First Published in the Yonkers Tribune.
By Oren Levin-Waldman
In his famous work, “An Economic Theory of Democracy”, published almost sixty years ago, Anthony Downs sought to apply public choice assumptions to the operations of democracy. According to the Downsian model, all actors, including political parties, interest groups and governments, behave rationally. Each party seeks to maximize its advantage or utility, which means that each is motivated by self-interest. Political parties, for example, will seek to maximize its utility by doing whatever is necessary to gain political support and win elections.
The Downsian model, then, is based on the assumption that every government seeks to maximize political support. It is further assumed that the primary goal of government in a democratic society, where periodic elections are held, is reelection. Political parties, then, formulate policies in order to win elections; they don’t win elections in order to formulate policies. Politicians in the model, then, are motivated by a desire for power, prestige, income, and the “thrill of the game.” The relationship between what government does and how citizens vote is derived in the model from the axiom that citizens act rationally in politics.
When voters make their voting decisions they are considering the utility they derive from government activity. Moreover, all citizens are constantly receiving benefits of one kind or another from government activity. Therefore, each citizen, according to this model, will vote for the party that s/he believes will provide him/her with the higher utility income, i.e. benefit and/or advantage. Rational people aren’t interested in policies per se, but in their own utility income.
As government seeks to maximize political support, it carries out those acts of spending which gain the most votes by means of those acts of financing which lose the fewest votes. Government spending is increased until the vote gain of each marginal dollar spent equals the vote loss of each marginal dollar of financing. In cost-benefit terms, a government pursues a policy and/or program when each expenditure is said to be worth the cost in terms of votes.
In the model, citizens only vote to influence government policies, and they are only interested in each party’s statements, positions, and/or ideologies to the extent that they serve as guides to the policies the party will pursue once in office. Also in lines with the Downsian hypothesis, parties also seek as their final ends the power, income and prestige that go with attaining office. All this means that a government may pursue policies that are in the interests of certain key players and not in the interests of others because the expected loss is not presumed to be great.
This might then suggest that in the case of growing income inequality, if the interests of those who benefit from the inequality are served and these interests are the prime donors to those seeking office, and every actor is pursuing his/her self-interest, then there is no reason to address the issue of income inequality. We can only presume that there is no benefit to assisting low-income citizens who are more likely to be hurt by growing income inequality. A key reason for this might be that low-income citizens don’t have the resources to contribute to campaigns and they tend to be less likely to participate in the political process, even at the most nominal level of voting.
Downs, however, suggests something a bit different, which ultimately forms the basis of the median voter theorem. He assumes that at some point low-income citizens will eventually tire of being discriminated against , or ignored, by government policy. To counteract the influence of high-income citizens and their domination, they may seek to form large collective bargaining units, similar to unions in the labor market. Once part of such a collective bargaining unit, or interest group, this individual voter will no longer feel that her vote is worthless because by joining others it ensures that her vote will count.
And yet, Downs goes on to say that low-income citizens have essentially traded their political influence for money utility. This would seem to imply that as long as low-income voters get benefits in the form of money income, they will happily trade away any political influence to the government to in turn pursue policies that serve the interests of more affluent interests — interests that don’t need money income from the government per se, but do need policies that may enable them to become wealthier in the market place. And yet, everybody in this scenario is behaving rationally.
If we apply this to the current labor market, we get the following scenario: Public officials don’t raise the minimum wage because it is not in the monied interests of those who donate to their reelection to do so. But in order to obtain the quiescence of low-wage voters, these officials provide the low-wage voters with subsidies, which we now know cost the taxpayers $152.8 billion a year. Low-wage voters, in other words, have traded their voice — political influence — away for money utility. The monied interests have gotten the policies that serve them, and public officials have been reelected.
One view is to say this is corruption. Another view is to acknowledge that it is win-win and everybody is being represented, albeit in a perverse fashion. Of course, this is a classic case of the Marxist argument that the state throws the poor a bone. In order to obtain the quiescence of low-wage voters, who in more authoritarian regimes might rebel violently, public officials engage in redistribution. Remember, raising marginal tax rate on monied interests will not upset them because there are sufficient deductions to enable them to avoid paying higher taxes.
Still, assuming that the quiescence of the poor is purchased through redistribution, it does not follow that redistribution has to follow the traditional model that tax rates need to rise in order to pay for programs. Rather redistribution can occur through wage policy. If all this is true, then policymakers ought to think of the minimum wage as the response to growing income inequality. Profits would be redistributed to workers in the form of higher wages. But low-wage workers would still be working for those higher wages, meaning that they are returning something of value.
Of course, this doesn’t allow the monied interests to avoid paying more taxes through their deductions because the marginal tax rate would not be raised. And yet, they too could gain if the current tax code was replaced with a more flat tax. Then again, the politicians would lose their principal vehicle for purchasing votes. Is it any wonder that things are the way they are?
Just published: Wage Policy, Income Distribution, and Democratic Theory:
Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: firstname.lastname@example.org