Nuclear Bombs And Oreo Cookies: How Political Science and Economics Are The Flip-Sides Of The Same Coin

Amsterdam, a.d. prid id. Sep. MMDCCLXVIII A.U.C.,

Both economics and political science study how groups make decisions about ‘who gets what and when?’, only in different circumstances with different decision making processes. The biggest difference between the two disciplines is that economics looks at how markets allocate thins and why they sometimes fail at doing that, while politics studies how governments force people to behave in a certain way, either to their benefit or to their detriment. However, even this distinction is not perfect. Although I would not go as far as saying that political science and economics are essentially the same, they certainly are the flip-sides of the same coin and they both fall under the umbrella of political economy.

Firstly, I think one fundamental assumption, that is traditionally associated with economics, is just as applicable to political science: people want to optimize their utility, or less formally, people want to be as happy as possible, however they think they will become happy. So whether we are talking about the Cuban missile crisis or what cookie to have with your tea, the actors involved will act to become as happy as possible. On most occasions this will definitely not involve using nuclear bombs, and will involve eating cookies. Sometimes it is said that the assumptions made in economics will not work for political science, because it is uncertain what people really want when it comes to politics. For example, we do not really know what people want when they vote for a political party, or when they argue to invade Iraq. However, what this only boils down to, is that we cannot quantify people’s wishes as neatly as we can in economics. In economics there are markets which force people to pay for what they want, so we have some approximation of how many consumers value that good at that price or higher, and how many producers value it at that price or lower. However, we do not know the underlying preferences that cause people to pay for something. Moreover, if there is anything we have learned from Kahneman (Also see my discussion of bounded rationality), it is that people often do not know themselves what they ‘really’ want, this totally depends on their mood and surroundings. All we really can assume is that people want to be as happy as possible, even if they often fail at behaving rationally to achieve this. So both political science and economics will have to make assumptions about the preferences people have.

Secondly, I think both economics and political science are not about why people want stuff (See also ‘The Counter-Revolution of Science’), it is about their strategies to obtain that stuff and what happens when people have conflicts of interest about who gets what. ‘Who gets what and when?’ is the question that both economists and political scientists want to answer. To me the biggest difference between political sciences and economics is the kind of situations they study. Economics assumes that people want to become as happy as possible, but that not everyone can get the same goods, but that nevertheless people can become more happy by exchanging goods. So economics studies markets, where the decision about who gets what is taken on the basis of who is willing to pay most. Meanwhile, what is traditionally seen as economics’ offspring, business administration, studies companies, which are a way to circumvent the transaction costs of using markets (The Nature of the Firm by Coase, a brilliant article on why companies exist). Companies are just another mechanism to decide who gets what, when. Moreover, economics studies situations in which markets fail and why this happens.

On the other hand, political science looks at situations in which a certain group, the government, forces individuals to comply with its wishes and how individuals influence these public policies. This can be both to the benefit or the detriment of these individuals. An example of the first category could be a typical game theoretical scenario (in itself a concept originating in economics, Definition of Game Theory), for instance, everyone wants to be protected by a national army, yet no one wants to pay for it if their co-citizens do not pay, moreover, at the same time they do not want to pay for national defense especially if others pay for them, because then they can free ride. So in the end, no one pays, unless individuals are forced to do so by a government. This makes national defense a typical public good. While economists can explain why national defense is not provided by private companies, what happens once a government intervenes in that failing market is a political science issue. Simply concluding there is a defense market failures does not explain how governments make decisions, how much they spent on defense, what the army will do (preemptive strikes, foreign interventions, humanitarian interventions, target civilians, use nuclear weapons in case national sovereignty is threatened, start production of cookies, etc). That is decided by politicians, who play by different rules than the market, even if they might barter political items. This does not mean that tools used by economists to explain why the market failed, should not be used by political scientists to explain what happened after the conclusion was drawn that the market failed.

The second category, when governments compel individuals to cooperate to their own detriment, also implies the settlement of conflicts of interests in another way than the market does. For instance, a dictator forcing people to pay taxes to become filthily rich, part of which he pays to his army officers, who help him to take those taxes by force. Or, for instance, scenarios in which one group in society wants something that another group simply is not willing to surrender, something of which the price is so high that no bartering is possible. This tends to happen when people do not only want private goods (e.g. I want an Oreo cookie, but you took the cookie, so I cannot eat the cookie, but you having a cookie does not mean I cannot have another cookie), but mutually exclusive public goods (e.g. you want a Saudi-style sharia law, and I want political freedom, or I want a small army, you want a big army, we cannot have a big small army). Who are going to decide on such issues, the institutions that guide the decision making process and the outcomes are typical political science issues. This does not mean that rational choice theory, mathematics or other tools traditionally identified with economics might not help us understand some of these issues, but these tools are not equal to economics. Thus, what institutions govern our society is something economists study only in part, even if those institutions themselves are an economic good and these institutions determine goods provision. These institutions include free markets themselves, which can only exist when property rights are protected by the government.

Lastly, the way economies function has such a large impact on political processes, that it is impossible to explain political behaviour without taking economic factors into account. Vice versa, public policy has a major impact on how economic actors behave, to name but a few examples, the influence of value added tax (BTW in Dutch) on consumption, but also elaborate theories like selectorate theory and Why Nations Fail. It is thus an illusion that one can study economics or political science without having at least a basic grasp of the other discipline. Of course, many scholars research a highly specific topic, in which knowledge of the other discipline is not always relevant, but any coherent explanation of how a society functions needs to look at the institutions governing that society, something which can only be done by studying economics and politics at the same time.

Political science and economics, and their offspring, in the form of corporate governance and public governance, can all be based on the basic assumption that people want to be as happy as possible. So their most basic assumptions do not contradict each other. They both try to explain how groups make decisions, what happens when people have a conflict of interests and how people cooperate, the only difference is that the different disciplines study different mechanisms that are used for conflict resolution and cooperation. It is sure that the two disciplines should take note of the advances in the other, because the questions they both try to answer have great similarities. Both disciplines should be seen as flip sides of the same coin, they both form a part of political economy.

Bottom Line: Political science and economics both study how groups make decisions. Almost none of the assumptions or tools that have been traditionally associated with either of the disciplines, contradict any assumption or tool that is essential to the other discipline.

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