ABSTRACT
Introduction Now and then it is claimed that, to achieve rational government, politics should be under the control of economists. The logic is something like: people are rational when they act according to their own scarce resources. The implication of this is that markets, where individuals only express their individual desires, are in principle rational. As we well know, it is claimed, politicians often act according to their individual desires leading society into a state of inefficiency and even irrationality. Theoretically this has been expressed in the theory of rational choice, which is a part of both economic and political science. The thought is that public policy and social actions are built on self-interest. Thus, a government built on rational market-like decisions could impose some sort of balance with respect to market failures and distribution of welfare. This is by no means new but traces some of its roots back to Hobbes and Machiavelli. Economic theory provides us with an approach to rationality which forms a rational market structure also on the aggregate level and thus it has become a powerful challenge to traditional political analysis. The formal structure of modern rational choice theory is built on the axioms of the general equilibrium theory in economics which provides a clear-cut logical understanding of the aggregate economy, forming an excellent base for normative welfare analysis. Anthony Downs was early in using the economic rationality concepts and advocates a programme to integrate government with private-decision makers in the general equilibrium theory. The intention of governance should be to create a market-like situation so government could be successfully integrated with private decision makers in a general equilibrium (Downs 1957: 3). Modern scientists are less devoted to full integration of government and economic theory although they basically use the same setting as Downs. Thus Michael Laver claims that ‘The essential purpose of the rational choice approach is thus to construct a logically coherent potential explanation of the phenomenon under investigation’ (1997: 4). Doron and Sened claim the purpose of their book is ‘To explain how strategic choices made by the individual actors yield, through complex bargaining
processes, the political outcomes that define the social orders in which we live’ (2001: 19). To achieve this, they postulate methodological individualism and purposeful action. The two postulates are thought to be at least implicitly expressed by the axioms of economic general equilibrium theory but as we will see they can be interpreted in other ways. Rational choice theory got a considerable boost through Arrow’s impossibility theorem which highlighted the potential conflict between Homo Œconomicus and Homo Politicus (Arrow 1950). The conflict created by this theorem revived the debate since it appeared as if Rational Man was unable to handle aggregate matters in a society. Research by particularly McKelvey and Schofield (1986) worsened the case by showing that with respect to the Nash equilibrium in a multidimensional political space, stable majority cores almost never existed, which was formulated into a sort of chaos theorem. Thus, seemingly, we have on one hand a potential conflict between democracy and efficiency and, on the other, between policy and the rational market action, heightened by Arrow’s impossibility theorem. This tells us that majority voting will not lead to a unique equilibrium implying the so-called Pareto optimum. Often its interpretation is that the only way to restore the state of general equilibrium according to market theory is to impose dictatorship. This indeed leads us to a rather confusing point in the discussion. The Nobel laureate Milton Friedman (2002) claimed that the free market economy was a necessary prerequisite for political freedom, but at the same time we have a famous logical result from the analysis of the market economy by the Nobel laureate Kenneth Arrow where it is said that if we are going to achieve the same level of rationality of the collective choice as we have for the individual action on the market, we must install dictatorship. This is the basic rationale for those who advocate that politicians should be set under the command of economists, although the logic seems to be a bit confusing. Do we have an insoluble conflict between Homo Œconomicus and Homo Politicus? Based on these negative results the research has roughly followed two lines: game theoretical considerations and institutional theory. The core of the game theoretic approach is the prisoner’s dilemma, which certainly is a powerful challenge, and potentially it ends in the Nash equilibrium (1950). The Nash equilibrium is, however, built on the same logical pillars as general equilibrium theory and shares its strength and weaknesses (Debreu 1982). The interesting thing about the Nash equilibrium, as we will discuss in Chapter 4, is that it implicitly presupposes a Kantian ethics. The institutional research has concentrated around the need to limit the dimensionality of the decision space of the agents. The problem of these two lines of analysing the democratic society is that they always end up with what may be called an insufficient cause.2 Thus with respect to the prisoner’s dilemma one may ask, ‘Who is the judge?’ Similarly, with respect to the institutional analysis, ‘Who imposes the proper institutions?’ However, underlying these
analytical ventures the question gnaws: whether Homo Rationalis is an intelligent creature or a rational fool. The concept of rationality has become a doubtful concept. One might perhaps think of some ethical rules governing the rational actions but this is traditionally not a part of the market theory, which is alleged to be value-free. In Public Sector Economics by Richard Tresch (2008: 77) we read about distributive justice:
Chapter 4 has told us a fairly depressing tale about the quest for distributive justice in democratic, humanistic societies. Its main message is that all societies must solve the distribution question of end-results equity or distributive justice, but they can do so only if the citizens can agree upon a set of ethical rankings of individuals that can be analytically represented by the Bergson-Samuelson individualistic social welfare function. Unfortunately, a majority rule, democratic voting process is unlikely to select a particular social welfare function.
