Public Choice in the Big Sky

Abstract

The dominant theme of this chapter explains how public choice theory, with Gordon and Jim’s counsel and support, led to the development of the New Resource Economics. This initially occurred at Montana State University in the early 1970s but has spread beyond America, largely through academic publications, meetings, and contacts with the Mont Pelerin Society. The secondary but consistent idea involves the application of public choice to the operation of universities. The pathologies that caused Buchanan and Tullock to leave the University of Virginia were not aberrations. Rather, they are predictable consequences of the organization and reward structures of American universities. Public choice helps explain the causal mechanisms of bias and recognition in universities. Knowledge of public choice increases the ability to separate hopes and expectations. It fosters a wholesome, rewarding, and satisfying life while enmeshed in a university setting.

I would like to thank Gordon and Jim for their counsel and friendship; Tom Schelling for his friendship and support; Rick Stroup, my favorite “gear drive” economist; my wife, Ramona, for her counsel and loving support during the occasionally trying and more frequent and glorious times; and Michelle Danforth-Mohr for her research on the history of NRE.

Appendices

Appendices

Foundations of NRE

The New Resource Economics (aka free-market environmentalism) is the disciplined, analytic approach to conservation and environmental management. The NRE has two main themes and several variations, especially at the international level. First is an emphasis on the importance of entrepreneurship in both the for-profit and nonprofit arenas. Briefly, in the natural resource arena, successful for-profit entrepreneurs improve economic production and coordination. They anticipate or respond to commodity scarcities, for example, by converting scrap from lumber mills into particleboard and other useful products. They create ways to give value to waste. Nonprofit or social entrepreneurs find ways to mobilize good intentions in the production of public goods. Common examples are organizations that protect or generate fish and wildlife habitat. Ducks Unlimited, Rocky Mountain Elk Foundation, and Pheasants Forever are examples. NRE practitioners study both types.

The second theme provides a constructive alternative to the bureaucratic management system developed in America during the Progressive Era. This has international implications for a bureaucratic management system that has been copied around the world in the post WW II decades, normally with the same sorry results. Agencies at the federal level manage nearly one third of America’s land. The primary agencies are the US Forest Service (1905) in the Department of Agriculture and the Bureau of Land Management (reconstituted from an amalgam of nineteenth-century agencies in 1946), Bureau of Reclamation (1902), Park Service (1916), and Fish and Wildlife Service (origins in 1896), all in the Department of Interior.

Whether measured in terms of ecology, equity, or economic return, most of America’s public lands is managed quite poorly. This is no accident but rather is predictable. Public choice theory expressed through the NRE explains much of its failings. It begins with two simple assumptions. First, decisions are made on the margins and are based on information and incentives. Second, institutions generate information with varying quantity and quality. Also, institutions produce positive and negative incentives to act upon that information. These are the key aspects of public choice theory my MSU colleagues and I applied to environmental and natural resource issues. We explained why resource management doesn’t fail. It’s not because of the standard gauge, simplistic political corruption we associate with Chicago politics. Stupidity, venality, ignorance, and laziness don’t explain the failures. Rather, public choice theory provides analytical leverage for understanding the problems—and why state universities, largely dependent on government funding, have been so hostile to its application. Academic culture exacerbates the problem.

In the early decades, the NRE faced nearly unanimous condemnation. Misunderstanding, dismissal, and dishonest posturing were the norms. This held throughout the political and academic arenas. Conventional Greens in the national environmental organizations, such as the Sierra Club and National Wildlife Federation, and university administrators were especially strident in their denunciations. Rent seeking reinforced collectivist ideologies in powerful ways.

It would be hard to overemphasize the contributions of Jim and Gordon to the early work in NRE. In addition to providing the basic analytic framework, their participation and good offices gave credence and respectability to intellectual outliers at a cow college in the most remote of the contiguous 48 states. I suspect their imprimatur led to a great deal of our foundation funding.

During the first Reagan administration, Stroup served as chief economist in the Department of Interior. Bob Nelson, now at the University of Maryland, was a senior economist under Stroup. In his role as director of the Office of Policy Analysis, Rick saw practical and political implications of applying public choice to natural resource policy. In short, neither Sectary James Watt nor the Department’s constituencies were accepting of public choice analysis. I, however, enjoyed frequent visits to Interior and cemented friendships at the Heritage Foundation, The Cato Institute, and the American Enterprise Institute. These were all places that welcomed the NRE. They correctly saw it as an environmentally friendly free-market movement. It was and remains a constructive alternative to socialist and fascist Green movements. Also, knowing that I visited DC with some frequency, someone, I believe Jim Buchanan, invited me to visit Blacksburg, Virginia, and give a talk on NRE.

Sylvan socialism, prairie populism, and kindred political/bureaucratic management schemes never work as advertized. Hayekian problems of dispersed information compounded by scientific complexity, political rent seeking, and culturally induced and reinforced stupidity condemn and convert these planning dreams into nightmares. Public choice theory provided the keys to explain this pathology and predict results of proposed reforms. The NRE prospered. Success came despite opposition by academic and government leaders who feared and opposed applying economic logic to the public sector. Over time, the NRE captured the intellectual high ground. Data and logic are stubborn forces indeed, especially when the political targets, mainly federal agencies, have been so dysfunctional. One hundred plus years of failure convinces all but the most naive, and recipients of rents, of the inevitable failure of bureaucratic management of complex biological, political, and ­economic systems.

Fortunately, logic and data buttressed by examples and applied to interesting topics are powerful, relentless, attractive forces. It’s no accident that NRE programs, first at MSU, then at PERC, and for the past quarter-century at FREE, have brought half a dozen Nobel Prize winning economists and hundreds of America’s leading economists, law professors, and federal judges to Bozeman. There is wide agreement that FME is intellectually dominant; no responsible scholar still supports the old command-and-control resource management model of the Progressive Era. Special interest politics and bureaucratic pathology, not incompetence or corruption, generate failure. NRE explains why this is the predictable consequence of sylvan socialism and related bureaucratic schemes.

Jim and Gordon were early mentors and had great influence on Bozeman’s intellectual currents. Nobel Prize Winning economists Vernon Smith, Doug North, Lin Ostrom, Gary Becker, and Tom Schelling followed. Most have been with us multiple times, Schelling more than a dozen. Although much of his work complements public choice (and Tom has told me of his respect for Jim), Schelling is not normally considered part of the public choice movement. He considers himself an “errant economist.”

Some find it remarkable that so many distinguished economists enjoy visiting Bozeman. It is most unlikely that my colleagues and I would have enjoyed this success had Jim and Gordon not worked with us in our early years. I am indeed grateful that Dwight Lee gave me the opportunity to acknowledge their contributions.

NRE at Mont Pelerin Society Meetings, 1991 and 2004

I assume anyone reading this book is familiar with the history and philosophy of the Mont Pelerin Society. For any who are not, MPS is an organization founded by Friedrich A. Hayek and 38 friends at Mont Pelerin, Switzerland, in 1947. It is widely recognized as the world’s most prestigious and significant international association of classical liberals and libertarians. Naturally, both Jim and Gordon are distinguished members. Here is how I became involved with MPS.

I finished my Ph.D. at Indiana University in 1969 and accepted a National Science Foundation postdoctoral fellowship in environmental policy. This was just before the first Earth Day in April of 1970. Following Earth Day, many, perhaps most, colleges and universities created environmental programs. Although there were young academics in the traditional natural resource fields such as forestry and wildlife, there was a paucity of candidates for the more general field of environmental policy. This includes economics, ecology, and ethics. As a result of the imbalance between the new, and expanding, demand for environmental studies professors and the short supply, I naturally received multiple offers from schools across the country. Being on good terms with my dissertation committee, and other senior faculty and administrators, they were quite pleased by my opportunities. All encouraged me to accept an offer from a nationally prominent university. While I respected their advice, I told them I wouldn’t take it. My choice was to return to Montana, my refuge from the disruptive chaos of the 1960s that afflicted all major universities.

Having my interests at heart, my academic mentors attempted to change my decision. Most of their arguments were valid. For example, they predicted political interference if I accepted an offer from Montana State University. Fortunately, they were totally wrong in predicting that if I went to Montana I would never again have the luxury of consorting with top scholars. At that time, MSU was an academic backwater, and Montana was the most remote of the contiguous 48 states. This, of course, was before regular jet connections, FedEx, UPS, and the Internet erased the cost of distance. Disinclined to heed the counsel of the wise, I bought a small ranch near Bozeman and began teaching at MSU. Luckily, I maintained friendly and productive contacts made in graduate school and obtained a few modest grants and other discretionary funds. This enabled me to bring Gordon, Jim, and other members of the Mont Pelerin Society to Big Sky Country. They were sufficiently impressed with the work done in Bozeman that I had the opportunity to host a regional Mont Pelerin Society meeting at Big Sky, Montana, in 1991 and then a general MPS meeting in Salt Lake City in 2004.

Interestingly, because the group originally couldn’t come to an agreement as to what to call the Society, Mont Pelerin founders used the location of the Swiss resort at which they were meeting as a “place holder” until they found a permanent name. Of course, the name Mont Pelerin Society stuck. The naming decision essentially economized on decision costs, an important public choice insight. Because of Montana’s current popularity and destination status, if an organization such as MPS were to emerge today, few people would be amazed if the chosen site were Big Sky, Montana. However, in our early years in Bozeman, this was not the case.

The Society has continued to meet on a regular basis. Members include high-ranking government officials, Nobel Prize recipients, journalists, business leaders, and legal scholars from many nations. They meet regularly to present analysis of ideas, trends, and events. Eight MPS members, including Buchanan, have won Nobel prizes. Five of them have participated in programs I’ve organized from Montana. I am sure my mentors would be pleasantly surprised at this success. We enjoyed this success by creating a public policy niche and applied it to natural resource issues. My colleagues and I built a reputation in this area, thanks in large part to the public choice Jim and Gordon developed.

FREE has hosted two MPS meetings, a “regional meeting” at Big Sky, Montana, in 1991 and the “general meeting” in Salt Lake City in 2004. I am confident that neither of these would have occurred without the personal and intellectual contributions of Jim and Gordon. I thank the late Lin Ostrom¹ and her husband, Vincent, and the public choice movement at Indiana University for making this introduction.