Waiting for Turgot:
Tales of Political Economy

Edward H. Clarke

[July 2000 / Part 2 of 5]

Chapter 1

THE PRACTICE OF SOCIAL ART

1.0 Introduction:

In 1980, I published a book, entitled Demand Revelation and the Provision of Public Goods. This was my Ph. D. dissertation to which I added ideas for application of the demand revealing process in the real world. Work on these applications began in 1965 on issues of "governance" affecting "water quality management" institutions. This second book extends my earlier work and deals more broadly with institutional architecture, applying the theory of "incentive compatibility" of which demand revealing is a part.

I began the latest manifestations of what is Book II of this work in 1991, working with a colleague on aviation management institutions (air traffic control and airports). At the time, I became very interested in a treatment by Albert and Hahnel, entitled The Quiet Revolution in Welfare Economics which stimulated my interest in institutional architecture for the next century and beyond. Robert Heilbroner, who authored the first book, The Worldly Philosophers, on economics I ever read referred to their work in the conclusions of his 1993 book on 21st Century Capitalism, some of the spirit of which is reflected in this work. In a more recent work, Visions of the Future, Heilbroner (1995) essentially writes a modern version of Condercet's Esquisse which also greatly influences this work.

Struggling with the design of aviation management institutions in the context of works referred to above leads to some form of personal and ideological deconstruction. Some of my early ideas relating to privatization were challenged by readers of the early aviation management work. This fed into experiences I had in working on privatization problems during several years as an economist for the Agency for International Development, before returning in 1988 to the Office of Management and Budget to work on transportation "regulatory management" issues.

During the period 1980-95, I devoted a good deal of time considering how "regulatory management" ought to work in the context of American Federalism. Before presenting in any detail in Part II a treatment of how an "incentive-compatible" federalism could be brought about, I would like to put the work in the context of certain reflections on political economy as these relate to incentive-compatible institutions. I start with certain observations about "the practice of social art".

1.1 The Practice of Social Art: The Utopian Mind and Social Reality

Since about the time of the French Revolution, and shortly after the death of the Marquis de Condercet and the interpretation of his work by the Ideologues, the social sciences in the Western World have been largely divided into three spheres.(1) Two of these -- moral and political economy -- are involved with discovering the nature of human desires and needs and examining the social effects and consequences of these actions and needs. Emerging from those two was a third: that of directing our actions in such a way as to produce "the greatest satisfaction of desire".

This latter part of the science, maintained De Tracy (1801), one of the Idealogues, who built on Condercet's ideas, did not have an appropriate name: "for what is ordinarily called the science of government rarely possessed the goal we have just indicated, and that known under the term social science embraces only a part of the subject." This area generally became known, but not well defined, as the "social art".

For about 200 years, at least in the part of the world that embraced an "architecture of freedom", the social art was practiced aggressively by legislators and the social sciences studied what legislators do. To my mind, the science determined that the result of legislation reflects what people want and the changes in their desires over time. In the rest of the world, there was little opportunity to practice any such art because there was little or no freedom to do so.

In the West and with some exception (the Benthamites in England) and the Utopians in France (Proudhon, Fourier, and St. Simon), the social sciences became less concerned with institutional architecture in the sense that it would have been pursued during the height of the French Enlightenment (by, for example, Condercet or his mentor, Turgot). Efforts in the direction of constructing institutions that will "produce the greatest satisfaction of desire" became subordinated to positive, empirical social science (as exemplified, for example, by Compte). During the 19th and 20th centuries, institutional architecture, or social art, as defined in this book, was often denigrated as Utopian. Practitioners of the social art became, in particular, consumed in ideological struggles (witness, for example, Proudhon vs. Bestiat in mid-19th century France).

In the struggles between Capitalism and totalitarianism (both Fascism and Communism), such work took second place to the deeper struggles for Freedom itself and in the United States such work was often dismissed as "socialist calculation" and portrayed by intellectuals devoted to preserving the status quo as failing to achieve the greatest satisfaction of desire by reason of the failure of information and incentives in the institutions designed to accomplish this end.

An important exception was the work of the "public choice" school which began in the early 1960s. Buchanan and Tullock (1962) began work on the (economic) theory underlying the design of constitutions. I discovered and was stimulated by the "theoretical forerunners" in a "strict theory of politics" described in note 2 of Buchanan and Tullock, which led me into problems of "methodological individualism" in the provisioning of public goods (Buchanan, 1968) so as to construct the demand reveling process as a means of addressing the fundamental problems of public ggods (Clarke, 1971) and the broader difficulties in social choice procedures related to public goods provisioning (Tideman and Tulock, 1976).

During a twenty year period between what are known as the revolutions of 1968 and 1989, I began to sense a quiet revolution in the social sciences, or at least in a small branch called "welfare economics". For a good exposition of what this revolution seems to be all about, I refer to Albert and Hahnel, The Quiet Revolution in Welfare Economics. During the early 1990's, this book provoked some fundamental questions in my own mind about institutional architecture, in particular the architecture of public economics (and public expenditure and regulation in the United States). As one who pursued the "social art" in spite of a lack of great demand for it, I had largely adopted a paradigm known as "the new institutional economics", largely built around the idea of property rights and their exchange and the modern science of public choice. For a good treatment of how this can become translated into a practical philosophy and practice of the social art of government from the traditional public choice perspective, see Randall Holcombe, The Economic Foundations of Government.

For about 20 years, much of my own work has been set in the public choice, property rights tradition, except that between 1981 and 1983, it began to change. I had struggled for a year during 1977-78 to apply what Albert and Hahnel call "incentive-compatible theory" to real world institutional architecture, creating "a free-market socialism" for the public sector. I viewed this a greatly superior to bureaucratic socialism, the Leviathan, "or whatever you want to call the overwhelming control of the State over the lives of individuals".

Today, I believe that the general sketch set forth in that book provides the basis for the practice of social art as envisioned in this book, except that it will require some elaboration and to more squarely confront some ideological conflicts that were skipped or glossed over, or simply ignored, in the earlier work (Clarke, 1980).

One of these conflicts goes to the heart of the property rights paradigm -- that government should address itself to the determination of property rights and then let markets make the desired allocation. Despite the case made by Holcombe (1995) and others, I believe that the allocation of rights should be approached cautiously. The objections of Gaffney (1995) and others need to be heard. In addition demand revealing theory adds new prspectives to this debate over societal collection of the rent of land and other natural resources (including government priviledge).

The conflict with majority rule institutions as well as a potential remedy to this conflict, also further elaborated in later chapters, is introduced in the remainder of this chapter, in a brief discussion of incentive compatibility under a heading: "The Utopian Mind, Incentive Compatibility and the Present Reality".

1.2 The Utopian Mind, Incentive Compatibility, and the Present Reality

A satisfying institutional architecture requires a "vision", and the vision can often be in conflict with the present reality. We have been at least 500 years in the making of an Utopian vision and this three part work represents an attempt to synthesize or marry the Utopian vision with the architecture of present day public finance and regulation in the United States. It presents, for purposes of social discourse, a new architecture that can move us towards, rather than away from, social goals -- for example, liberty, equality, fraternity, and the pursuit of happiness. It also presents a path towards development of the new architecture in other societies in ways that can lead towards a more harmonious social order.

As stated above, the work represents an extension of ideas presented in Clarke 1980. That work explained the development of what has become known as the theory of "incentive compatibility". This theory presented a means by which the preferences of individuals (or social units) could be taken into account, when the behavior of one individual or unit will have (external) effects on another.

The basic principle of the demand revealing process is that each person (or unit) is given the choice of accepting the decision that would be made without his participation or changing the decision to whatever he wants, upon paying an amount of money equal to the net costs of doing what he wants rather than what would otherwise be done. This process comes extremely close to the "ideal of guaranteeing that collective decisions will be made efficiently" (Tideman, 1977). This is because each individual has an incentive to make a truthful statement of his or her preferences.

My efforts to apply demand revealing in the real world started in earnest around 1976 in an article contained in a special issue of Public Choice (1977) devoted to demand revealing. I discussed the techniques of persuasion ("selling the idea"), the ethical justification for the idea, and an outline of how it might be applied through techniques of representation. I used a somewhat Utopian style -- a "parable" which assumed that by "some magic process" the demand revealing process was made applicable to all social choice in our nation. I further developed many of the ideas (though not the representative form) in a subsequent book (Clarke, 1980). I left aside the problem of transition and how you marry use of the process to a society that uses majoritarian voting institutions for general public resource allocation by way of taxes, subsidies or other regulatory forms. In this book, I deal with the problem of marrying demand revealing to majority rule institutions as a means of "concretizing utopia".

I also adopt a principle of social justice which reflects the neo-Georgian, or geoliberal perspective of Tideman and others. These geoliberal principles are based on a premise that society should collect the rent from land, natural resources, and entitlements made available by government priviledge. This principle is particularly important in the realm of transportation (or mobility) policy as will be more completely elaborated in this volume, again with reference to demand revealing institutions.

This somewhat new perspective grows out of work in the late 1980s and early 1990s where I have focused on the area of aviation management (basically the allocation of resources to airspace management, airport development and the allocation of airport landing rights) where I believed that the idea can have productive application. The basic technique that is used was developed with Drs. Brough and Tideman in a recent article on "Airport Congestion and Noise" and is here elaborated in terms of (a.) the public budgeting of several billion dollars annually to transportation infrastructure and (b.) dealing with associated "regulatory management" problems. I have in fact established a prototype approach to budgeting transportation dollars at the state and regional level once Congress has determined the broad allocations for these purposes. I show how such an approach, which might be experimented with first in the allocation of about one billion dollars in a transportation "discretionary" account might be used more broadly in a new approach for developing "incentive-compatible performance partnerships and in "reinventing" fiscal federalism. This approach is laid out in what now constitutes the use of incentive compatible design in mobility policy in Book II of this work. It is summarized in the following section (1.3) of this chapter and in many related examples contained in the chapters which follow.

In terms of the broad outlines of this work, I consider the approach as an approach to public administration in the spirit of Turgot's "Memoire sur les municipalities" or Condercet's later "Projet Girondin". If the spirit strikes one as bringing excessive coordination to public administration, let me note that the "Projet Girondin" was praised in an important footnote in Hayek's Constitution of Liberty.

At this point in the development of the work, I have not dealt with many problems in the current political order and the methods by which demand revealing institutions address them, nor with many criticisms of demand revealing, including lack of an ethical justification. This is what is being developed in Chapters 3 through 5 of Part II {"White"}, and some of it is captured or at least foreshadowed in the following Chapter 2 -- entitled "Waiting for Turgot". The portion of this chapter that has been written for public consumption at least, leads to the development of several chapters concerned with fiscal federalism and aviation management summarized in this Part and further elaborated in Part II.

Readers must of course judge how well it comports with present reality. Since many criticisms of demand revealing are implicitly criticisms of the way we go about taxing and making public expenditure decisions, it would be unfair to level criticisms that demand revealing sometimes may lead to results that are not "individually rational". These and other criticisms, following the work of Tideman (1985) and others, are presented in Part II. Also in a world of changing tastes and technologies, and where institutions influence preferences, many strengths of demand revealing may tend to be ignored, a basic message imparted by Albert and Hahnel (1990) and which is elaborated at some length in Part II (Chapter 4). Lest these approaches to persuasion appear too abstract to those of a more "practical" persuasion, Part II, Chapter 5 seeks to persuade solely on the basis of the present reality, and upon which Part II is largely premised. It points to reforms that could be undertaken in the period of a few (five years) rather than speculating on means and ends during the next 50 or 500 years.

1.3 "Concretizing Utopia": A "Budget" Experiment

The central idea is an attempt to marry the demand revealing process to modern representative democracy through an "experiment" in "budget reform". The process, based on current policy trajectories, envisions Congress as setting broad priorities such as Federal dollars (expenditures) allocated to broad purposes (such as transportation) and determining an initial distributional status quo. This is basically what underlies the current strong push for "block grants to the States in such areas as transportation.

In turn, regions, States and their political subunits would determine the timing and allocation of funds and these units could also choose not to spend funds, which would in turn be allocated to other units of government.

The gains could be significant. If, for example, the process resulted in a shift of 10% of transportation dollars ($20 billion) from projects that yield a 5% rate of return to projects that yielded a 15% rate, there is a modest $200 million increase in societal returns annually.

Consider the incentives facing Congresspersons and community leaders (entrepreneurs) in communities within the districts. Each Congressperson can say to his/her constituents: "You can save or spend the entitlement. If for example $20 billion in transportation amounted to about $300 per family in annual entitlements and you saved this amount each year at 7%, the amount saved in 10 years would yield a return equal to your annual cost that you pay to your residential association (about $300 for a typical association)"

There are two key ways in which this is implemented relating to (1.) determining the opportunity cost of funds and (2.) whether there are benefit spillovers in other jurisdictions that should be taken into account. Both factors are taken into account through incentive-compatible means.

The first basic idea takes the form of one of the simpliest incentive-compatible mechanisms, a second price auction first described by Vickrey (1961). We want to allocate a fixed supply of public funds to their most efficient use irregardless of some initial politically equitable or acceptable distribution of funds. For example, two jurisdictions are each initially allocated funds sufficient for five $100 million projects which yield returns over costs (also for a sixth, marginal project) shown below:

J(1) 100, 90, 80, 70, 60, 60.

J(2) 100, 100, 100, 90, 90, 90.

For an efficient allocation, jurisdiction 2 would carry out six projects because the $90 million it earns on an extra (sixth) project is greater than the $60 million foregone by jurisdiction 2 on the fifth project. If jurisdiction 1 reveals a true opportunity cost of $60m, then jurisdiction 2 must pay an amount equal to this opportunity cost (equal to $100m + 60m = 160m) in order to achieve $190m in overall returns for the extra project in jurisdiction 2. The appendix following chapter 6 descibes why we get truthful revelation of project returns in using this procedure.

The budget experiment is driven by this basic concept. As an exercise in speculative heresthetics, let me posit an exercise (using the concept) that one could imagine taking place over the next five years between the Congress, the President, representatives of subnational governments and the people.

In order to resolve a growing conflict (already apparent in 1995), there has been a growing consensus among fiscal technicians (including many in the Executive Branch and Congress) that there is a need for incentives to accompany the transfer of funds to the States in the form of block grants.

Dr. G, an expert on fiscal federalism somewhere in the midwest, suggests a conceptual approach for marrying a "Pigovian" subsidy with a Clarke tax (See also Sinn, 1993) in a brief article in a national tax journal.

Conceptually, he argues that for most programs (welfare, job training, transportation, etc., about 70% of the benefits of the programs are captured within the average state with 30% of the benefits captured outside of the state. Therefore, on average and depending on the mix of programs, the Pigovian subsidy is set at 70% of the overall program cost. If States could then "vote" (using the "pivotal" or Clarke tax mechanism), each state would move from some initial distributional status quo towards an efficient level of public expenditure. No state would have incentives to lower welfare or medicaid expenditures, for example, with the anticipation that other states would get migrants and pick up a larger share of the tab).

Dr. G shows conceptually how this might be accomplished for about $250 billion annual in intergovernmental program expenditures, aimed at both State and local governments and individuals. (The mechanism, which is basically similar to the second price auction, is elaborated in diagrammatic form in a recently published paper, entitled "Incentive Compatible Planning and Budgeting of 'Distributive' Federal Programs" http://www-pam.usc.edu

The conceptual approach is also presented as an improved means of reducing the deficit while encouraging more efficient investments in infrastructure and work skills (e. g. adult training and investment). The concept sells in both political parties and overcomes "public interest" views that the grant system is designed to correct for "benefit spillovers". There are still distributional concerns, but the fact that every district is getting funds (which it can spend or save) overcomes most of the distributional concerns.

The critical element is the "government savings" dimension which leads to a more efficient way of coping with the deficit. Even if it isn't reduced, it finances more efficient projects. For both governments and individuals, there is basically a critical decision on whether to "save" i. e. because the benefits of the investment are less than the "opportunity cost" to others of using the funds) or to spend (i. e. because benefits are greater than costs.

In addition, the design of the Pigovian subsidy for each jurisdiction/individual takes into account the opportunity cost in terms of desired levels of deficit reduction and there are also means of adjusting the "status quo" distribution of funds (say at the end of five years) to reflect politically determined distributional goals as well as the fact that the distribution of expenditures in the intervening period may affect some jurisdictions more favorably than others (i. e. the rents from projects of national scope may be unevenly distributed.

These distributional problems are not of great moment, however, because the program is basically to be implemented with respect to regional groupings of States (i. e. nine standard administrative regions) and it is left to the individual regions to determine how to deal with distributional issues within the regions. Exceptions, as explained below, involve the split of funds between urban and rural areas and major regulatory issues involving the allocation of funds (i. e. strong desires to retain "strings" on the allocation of funds to meet important "National" purposes such as civil rights and the use of funds to meet the needs of disabled populations).

To provide a brief illustration, we take an example (discussed further in Part II and Clarke, 1999)of incentive-compatible fiscal and regulatory coordination for transportation, among and within two of the administrative regions. The first example involves urban/rural setasides in a large urban state in terms of fiscal project allocation decisions and the second is an example of a large state where the issues involve regulatory coordination.

The program from which the examples are drawn appears in the President's FY1996 Budget which calls for the consolidation of some 30 categorical grant programs into a Unified Infrastructure Grant Program with about $20 billion in budget authority for a "block grant" to the States and $1 billion reserved for projects which are more general in scope. The program also has set asides for urban areas (about $4 billion) and safety initiatives (about $400 million).


Example: Urban set-asides in New York State.

Consider first the distribution of unified grants in New York which, for illustrative purposes, has $1,055 million with $726 million for its urban allocation. Suppose that there is a $100 million proposed shift from the urban areas to nonmetropolitan areas. (This reflects an issue in program design regarding means by which the State's allocation for urban areas can be "flexed" to another part of the state).

Absent any external effect, the shift is taken care of through a credit to urban areas which is equal to the $100 million times the interest rate. However, consider more complex effects where there is heavy competition for funds (i. e. further development of the New York area airport system which includes improved surface transportation access). When the net benefits to all affected parties are taken into account, the preferences for keeping the funds in the urban areas for airport improvement in New York City (Option A) vs. allocating them to nonurban areas (Option B) are as follows:

,,,	Option A	Option B
New York (Urban)	$10 million (m)	0
New York (nonurban)	0	$15 million
Other Regional	$5 million	0
Other Regions	$5 million	0
Total	$20 million	$15 million

Source: Incentive Compatible Planning and Management of 'Distributive' Federal Programs (Clarke, 1999)

In the face of such a preferred option (such as Option A), one would look to negotiations or fiscal technicians administering the process to arrive at a further $10 million adjustment for nonurban areas that might be debited to New York City or split between New York and the other regional parties and other regions. After this allocation, the net benefits of Option A (say to New York) would be $5 million and the project allocation would be accepted unanimously. Otherwise, if there were no further adjustments, and the options were put to a demand revealing vote, New York City would pay a $5 million penalty against its urban share of the set aside because its vote is pivotal (i. e. when its preferences are excluded, option B would have been accepted by a vote of $15m to $10m with a difference of $5m).

Suppose that the adjustments had been made interegionally by allocating $15 million more to nonurban areas and less to other areas within the region contingent on the choice of Option B. In this case, the jurisdictions within the region would be indifferent between the choice of options. In this case the national preference in the form of the expressed preferences of other regions for option A would dominate and there would be no penalty because in the absence of their vote, there would have been a tie.

Note here how the procedure can adapt to taking into account national interests which may override aggregate preferences of subnational governments. For example, the Federal government believes that a certain configuration of transportation services is important for national security reasons, and casts its vote for an option (like A) which reflects its preferences for a system that embodies the desired security attributes.

Example: Regulatory Coordination in Texas.

Consider now an example involving regulatory decisionmaking. To use a current example, take speed limits on the rural portions of interstate highways and the metrification of highway signs (building on an example mentioned above). Suppose that the nine regional decision-makers were facing agenda items as follows:

Option A: Require quick metrification of all highway signs and do not allow any change from the current policy of 55 mile per hour limits on Federally financed highways (exceptions still subject to a penalty on highway funds).

Option B: Allow more flexibility in the timing or do not require metrification in rural areas and allow state option to raise speed limits in nonmetropolitan areas.

Between the two regions, assume that 8 regions outside the South Central Region (including Texas) prefer option B to A by $51 million to $50 million. In the South Central region, option B is preferred by $4 million to zero. Thus in this case, the option B permitting more state flexibility would be adopted unanimously and without penalty (it is assumed that no region changes the outcome) and States would then determine how to proceed with the implementation of the more flexible policies.

Suppose, however, that the system is also adapted to account for intraregional or intrastate differences and that, for example, there is conflict within a state (Texas in the South central Region) and that the preferences among options (relative to S, the status quo) is as shown below:

Option/Entity	S	A	B	Penalty
8 regions	0	50	51
1 region (metro)	0	6
(rural)	0		10	5
Total	0	56	61	5

In this case, the preference revelation mechanism would lead to the same choice of Option B. However, the split in Texas' allocation (assume illustratively as $236 million urban and $425 rural) is adjusted $5 million to reflect the selection of the less flexible option A in the absence of the Texas rural vote. The penalty reflects the difference in the amount vote for option A vs. option B in the absence of the rural vote.

To avoid the result that the dollars would flow outside of Texas to be used for deficit reduction, it is assumed that Texas would strike some internal compromise by changing the urban rural split by $5 million contingent on the selection of option B) so that the preferred and more flexible option B would be selected unanimously. Alternatively, this could be accomplished by fiscal technicians, assuming that they had a means to assess the "personal disutilities" associated with alternative options involving speed limits and metrification (obviously more difficult to measure than say changes in set asides involving flows of dollars within a state or between regions).

The above example also illustrates a point treated in another chapter about what options can get on the agenda. Relative to some status quo which is the initial block grant allocation and regulations affecting the use of those dollars, options A and B would be accepted as legitimate options. However, if option A were the status quo and B were introduced, then the latter might fail a the threshold test in that net benefits of $6 million would come at the expense of some $56 million in votes for the status quo plus $5 million in penalties. If some discount factor (say 20%) were applied to these magnitudes, then the resulting amounts would greatly exceed net benefits. The threshold test is used to control "zero sum" redistributive games which (in the absence of adjustments by the fiscal technicians to avoid redistributions), can lead to coalitions and the selection of inefficient outcomes.

These are but small steps envisioned in the next several years to "concretize utopia", which would however, consume a good deal of herestheical energy. The examples also remain utopian unless truth can effectively speak to power.

To begin, I must try to answer the proverbial fiscal technician's So What? question. What difference does this make once you have begun to decentralize with the admittedly clever joining of hands (Clarke and Pigou). To answer this, I set forth in the following three chapters a rendition of demand revealing theory that draws largely on Pook II (a political economy of mobility and Part III (a political economy of hope).

The following chapter 2 summarizes the philosophical underpinning in both of these works, setting a stage for further development in Part II (Chapter 3 to 5) of approaches towards implementing the demand revealing process. As a word of caution, I conclude this chapter with some observations on what I believe are some limitations of the practice of "rational" social art.

1.4 The Limits Of Rational Social Art. Ou'est-ce que cela prouve?

One perceives both possibilities and limitations on these possibilities when one attends a large Conference as I did (of economists) in early 1995. One can get a sense of what is interesting to American economists at such a Conference by looking through the "red" covered Proceedings (May, 1995) or even the lead article (the Richard Ely lecture) by George Shultz on "Institutions, Ideas, and Economics".

In the past I have usually attended the Conference or read the Proceedings looking for developments in "incentive compatibility" but there was little to be said about these subjects except in a late Sunday a. m. session on Chinese political economy (J. J. Laffont presented an interesting paper on incentive compatible planning and regulation in the Chinese political economy). It had been almost twenty years since incentive-compatibility had been featured as one of the most important developments in modern economics (at a past Conference) and as I met with people and listened to them, I got various perspectives on why these ideas created such voluminous work (partcularly along mathematical, "Beyesian incentive-compatible" lines) but so little action. Dr. Laffont spoke gently of the need to deal with "distributional issues" and "auditing" as problems to be confronted in the years ahead.

If I sought to inject a dose of enthusiasm into the profession in future years, what should be done? How to address the So What? question and even if it passes the So What and Laugh Test of technicians (economists), what about the social information structure that guides political leaders and people and which represses what I call the "anticipatory consciousness" (very much alive 20 years ago, but presently very repressed in my view).

In the next chapter, I resort to an apolitical Marxian speculation of sorts about the pursuit of "rational social art" and social change. I argue as did Marx and a little known heterodox interpreter (E. Bloch) that the latter (social change) requires both both a "coldness and warmth of concrete anticipation... Its unexhausted fullness of expectation shines upon revolutionary theory - practice as enthusiasm, its strict determinations which cannot be skipped over demand cool analysis, cautiously precise strategy, the latter indicates cold, the former warm red." (Bloch, 1986).

In the following chapters, I wish to present the warm red stream of "anticipatory consciousness" as it affects experimentation with the demand revealing process. I do this from an economic perspective focusing on two factors of production (land and labor). As other authors (Tideman, Albert and Hahnel) have already suggested, these perspectives can add a radically different "anticipatory consciousness" in the drive towards "improving" (or removing distortions in) the overall social information structure.

To put anticipatory consciousness in much more concrete terms, Chapter 2 following focuses on issues/reflections on the annual meeting of economists (January, 1995), where many of the papers and proceedings there focused on the economics and political economy of health care (See Proceedings of the AEA, May 1995).

In one of the papers, Tullock explains the phenomenal growth in health care expenditures, comparing it with the growth of transportation expenditures (the focus of much of the work in this and the following book) in the 1920s. In Tullock's view, the growth can be explained largely in terms of normal demand and supply factors. In a separate paper, Professor Thompson, however, points empirically to a large portion of the phenomenal increase as traced to the actual costs of two inputs, prescription drugs and hospital beds. In each case, the accelerated cost-increase was initiated by a landmark law-suit opening the floodgates to tort liability suits against private suppliers. A simple tort reform by an objectively informed polity, one efficiently forcing punitive damages to be paid to the State rather than the private plaintiffs or their lawyers ... would solve the problem but damage the trial lawyers" ... who have acquired "excessive influence over our political and legal thought systems. Enormous improvements in economic policy can be achieved, but in each case, the improvement requires improvement in the overall social information structure.."

Professor Thompson's paper also goes to the core debates in this and the related books about the "art of political manipulation" (Riker, 1986). In a related paper (Riker and Sened, 1991) on airport slots (see following chapter), the authors postulate rational political actors "who achieve their goals through popular support which they acquire by ideological appeals and by various forms of grants, including (1) money (e. g. subsidies, welfare, pork barrel), (2.) chances for rents (monopolies, regulation), and (3) property rights". The rights will also be organized so that "duty bearers" respect the enforcement regime.

Professor Thompson (1995) also adds interesting illustrations in the form of the administration of health and safety regulation, showing the tendency of "duty-bearers" (regulated parties) to prefer vague and arbitrary fines and OSHA enforcement to the potential expected high costs of punitive lawsuits. In terms of the rational behavior of duty-bearers, Riker's postulate means that they respect the right (or enforcement regime) if the net benefit of respecting, if any, is greater than the net benefit (including the cost of punishment) of not respecting it.

I introduce Professor Thompson's "rationalization of observed health and safety regulation" also as suggesting both the importance (and limitations) of the practice of rational social art. For example, the existing social information structure may well not be conducive to the "budget" experiment suggested here. If it were perceived that the budget experiment, which would permit states to continue to determine what they will spend on health care for the elderly and the poor (with medicaid and medicare accounting for the major portion of the $250 billion annual in health care intergovernmental expenditures) and states were also permitted (individually or through regulatory coordination) to limit the cost exposure of their citizens through tort reform including the allocation of punitive damages to the state, we would have a more efficient health care system, though damaging the interests of the trial lawyers.

The interests of the political elite (trial lawyers) would likely correctly portray the effects of such a system leading states to in effect save or divert funds from poorer classes at the expense of these classes and themselves (the trial lawyers). Thus a system that would appear to be "win-win" (almost every state and political jurisdiction within every state would, on average, be better off) will not be perceived as "win-win" for every class of the citizenry and those that manipulate the social information structure.

However, for the transportation sector (and aviation management in particular) the merits of the system (including the stimulation of government saving and more efficient investment patterns) may outweigh the objections of particular classes (those who benefit disproportinately from existing expenditure patterns). However, it would be naive to think that any such (utopian) system as is imagined here could be put in place without a greater appreciation of how the grantors stake out ideological positions so as to try to win public support.

If, as in the case (airport slots) that I consider in the following chapter, the grantors are divided, it will be very difficult to put together policies anywhere near resembling those advocated in this work.

This, however, is not a cause for disillusionment and despair, but rather calls for a philosophy of hope, and some "militant optimism". As illustrated in the following chapters, such an enterprise is not for the faint-hearted or those who do not wish to question the social information structure. At times, one sees a glimmer (as in Professor Thompson's paper) of the desire to combat the "false consciousness" and to foster the Not-yet-Being or "anticipatory consciousness" of the electorate, which perhaps foreshadows a militant optimism elaborated in the following chapter and in the concluding chapter on a philosophy of hope.). The exercise is aimed at persuasion of the residents of Happy Valley, a hypothetical community in the not very distant future of the forthcoming millennium.

There the residents of Happy Valley are making mostly "win-win" incentive compatible decisions in the here and now concerning about $300 per residential unit in territorial community public goods and a similar amount in transportation goods and services affecting communities outside of Happy Valley. What brings this about is recounted in the following Chapter, entitled "Waiting for Turgot" and a "herestheical" exercise in "concretizing utopia: airport slots" followed by a section on the "possibilities" in a rational social art pertaining to Happy Valley which lays the basis for the remainder of this book and the related work to follow.




Part 3 * Part 1