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Markets and government: intersection and interference

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Mary Altaffer/AP/File

(Read caption) In this Sept. 25, 2008 file photo, a Wall St. street sign is shown in front of the American flag hanging on the New York Stock Exchange in New York.

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Our previous post and the ensuing discussion raised points for and against the appropriateness of understanding markets as complex adaptive systems. We discuss here whether the same approach can say something useful about modern political systems, taking the US as the illustrative example.

Thomas: I think it could be useful to apply concepts from complex systems to understand governmental arrangements. I’ll concentrate here – with a very broad brush – on the legislative branch. Congress and its agencies can be seen as a social arrangement in which the participants pursue their particular aims via repeated, structured interactions. This process adapts to inputs from voters, lobbyists, and others. A body of legislation and associated directives is an emergent effect.

Two interrelated aspects of this particular system stand out immediately—its concentration of power and the relatively weak feedback constraining the exercise of this power. In these respects, it differs markedly from markets and science.

This is a highly centralized arrangement, endowed with the power to pass legislation or initiate projects that benefit particular individuals or groups at the expense of others. It is no surprise that it would be a natural focus for special-interest lobbying. This side-effect can, of course, induce negative feedback. If voters realize such activity is going on and disapprove if it, they could vote against candidates who engage in it.

In practice, this reaction has been relatively weak—many voters themselves may be beneficiaries of at least some special interest legislation, and in any case the activity is so pervasive that they are rarely presented with an untainted candidate. And even if such a candidate succeeded in entering Congress, he would find it difficult to further his projects, benefit his constituents and get reelected without “playing along” with the legislative packages pushed by his fellow representatives.

It is standard Public Choice reasoning to concentrate on the participants’ self-interest in terms of self-enrichment and self-aggrandizement, with the need to get reelected as an overriding concern. While there is a large element of truth and useful analysis there, it misses the point that, under the systemic arrangements in place, even participants with the highest motives and the greatest desire to help their fellow man must engage in compromise, logrolling, and the manufacture of one-size-fits-all legislation. The arrangements are the problem; the people are … people.

What we have here is an adaptive system, but one which, inadvertently, is structured to grow by destructively feeding off other systems, particularly markets and firms. That we still, after over 220 years of its operation, enjoy the level of prosperity that we do is testament to both the resilience of markets and the innovative good sense of Madison et al. in implementing such constraints within their system as they did.

Chidem: Certainly almost all experience points to the weakness of voter feedback as a control mechanism. In addition to the reasons you mention, there is another powerful barrier to effective electoral oversight. As Ilya Somin’s extensive review of the evidence shows, voters do not have adequate knowledge to control public policy. Moreover, he points out that voter ignorance is largely a rational choice and unchanging over the decades, despite the massive growth in education.

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Somin persuasively argues that the more complicated and extensive the government sector, the less of it the electorate understands. Small and simple government would help reduce the problem, but we’re moving fast in the opposite direction.

Given that voters have at best limited effectiveness in overseeing the centralized power, the other fundamental constraint, that is the constitution, has to be all important. The good sense of Madison et al., as you put it, is the main basis for American freedom and prosperity.

The system argument is useful for highlighting the weakness of negative feedback to special-interest legislation, which explains its growth. But obviously this approach only goes so far. On its own it is incomplete.

Deeper understanding requires that one consider the role of the Constitution—which is not a necessary part of an adaptive system, though we know from history that it arises under certain conditions. … to be continued …

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