18.3 Flaws in the Democratic System of Government
6 min read•june 25, 2024
Voting systems and government intervention are crucial aspects of public policy. They shape how collective decisions are made and how resources are allocated in society. However, these systems often lead to unexpected outcomes due to inherent limitations and competing interests.
From voting paradoxes to special interest groups, understanding these concepts is essential for grasping how democratic societies function. We'll explore the strengths and weaknesses of both market-based and government-led approaches to addressing societal needs and challenges.
Voting Systems and Unintended Outcomes
Voting Paradox
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How to do democracy — Voting Systems – Erin Stewart – Medium View original
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- Collective preferences can be cyclic even if individual preferences are not, leading to outcomes that no individual voter prefers
- Three voters with preferences over three alternatives (A, B, C) majority vote may result in an outcome that no individual voter prefers
- Voter 1: A > B > C
- Voter 2: B > C > A
- Voter 3: C > A > B
- Majority vote: A > B, B > C, C > A (cyclic)
Arrow's Impossibility Theorem
- No voting system can convert individual preferences into a community-wide ranking while satisfying certain desirable properties
- Transitivity: If A is preferred to B and B to C, then A must be preferred to C
- Universality: The voting system should work for any possible set of individual preferences
- Independence of irrelevant alternatives: The relative ranking of A and B should not depend on the presence or absence of C
- Non-dictatorship: The preferences of a single individual should not determine the outcome
- Demonstrates the inherent limitations of voting systems in aggregating individual preferences
Condorcet Paradox
- Collective preferences can be intransitive even if individual preferences are transitive, creating cycles in pairwise majority voting
- Pairwise majority vote: A preferred to B, B to C, and C to A (rock-paper-scissors)
- A vs. B: A wins
- B vs. C: B wins
- C vs. A: C wins
- Highlights the potential for and the difficulty in determining a clear winner
Median Voter Theorem
- In a majority vote with single-peaked preferences and a one-dimensional policy space, the outcome will be the preference of the median voter
- Single-peaked preferences: Each voter has a single most-preferred policy, with preference decreasing as policies move away from this ideal point
- One-dimensional policy space: Policies can be arranged along a single dimension (left-right, liberal-conservative)
- May lead to policies that do not maximize overall social welfare, as the preferences of the median voter may not align with the socially optimal outcome
- Example: Public spending level determined by the median voter's preferences, which may be lower or higher than the efficient level
Special Interest Groups and Government Intervention
Lobbying
- Special interest groups hire lobbyists to influence policymakers through information provision, campaign contributions, and other resources
- Information provision: Lobbyists provide policymakers with data, research, and arguments supporting their preferred policies
- Campaign contributions: Lobbyists make financial contributions to politicians' election campaigns to gain access and influence
- Other resources: Lobbyists may offer perks such as travel, meals, or entertainment to policymakers
- May lead to policies that benefit narrow interests at the expense of the general public, as policymakers prioritize the preferences of well-organized and well-funded groups
Rent-Seeking
- Special interest groups seek to capture economic rents (excess returns above normal profits) through government policies
- Tariffs: Import duties that protect domestic industries from foreign competition, allowing them to charge higher prices
- Subsidies: Government payments to specific industries or firms that increase their profitability
- Regulations that limit competition: Occupational licensing, zoning restrictions, or other barriers to entry that reduce competition and increase profits for incumbent firms
- activities waste resources on and other efforts to secure favorable policies, leading to inefficient outcomes
Regulatory Capture
- Regulatory agencies become influenced or controlled by the industries they are meant to regulate, leading to policies that benefit the regulated industry rather than the public interest
- Revolving door: Regulators may have previously worked in the regulated industry or may seek employment there after their government service, creating incentives to favor industry interests
- Industry influence: Regulated firms may provide regulators with information, resources, or political support, shaping the agency's agenda and decisions
- Example: A telecommunications regulator may adopt policies that favor incumbent firms and limit competition, resulting in higher prices and lower quality for consumers
Logrolling
- Policymakers trade votes on different issues to secure passage of their preferred policies, even if they do not directly benefit their constituents
- Concentrated benefits: Policies that provide significant benefits to a small group (such as a specific industry or region)
- Dispersed costs: Policies whose costs are spread across a large group (such as taxpayers or consumers)
- Can lead to the adoption of policies that have concentrated benefits and dispersed costs, as policymakers prioritize the interests of well-organized groups over the general public
- Example: Legislators from agricultural districts supporting urban development projects in exchange for votes on farm subsidies
Market Strengths
- Efficiently allocate resources based on supply and demand, ensuring that goods and services are produced and consumed in line with consumer preferences and resource scarcity
- Provide incentives for innovation and cost minimization, as firms compete to offer better products at lower prices to attract customers
- Decentralized decision-making allows for adaptation to local conditions, as prices and quantities adjust to reflect the specific circumstances of each market
Market Limitations
- : Market prices may not reflect the full social costs or benefits of a good or service, leading to over- or under-production
- Negative externalities (pollution): Firms do not bear the full cost of their actions, resulting in excessive pollution
- Positive externalities (education): Individuals do not capture the full benefits of their investment, leading to underinvestment in education
- Public goods: Markets may underprovide goods that are non-excludable (people cannot be prevented from using them) and non-rivalrous (one person's use does not diminish others' ability to use them)
- National defense: Once provided, everyone benefits from protection regardless of whether they pay for it
- Basic research: Knowledge generated by research is often freely available and does not reduce the amount available for others
- : One party to a transaction may have more information than the other, leading to inefficient outcomes
- Adverse selection (used cars): Sellers know more about the quality of their cars than buyers, leading to a market dominated by low-quality cars
- Moral hazard (insurance): Insured individuals may take fewer precautions, knowing that they are protected against losses
- Inequality: Market outcomes may result in an unequal distribution of income and wealth, as rewards accrue to those with scarce skills, resources, or luck
Government Intervention Strengths
- Can address such as externalities and public goods through taxes, subsidies, regulations, or direct provision
- Pigouvian taxes on pollution to make firms internalize the social cost of their actions
- Subsidies for education to encourage investment in human capital
- Direct provision of national defense and basic research
- Can redistribute income and wealth to reduce inequality through progressive taxation, social welfare programs, or public services
- Progressive income tax: Higher tax rates on higher incomes
- Social welfare programs (unemployment insurance, food stamps): Provide assistance to low-income individuals and families
- Public services (education, healthcare): Ensure access to essential services regardless of ability to pay
- Can provide public goods and services that markets may underprovide due to free-rider problems or high fixed costs
- Infrastructure (roads, bridges): High fixed costs and non-excludability make private provision difficult
- Public health (vaccination): Positive externalities and free-rider problems lead to underinvestment by individuals
Government Intervention Limitations
- Government failures: Policymakers may be influenced by special interests or lack the information needed to design effective interventions
- Rent-seeking: Special interest groups may lobby for policies that benefit them at the expense of the general public
- Information limitations: Policymakers may not have access to the local knowledge needed to tailor policies to specific circumstances
- Inefficiency: Government intervention can create inefficiencies and distort market incentives
- Price controls (rent control): Can lead to shortages, reduced quality, and misallocation of resources
- Subsidies (agricultural subsidies): Can encourage overproduction and distort market signals
- Unintended consequences: Policies may have unintended effects that worsen the problem they were meant to solve
- Minimum wage: Can lead to job losses and reduced hours for low-skilled workers
- Rent control: Can reduce the supply of rental housing and lead to misallocation of existing units
- Limited information: Policymakers may lack the information needed to design effective interventions
- Difficulty in measuring social costs and benefits: Policymakers may not have accurate estimates of the externalities associated with different activities
- Lack of local knowledge: Centralized decision-makers may not understand the specific needs and circumstances of different communities
Key Terms to Review (17)
Agenda Control: Agenda control refers to the ability of certain individuals or groups to influence the issues and topics that are considered and discussed within a decision-making body, such as a government or organization. It is a concept closely related to the flaws in democratic systems of government.
Campaign Finance: Campaign finance refers to the regulations and practices surrounding the raising and spending of money for political campaigns and elections. It is a crucial aspect of the democratic process, as it influences the ability of candidates to effectively communicate their messages and mobilize supporters.
Condorcet Paradox: The Condorcet paradox, also known as the voting paradox, is a phenomenon that can arise in democratic voting systems where the collective preferences of the voters do not align with the preferences of any individual voter. This paradox highlights a potential flaw in the democratic system of government.
Externalities: Externalities are the unintended consequences of an individual's or firm's actions that affect other parties not directly involved in the transaction or activity. These spillover effects can be positive or negative and impact third parties who did not choose to incur the costs or benefits.
Gerrymandering: Gerrymandering is the manipulation of electoral district boundaries to favor one political party or class over another. It is a practice that undermines the democratic process by distorting the representation of voters' preferences.
Information Asymmetries: Information asymmetries refer to a situation where one party in a transaction has more or better information than the other party. This imbalance of information can lead to market inefficiencies and potential exploitation of the less-informed party.
Intransitivity: Intransitivity is a property of binary relations where the relation does not satisfy the transitive property. In other words, if A is related to B and B is related to C, it does not necessarily mean that A is also related to C.
Lobbying: Lobbying refers to the act of attempting to influence the decisions of government officials, legislators, or other policymakers by providing them with information, arguments, or other incentives to support a particular cause or policy. It is a common practice in democratic systems of government as a way for various interest groups and organizations to advocate for their interests and shape the political landscape.
Market Failures: Market failures occur when the free market fails to allocate resources efficiently, leading to suboptimal outcomes for society. This concept is crucial in understanding government policies to reduce income inequality and the flaws in the democratic system of government.
Median Voter Theory: The median voter theory is a political science concept that suggests the policies adopted by a democratic government will tend to reflect the preferences of the median voter - the individual whose views are exactly in the middle of the overall voter distribution. The theory proposes that politicians and political parties will shape their platforms and policies to appeal to this median voter in order to win elections.
Mixed Economy: A mixed economy is a type of economic system that combines elements of both capitalism and socialism. It allows for private ownership and market forces to coexist alongside government intervention and public ownership in certain sectors of the economy.
Political Polarization: Political polarization refers to the increasing division and lack of consensus within a political system, where individuals and groups hold strongly divergent views on political issues. It is characterized by the emergence of two distinct and often opposing ideological camps that are unwilling to compromise or find common ground.
Regulatory Capture: Regulatory capture is a situation where a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating. This phenomenon can have significant implications for the effectiveness and fairness of government regulation across various economic and political contexts.
Rent-Seeking: Rent-seeking refers to the practice of individuals or groups using their resources to obtain economic benefits from others without reciprocating any benefits to society. It involves using political influence, lobbying, or other means to capture a share of existing wealth rather than creating new wealth through productive economic activities.
Tyranny of the Majority: Tyranny of the Majority refers to a situation where the majority group in a democracy can oppress or suppress the rights and interests of the minority groups. It highlights the potential flaw in pure majority rule, where the majority can abuse its power to the detriment of the minority.
Voter Suppression: Voter suppression refers to the various tactics and strategies employed to discourage or prevent eligible voters from exercising their right to vote. It is a concerning issue that can undermine the principles of a democratic system of government.
Voting Cycles: Voting cycles refer to the phenomenon where a group's collective preferences can cycle between different alternatives, leading to an inability to reach a stable majority decision. This concept is closely tied to the flaws in the democratic system of government, as it highlights the challenges in aggregating individual preferences into a coherent social choice.