Public Choice and Social Democracy

Abstract

Since World War I, “social democracy” has been one of the most influential political ideas. It refers to a partisan political movement, an ideological orientation, and a set of political institutions. Common denominators are the extension of democracy to socioeconomic spheres and an expansion of government activities beyond those of merely providing national security, law and order, and a narrow set of public goods. However, such a program would seem problematic given a number of insights offered by public choice theory: All forms of majority decisions are sensitive to even small changes in the procedures and are likely to produce outcomes not preferred by a majority. Majority decisions also risk producing Pareto-inferior outcomes, especially when costs can be imposed on others. And the fewer constitutional limits on government activities there are, the larger the extent of rent seeking with associated welfare losses is likely to be. Together these points are significant challenges to a program that wants to extend majority decision to new spheres while simultaneously promising prosperity for all.