The Paradox of Political Rationality: Lynch

The Answer Is Transaction Costs

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Why do harmful policies like tariffs keep coming back despite universal condemnation from economists? The answer lies in the dynamics of collective action and concentrated interests.
In this eye-opening conversation with G. Patrick Lynch, Senior Fellow at Liberty Fund, Mike Munger explores the fascinating world of public choice theory and how it explains some of democracy's most persistent puzzles. Lynch, a self-described "popularizer of public choice," breaks down complex economic principles into digestible insights about political behavior.
The discussion begins with the foundations of public choice theory—the application of economic reasoning to political decisions. Far from portraying politicians as uniquely self-interested, public choice simply acknowledges that all humans respond to incentives, whether in markets or politics. As Lynch explains, "It's a mistake to characterize public choice as people being just materially self-interested." Even Mother Teresa was pursuing her goals single-mindedly—the definition of self-interest properly understood.
When the conversation turns to tariffs, Lynch delivers a masterclass in why bad policies persist. Manufacturing interests receive concentrated benefits and organize effectively, while consumers bear diffuse costs. "That $70,000 job costs consumers $210,000 to $250,000 in increased prices," Munger notes. But since an individual consumer might pay just pennies more per purchase, they won't mobilize political opposition.
Perhaps most fascinating is the exploration of Elinor Ostrom's Nobel Prize-winning work on common-pool resources. Conventional wisdom suggested that without government intervention, shared resources face inevitable destruction through overuse. Yet Ostrom discovered countless examples worldwide where communities developed sophisticated management systems to sustain resources over generations.
If you've ever wondered why policies that economists universally condemn keep returning, or why small groups seem to dominate our politics despite majority rule, this conversation offers profound and sometimes unsettling answers. Subscribe now for more insights that will transform how you understand politics, economics, and collective decision-making.

LINKS:

G. Patrick Lynch:

• https://www.econlib.org/author/plynch/
• https://www.civitasinstitute.org/research/the-young-americas-need-each-other
• https://lawliberty.org/author/patrick-lynch/
• https://lawliberty.org/book-review/public-choice-with-chinese-characteristics/

Shaggy Dog story:

• https://www.phrases.org.uk/meanings/shaggy-dog-story.html
• The ORIGINAL Shaggy Dog story: https://stephengreensted.wordpress.com/2011/01/20/the-original-shaggy-dog-joke/

Book’o’da Month: Two Books, both by William Bernstein.

• The Birth of Plenty: How the Prosperity of the Modern World was Created. McGraw-Hill, New York, 2004,

If you have questions or comments, or want to suggest a future topic, email the show at [email protected] !

You can follow Mike Munger on Twitter at @mungowitz

Chapters

1. Introduction to Public Choice Theory (00:00:00)

2. Behavioral Symmetry and Politics as Exchange (00:10:42)

3. Minority Power in Democracies (00:19:17)

4. Tragedy of the Commons and Ostrom's Solution (00:32:40)

5. Why Tariffs Keep Coming Back (00:52:33)

6. Closing Thoughts and Twedges (01:01:11)