Studying public choice is vital because people are susceptible to misconceptions. The moment economists admit that the market is imperfect due to problems such as public goods provision or externalities there is mass zeal for corrective interventions such as subsidies and taxes. Yet, this may not always be a good idea. The more legitimate question to ask is not whether the market is perfect; but, whether the political process is better.
The cartoon below is a good example of what some people imagine about economic theories. They forget that graphs must be placed into practice, and so they are essentially saying "A Miracle Occurs"
Mark and I assigned our students to read a Bruce Yandle article titled "Much Ado about Pigou". Alfred Cecil Pigou was the father of the idea that taxes could be used to correct negative externalities. An idea that Yandle points out is gaining significant popularity in a myriad of arenas: taxes on soda (to curb obesity) and taxes on large banks (to curb risky behavior). But, even Pigou did not believe that policy happened in a vacuum. He offered this valuable insight:
[W]e cannot expect that any public authority will attain, or will even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. A loud-voice part of their constituents, if organized for votes, may easily outweigh the whole.
In short, public choice is worth studying because we need to understand: votes are to politicians what profits are to businesses. Sometimes policies are adopted, not because they generate more benefit for the body politic, but because they benefit an important set of people. Finally ---and this speaks to Pigou's statement that "authorities are liable alike to ignorance"--- even if politicians were well intentioned, there is no single Great Mind that could calculate the social costs or benefits needed to arrive at a corresponding tax or subsidy.
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