A Primer on Public Choice: Interview with Law Professor Todd Zywicki

September 22, 2014

On October 14, the U.S. Supreme Court will consider an antitrust case with an occupational licensing flavor, giving IJ an opening to show the Court how licensing harms consumers and entrepreneurs. Working with George Mason University law professor Todd Zywicki, IJ Senior Attorney Paul Sherman and Director of Strategic Research Lisa Knepper wrote an amicus brief that argues that licensing boards frequently act to protect licensees’ pocketbooks, not consumers.

The case involves North Carolina’s dental board, which the FTC has charged with violating federal antitrust law for trying to monopolize teeth whitening for licensed dentists. IJ’s brief—which an IJ-record 45 university and research scholars joined—combines research from our 2013 White Out report with a branch of economics known as “public choice theory.” The report exposed a nationwide effort by dental interests to shut down teeth-whitening entrepreneurs, and public choice theory explains why such special interests are often able to bend public policy to their will.

Professor Zywicki has filed amicus briefs drawing on public choice theory in three IJ cases, including our successful challenge to Louisiana’s casket monopoly on behalf of Saint Joseph Abbey. Lisa interviewed him about public choice theory and how it matters for IJ’s work.

Q & A with Todd Zywicki

LK: In a nutshell, what is public choice theory?

TZ: Public choice theory is the application of economics to the study of politics. It looks at the incentives and costs of political activity and makes predictions about what will emerge from the political process. In particular, public choice suggests that there may be predictable “market failures” in politics—for example, laws that favor well-organized special interests with stronger incentives to influence the law than the public. Even though the public has more votes, each person has less incentive to monitor and participate in the political system, so special interests have a leg up.

LK: Do you see public choice theory at play in IJ cases?

TZ: The standard IJ case often reflects exactly these sorts of political dysfunctions. Infringements on economic liberty often occur because an interest group lobbies for a law that protects them from competition, imposing barriers to entry on competitors and hurting consumers. Eminent domain abuse often occurs because an interest group uses their political clout to take property from the less-powerful. And campaign finance regulations invariably reflect the influence of incumbent politicians seeking to protect themselves from competition and criticism. In each case, the political process is distorted in a predictable manner—in favor of well-organized, powerful groups.

LK: The words “public choice” do not appear in the U.S. Constitution. How are the insights of public choice theory relevant to constitutional law?

TZ: The term “public choice” wasn’t invented until the 1960s, but the term “faction” was used throughout the Federalist Papers to describe what we today call an “interest group.” The Federalist Papers explained that the goal of the Constitution was 1) to preserve individual liberty and 2) to limit the ability of factions to commandeer the government in “schemes of mischief” to further their own interests. The very purpose of the separation of powers, federalism and other constitutional limits on government power was to frustrate factions from capturing the government for their own private benefit.

LK: In your brief supporting Saint Joseph Abbey, you argued that the same dynamic that enabled Louisiana’s funeral directors to secure a monopoly over casket selling would likely prevent the monks from convincing the legislature to repeal the law. Why was that an important point for the court to understand?

TZ: Since the New Deal, judges have been extremely deferential toward laws and regulations that infringe on economic liberties. Rather than scrutinizing such laws closely, as they do with, for example, infringements on free speech, judges have largely taken a hands-off approach, adopting an attitude of “leave it to the legislature.” But “leaving it to the legislature” is often naïve. Funeral directors reap huge profits off their casket sales monopoly. They thus have huge incentives to lobby for and maintain their monopoly, but consumers forced to pay higher prices have limited ability to organize to overturn it. “Leave it to the legislature” overlooks the true dynamics of the political process.

LK: What can public choice theory contribute as the Supreme Court considers the North Carolina case about teeth whitening?

TZ: Professional licensing is especially vulnerable to special-interest influence. Many licensing boards, including dental boards, are composed of members of the regulated profession who have an obvious incentive (or subconscious bias) to expand the scope of activity subject to their monopoly. In fact, the number of Americans who work in occupations subject to licensing requirements has soared. The value of public choice theory in the North Carolina case is explaining—using solid economic analysis—why anticompetitive regulations exist and challenging self-serving claims that regulations benefit consumers.

LK: Is there one insight from public choice theory you wish were more widely appreciated by judges?

TZ: If the government is handing out billions of dollars in prizes to interest groups, people are going to compete to get their hands on those prizes. Judges should appreciate the consequences when they decide whether to allow politicians to pick winners and losers—politicians won’t always be picking the “fairest” winners and losers, but often just the most politically influential.

Lisa Knepper is an IJ director of strategic research.

Also in this issue

U.S. Supreme Court to Government: No, You Can’t Do Whatever You Want

Decrease Your Taxes and Support Freedom

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