fluke. After all, he had to share the prize (he was a "co-winner") with the Swedish socialist Gunnar Myrdal. The chances were slim, I figured, that any free-market economist would win it again soon.

Since then, three (relatively) libertarian economists have won the Nobel: Milton Friedman in 1976, George Stigler in 1982, and now James Buchanan in 1986. Few economists questioned Friedman's or Stigler's qualifications. In Buchanan's case, it has been different. Michael Kinsley, editor of The New Republic, made fun of Buchanan in the Wall Street Journal. Hobart Rowen of the Washington Post likened Buchanan's scholarly contributions to those of George Will, Richard Wirthlin, and William Safire. And the socialist economist Robert Lekachman, of City University of New York, wrote in the New York Times that Buchanan's scholarly achievements are "modest."

What's the story? Has Buchanan made fundamental contributions to the study of economics, or not?

In fact, Buchanan's impact on how economists--and not just free-market economists--think about government has been huge. In the 1950s and 1960s, before Buchanan's influence was felt, economists who found "market failures" leaped almost immediately to the conclusion that the government should step in and set things right. They rarely stopped to ask whether politicians and government officials would have the incentive to intervene in a productive way. Even economists who defended the market failed to base their anti-interventionist arguments systematically on the spectrum of incentives for government employees to choose this over that course of action. As Buchanan, quoting economist Knut Wicksell, put it in 1962, "Most economists are content with assuming the presence of a benevolent despot."

Buchanan's work changed that. In 1962, with his colleague Gordon Tullock, Buchanan published a book that has become a modern classic: The Calculus of Consent. In it, the authors dropped the usual assumption that politicians, bureaucrats, and voters were motivated solely by concern for the public good, and assumed instead that they were self-interested. Later, students of the "public choice" school, as it came to be called, applied their tools to explaining specific actions in the public arena.

The result has been a sea-change in work on economic policy. Even in economics departments where the "benevolent despot" assumption is alive and well, economists feel compelled to deal with public-choice arguments. Government policies that would work only if noble bureaucrats administered them do not seem nearly so credible as in the Fifties or Sixties. Some of the credit for this development goes to George Stigler, who studied--and persuaded other economists to study--the effects of government regulation. But much of the credit goes to Buchanan.

By undertaking a systematic analysis of political incentives, Buchanan and his colleagues are making a more fundamental critique of government intervention than the usual free-market economist's critique. As the moral philosophers tell us, ought implies can: To say that government should do X is to say that it can do X. By castitng doubt on whether it can, buchanan challenges the idea that it ought to try. Which may explain the particularly hostile treatment given Buchanan by Rowen and Lekachman, if anything can.