The Senate Is The Enemy And Other Friction Stories

We argue that “friction” is not always a flaw and can be a deliberate shield against bad collective decisions. We use Buchanan and Tullock’s public choice framework to show why supermajorities, veto points, and other transaction costs can protect rights while still leaving room for day to day governing. 
• contrasting cheap outrage with intentional institutional friction 
• explaining why constitutional amendment rules use supermajorities 
• breaking down external costs versus decision-making costs 
• applying the framework to routine policy versus foundational rules 
• linking cancel culture to collapsed coordination costs and lost buffers 
• spotting designed friction in bicameralism, vetoes, jury unanimity, central bank independence, corporate charters, and treaties 
• testing objections about minority rule, the filibuster, and who classifies “big” decisions 
• discussing ballot initiatives, referenda, and easy-to-amend constitutions 
• sharing listener letters, egg market notes, and a book recommendation 

Links:

• Shruti Rajagopalan on TAITC
• The Senate is the Enemy... (claims it comes from "The West Wing," but this is a story that I heard in the 1980s. West Wing just used it. Strange that people think a TV show is a SOURCE. It was just the MEDIUM, people!)
• Book-o-da-week:  Benjamin Labatut, THE MANIAC

If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com !

You can follow Mike Munger on Twitter at @mungowitz 

Transcript

Outrage And The Case For Friction

Michael Munger 0:01

This is Mike Munger, the knower of important things from Duke University. Two weeks ago on this show, we told you that mass outrage is cheap, that social media collapsed the cost of turning private opinion into a coordinated pylon, and that's why a blasphemy charge that once took a formal ecclesiastical trial in 1697 now can become global with a screenshot in 45 minutes. Low transaction cost, fast mobilization, bad outcome. Today I'm going to talk about the opposite story. Going to start with low transaction cost and the hero, the thing standing between you and disaster, is intentionally increased friction. Deliberate, engineered, expensive on purpose, hard to organize a deal. Because it turns out that the same people who worry about mobs finding each other too easily also spent a lot of ink explaining why, for some decisions, you want to make agreement almost unbearably hard to reach. That's the other side of the coin. Let's light this candle. Time to look under the hood for when transactions costs are actually good. I guess it's also time to admit that there's high transactions cost in choosing a consistent metaphor. Straight out of Creedmoor, this is Tidy C.

SPEAKER_02 1:23

I thought they talk about a system where there were no transaction costs. It's an imaginary system. There always are transaction costs.

SPEAKER_01 1:32

When it is costly to transact, institutions matter. And it is costly to transact.

Why Constitutions Resist Majority Rule

Michael Munger 1:44

Let's start with something that looks irrational on its face. The United States Constitution can be amended, but not by majority vote. You need two-thirds of each House of Congress to propose an amendment, and then three-quarters of the state legislatures or state constitutional conventions to ratify it. Now compare that to ordinary legislation, which needs a simple majority in each chamber plus a presidential signature, or a veto override at two-thirds. Why would anyone design a rule book that makes changing the rule book so much harder than making an ordinary rule? If democracy means majority rule, doesn't burying constitutional change under a supermajority requirement just mean that a persistent, well-organized minority can block what most people want indefinitely? In other words, it privileges the status quo. That's the objection. It's a good objection. And it's exactly the objection that two economists sat down to answer in 1962. In a book that I think doesn't get nearly as much airtime outside academic public choice circles as it deserves. The book, as listeners to this podcast will know, is The Calculus of Consent by James Buchanan and Gordon Tullock. Buchanan would later in 1986 win the Nobel Prize in Economics, largely for that line of work. Tullock never did, and he should probably have won for his work in rent seeking. But let's forget the prize. The argument itself is the point.

External Costs Versus Decision Costs

Michael Munger 3:24

Buchanan and Tullock ask if you were designing a constitution from behind a veil of not knowing whether you'd be in the majority or the minority on any future issue, what voting rule would you choose for different kinds of decision? And they split the answer into two cost curves that move in opposite direction. The first curve is what they call external costs. This is the cost that a decision rule imposes on you when other people can bind you against your will. Under simple majority rule, 50% plus one person can do whatever it wants to the other 49.9. As you require a bigger and bigger share of the group to agree, 60%, two-thirds, unanimity. That external cost falls because it gets harder and harder for a decision to be forced on you without your consent. In the limit, of course, unanimity, external cost hit zero. Nobody can bind you without your own agreement. The second curve is what Buchanan and Tullock call decision-making costs. You could just call it transaction costs. The cost in time, bargaining, and sheer aggravation of reaching a decision at all under a given rule. Under a simple majority, that cost is relatively low. You only have to persuade half the room plus one. As you raise the threshold, that cost rises because you have to persuade more and more people. Near unanimity, it can become brutal. One holdout can hold up everything and every one. So you've got external costs falling as the threshold rises, and decision costs rising as the threshold rises. Buchanan and Tullock's actual load-bearing claim is that the right voting rule for a given kind of decision is wherever the sum of those two costs is smallest. And critically, that sum is different for different kinds of decisions. For the stuff government does every week, setting a speed limit, adjusting a budget line item, approving routine spending, you want a low threshold because the external cost of occasionally being on the losing end of a minor policy is small. And you don't want to have to pay a huge decision cost because sometimes we just have to decide things. For the rules that define the game itself, though, the structure of rights, the powers of government, the things that are supposed to bind everyone, including future majorities, you want a very high threshold because the external cost of getting that wrong, of a majority rewriting the basic rules to advantage itself every moment, is enormous, and it's worth paying a large decision cost to prevent it. That's the whole idea, in one sentence. The transaction cost of agreement should be set on purpose. And it should be set higher exactly where the cost of being wrong is higher. Friction is not a design law, a design flaw, not something the designers were trying to get rid of. In this part of the system, friction is the design.

Rousseau On Voting Thresholds

Michael Munger 6:33

It's interesting to look at Rousseau's book, Social Contract, in Book 4, Chapter 2. There, Rousseau says this. And I shall have more to say of them later on. I've also given the principles for determining the proportional number of votes for declaring that will. A difference of one vote destroys equality, a single opponent destroys unanimity, but between equality and unanimity there are several grades of unequal division, at each of which this proportion may be fixed in accordance with the condition and needs of the body politic. There are two general rules that may serve to regulate this relation. First, the more grave and important the questions discussed, the nearer should the opinion that is to prevail approach unanimity. Secondly, the more the matter in hand calls for speed, the smaller the prescribed difference in the numbers of votes may be allowed to become. Where an instant decision is to be reached, a majority of one should be enough. The first of these two rules seems more in harmony with the laws, and the second with practical affairs. In any case, it is the combination of them that gives the best proportions for determining the majority necessary. End of quote.

Cancel Culture As Low Cost Mob

Michael Munger 8:09

Now we can compare that to the cancel culture episode, because the mirror image is worth thinking about for a second. In that episode, the mechanism that broke was cheap common knowledge. Before mass media, punishing someone for a transgression required a costly formal process, a trial, an ecclesiastical court, some kind of public proceeding with rules of evidence, precisely because organizing collective punishment used to be hard and expensive, and that was good. Social media made it free. Anyone can generate the common knowledge that everyone has seen this and we're all really mad about it. In an afternoon, once that common knowledge exists, coordinated punishment doesn't need any formal machinery at all. Each of us acts to punish in our own way. The transaction cost of assembling a mob collapsed. A lot of very old institutional buffers, due process, proportionality, a chance to explain yourself, all just got run over because they depended on collective action being slow and expensive. The constitutional supermajority is the same mechanism and it's aimed in the same direction, but it's installed as a permanent, pre-committed feature instead of an accidental pre-digital technology that can be changed for no reason. It says for this category of decision, the category where a temporary majority might be tempted to bind everyone else forever to something stupid, we're going to make mobilizing argument expensive on purpose, before anyone even knows which side they want to be on. It's a constitutional insurance policy against the exact failure that made low-cost mobilization a problem in the outrage case. Cancel culture is what happens when a low-cost coordination mechanism attacks an individual with no supermajority or constitutional rules protecting them. A well-designed constitution is what happens when you install a high-cost coordination requirement in front of the group's ability to attack anyone at all. That's a pretty good description of the Bill of Rights. Now, that same variable, the cost of assembling agreement, two completely different verdicts on whether cheap agreement is good, depending on what the agreement is about to be used for.

Designed Friction Across Institutions

Michael Munger 10:36

Once you have that frame, you start seeing designed friction or residual friction that's allowed to persist everywhere. It's worth naming a few so you can recognize the pattern outside the Constitution. Bicameralism is designed friction. Requiring a bill to pass two differently constituted chambers, elected on different timetables representing different constituencies, is in some ways an accident of a compromise of history, but it's a, it turns out to be a second veil of ignorance filter that raises the cost of a bare, temporary majority getting exactly what it wants right now. The presidential veto and the two-thirds override is the same logic again, a third checkpoint, a third place where a decision has to clear a higher bar before it becomes binding on everyone. The whole idea of checks and balances is intentional, designed friction. Jury unanimity in criminal trials is a close cousin, even though it's not a legislative rule, it's a decision rule, requiring that all 12 jurors agree rather than a majority deliberately makes conviction expensive to obtain because the external cost we're protecting against, wrongly imprisoning an innocent person, is judged to be worse than the decision cost of sometimes failing to convict someone who actually is guilty, but the case against them was weak. Central bank independence, oddly enough, belongs on this list. Insulating monetary policy from the ordinary cheap machinery of majority politics and outrage, that is, no simple congressional majority can move the money supply on a Tuesday afternoon, is a transaction cost that's a wall built specifically to keep short-run electoral incentives away from a decision whose damage compounds for years, and we need to be able to make credible commitments in order to borrow. You don't have to go to government to find this. Corporate charters do the same thing on purpose. Most ordinary corporate decisions, approving a budget, hiring an officer, take a simple board majority. But amending the charter, or approving a merger that changes what the company fundamentally is, routinely requires a supermajority of shareholders, sometimes two-thirds, sometimes more. The logic is identical to Buchanan and Tellics, just running inside a firm instead of a nation. A board that could rewrite the corporation's basic structure with a bare majority could also expropriate minority shareholders with a bare majority. So the rule that governs the way that you make rules gets a higher bar than the rules themselves. I know my friend Dr. Richard Salzman, my colleague at Duke for years, actually taught corporate governance in political science classes because it's a group of people making decisions together bound by rules. That's political science. Treaty ratification is another example. It's worth a moment because it shows the logic scaling up to the international level. The Senate needs a two-thirds vote to ratify a treaty, not a simple majority. The reason isn't tradition. A treaty binds the country in ways that are unusually hard to undo once other nations have relied on it. Unwinding it later carries costs that an ordinary statute doesn't. So the framers priced that irreversibility into the voting rule itself, the same way that you'd price a longer lease into a higher deposit. In every one of these, notice the shape of the argument is identical to Buchanan and Tullocks. We name the decision, we estimate how bad it is if a temporary majority gets it wrong, and we set the cost of mobilizing agreement accordingly. High stakes, hard to reverse, binds the minority forever decision, get expensive consent with high transaction costs. Routine, reversible, low stake decision get cheap consent.

When Friction Becomes Gridlock

Michael Munger 14:52

The mistake, and this is really the whole moral of this episode, is applying the wrong costructure to the wrong category. Cheap consent for constitutional change is how you get a bare majority entrenching itself permanently. Expensive consent for routine governance is how you get total gridlock on things that actually don't need it. They don't need that high a level of decision barrier. So the skill, the the trick isn't is friction good or friction bad. The skill is matching the level of friction to the size of the stakes. Let's take the objection seriously one more time because it doesn't go away. A persistent, well-funded minority can use a supermajority requirement to block something that a large stable majority wants for decades. The filibuster gets this criticism constantly, and it's not crazy. Buchanan and Tullock's answer isn't that this never happens, it's that you have to compare it to the alternative regime, not to an imaginary world with no costs at all. So for any given decision, it might be better if we didn't have a filibuster. But for all decisions, it's better to have a filibuster than not to have a filibuster. You have to be a comparativist. So the alternative, hard to change the constitution isn't the constitution reflects the true will of the people all the time. The alternative is whoever has a bare majority this term gets to rewrite all the fundamental rules, which over different election cycles is a much worse expected outcome for everyone, including the people currently frustrated by gridlock. Next cycle, they're the ones who want to have the rules held constant. That's the veil of ignorance story. You don't design the threshold looking at today's fights. You design it not knowing which side of tomorrow's fights you'll be on. There's a second piece of the objection worth taking seriously, too. Who decides which decisions count as constitutional or rules and which ones count as ordinary or policy? That line drawing is itself a kind of power, and Buchanan and Tulloch don't pretend that it draws itself. In practice, societies settle it the same way they settle everything else that's costly, through precedent, through courts, through slow-moving convention about what's fundamental enough to deserve the higher bar. It's imperfect and contestable, the same way any cost-benefit line is imperfect and contestable. But notice that the alternative isn't a world without this problem. It's a world where the question, was this decision important enough to deserve protection from a bare majority, never got asked, because every decision clears only the same low bar. Getting the classification wrong sometimes is the price of having a classification at all. And Buchanan and Tullock would say that comparatively, that price is still worth paying.

Ballot Initiatives And Easy Amendments

Michael Munger 18:07

A while ago, I got a listener letter asking whether Buchanan and Tullock ever addressed direct democracy, ballot initiatives, referenda as a way around this whole design. The short answer is yes. They were skeptical for exactly the same reasons that now, having heard this episode, you'd expect. A ballot initiative is a way of routing around bicameralism, the veto and committee vetting. It's a low transaction cost path straight to majority rule on questions that a legislature's higher friction process was built to slow down. Several states that rely heavily on the initiative process have at various points used it to pass measures that would never have survived a legislature's multiple veto points. That's the theory working exactly as predicted. And earlier we had the episode on the Indian Constitution. I'll put a link on that back to show notes. The Indian Constitution is really easy to amend. It's constantly amended, and no one knows what's in the Constitution as a result. Whoa,

Transaction Cost Jokes And Letters

Michael Munger 19:17

that sound means it's time for the twedge. There's a famous joke in political science. It's not quite a twedge, but since it's on transaction cost, it's economic enough. An older Democrat and younger Democrat are talking in one of the hallways of the House of Representatives, and a Republican member of the House walks by. And the younger Democrat says to the older Democrat, Oh, careful, don't let him hear. There goes the enemy. The two older men from different parties look at each other and share a knowing glance. After the Republican walks off, the older Democrat said to the younger Democrat House member, look, but you have to understand the enemy is the Senate. That guy was just the opposition. Well, the point is that members of the House, across party lines, under normal functioning of the House of Representatives, often shared more than they shared with the Senate. And what's interesting about that is that it is the precisely the difference in the way that members are elected that makes Democrats in the House sometimes, not recently, but sometimes share more in terms of goals than they do with Democrats in the Senate. And that is a story of transaction costs. The second joke, two politicians walk into a bar to negotiate a compromise, but they left before ordering because the committee meeting to decide who would pay for the drinks costs more than the drinks themselves. Obviously a transaction cost story. Two letters. First, Mike, I'm a regular listener and learn something from every episode. I'm finally picking up things I should have in econ grad school decades ago. And I actually like the jokes of the week. That's C from Calgary, Canada. Second, I see you have something that you need to get off your chest this summer. All the episodes seem to have a little more vehemence. I for one appreciate that. C from Montana. Well, to both of you. These are things that are not taught in econ grad school, and I think that explains part of my vehemence. These are the things that we should think about in economics, but we don't. I do think that it. It is true that the it happens that the last few about antitrust and lateness were something that I care very deeply about. Well, it is it is part of the license, I suppose, of the host to sometimes add a a little spice into the stew. This this week's we have one more letter from my friend Ross Kaminsky, who is talk show host on KOA 850 AM and 94.1 FM in Denver, and he's also on iHeartRadio for those. He is a well-known talk show host, and it I am honored that he listens to the show. He had a letter about the eggs and antitrust podcast. Hi, Mike. Thanks for the recent Egg Cellent podcast. One other small item of interest for the egg market, which is not related to the potential anti-competitive point that you were describing in your podcast, is the small but increasing number of states that require all eggs sold must come from cage-free hens. I think, unsurprisingly, California started this. My state of Colorado is now followed. Because you get far fewer hens per acre or square yard with the cage-free approach, this would drive up the price of eggs. Industrial, that is, non-cage-free egg producers outside of California have a big decision to make when it comes to first, is it worth charging their changing their business practices to be able to sell into that very large market? And two, if so, whether it's worth making the change for the entirety of their operation or just for a subset. This has been an issue in Colorado in the past year or so because of a relatively new law that was passed here. For a while the price of eggs spiked, but then it was hard to disentangle that from the effects of bird flu. An occasional radio show guest of mine who heads up the Colorado Egg Producers Association says that he thinks the change to cage free probably adds something like 15 cents per egg, which strikes me as a pretty massive increase. That said, I expect that with the ingenuity of the American agriculture industry, that number would probably come down if it were universal. I've not done any further research or what more, I don't know what more recent data show about that. I'm glad you are egg-centric, note the double meaning there, enough to put out that interesting podcast about eggs. Ross Kaminsky, KOA 850 AM and 94.1 FM in Denver. Well, thanks, Ross. I always appreciate hearing from you, and you were kind enough to have me on the show about a couple of these recent podcasts, especially the lateness one. So back at you.

Book Recommendation And Sign Off

Michael Munger 25:18

The book of the week is by Benjamin Labatut. That's Benhamin Labatut. He's Chilean. Last name is L-A-B-A-T-U-T. Title of the book is The Maniac. It's from Penguin Press, 2023. It's hard to describe. It's not about science, but it's about scientists and society. It's sort of about John von Neumann, the game theorist, but that's not really an adequate description. It's a novel, but it's not really a novel either. It's not an easy read, but it is worth a few evenings, so I recommend it. Ben Hamin Labatut, the Maniac. Well, that's it for next week. We'll talk again next week on the answer is transaction costs.