There appears to be something basic that most people in most of human history don’t understand. Or is it me (along with a lot of economists)? Here is the argument.
It would be better if our car were chosen democratically. A democratic referendum could ask voters to choose which car will be available to consumers. (How individual purchases would be financed, either with private money or by government, does not matter at this point.) Assume the voting system is the one you prefer and that the number of choices or write-in options is also what you think is most democratic. The voters are asked to vote for the single brand and model of car to be produced or imported. Each individual has one vote, however “one vote” is defined in your preferred voting system. The economies of scale brought about by a single model would reduce the price of cars compared to the wasteful diversity of the market—the 250 different models available on the American market, not counting the numerous options and colors for each model. Collective rationality would replace individual ignorance and market anarchy. Equality would be promoted: the times would be over when the rich could afford more luxurious and safer cars than the average American. The car manufacturer whose model has been chosen would, in a real sense, be elected democratically. A true collective choice would democratically decide which car we drive. What can be wrong with that?
Many things. In fact, this whole argument is invalid. A few reasons:
(1) Depending on the voting system (majority, plurality, ranked-choice, Borda, Hare, etc.), a different choice of car would likely prevail, so the person or group that chooses the voting system and the choices to be proposed would indirectly decide, or at least strongly influence, which car you will drive (on voting systems, see, in the forthcoming Spring issue of Regulation, my essay on William Riker’s Liberalism against Populism).
(2) Each individual’s vote has an infinitesimal chance of changing the result of the referendum, that is, of getting him the car he wants—or, for the real altruist, the car he thinks is better for the large masses.
(3) With only one producer and a lack of competition, including import competition, economies of scale would soon be overcome by reduced incentives, bureaucratic growth, and union power. In between referendums, the main incentives of the chosen producer would be to satisfy a faceless average consumer; or to swindle him if the incumbent thinks it is unlikely to be allowed to put one of its cars among the candidates next time. The consequences would be similar if, in a more complex referendum, a number of producers were chosen to offer, say, a black-made car, a white-made car, a LGBTQ+-made car, or any other stakeholder-made car. History provides us with an example of a near-collective car named Trabant, “a sparkplug with a roof.” (A Trabant model is shown on the featured image of this post.)
(4) This reminds us that political processes, even democratic ones, are very rough and imperfect. The most popular car in the American market is a pickup, Ford’s F-150, but only those who individually choose it are obliged to drive it, which is what individual choices are about.
(5) Economic efficiency, which is defined as the satisfaction of the varied preferences of different individuals, would be replaced by some common preferences of a centrist group of voters according to the median-voter theorem.
(6) Socialism and imposed uniformity in consumption are antithetical to individual dreams and their subjective utility—the sort of car you have wanted to buy for yourself since childhood, for example. I say “socialism” but it is the same in conservative collectivism or the old elitist right.
(7) Another obstacle to “collective rationality” would come from the voters’ “rational ignorance.” Since every individual voter knows that his vote has practically a zero chance of delivering the car he prefers, he would have no incentive to buy (if only with his time) information on the referendum alternatives—to subscribe to Consumer Reports, to read car magazines, to google technical terms or watch YouTube videos, to visit manufacturers online or physical showrooms, and so forth. (See also David Henderson, “The Logical Basis is a Difference in Incentives,” Econlog, March 9, 2021; and my own post “One Thing Rationally Ignorant Voters Don’t Know,” September 14, 2020) And if there are many voters whose cognitive limitations or sensibility to propaganda lead each of them to believe that he will decide the vote, how can anybody trust the rationality of such an electorate? Collective rationality amounts to voting blind or, at best, voting with one’s tribe.
(8) Market competition, not political competition, is, theoretically and historically, the way to reach economic efficiency.
(9) The equality obtained by letting every voter vote on our collective car would be illusory. Even with the ideal referendum, the real influencers would be the car manufacturers’ P.R. departments and popular pundits and media personalities (as well as perhaps QAnon-type websites).
(10) Even in this ideal democratic system, political competition would fill the void of economic competition. When economic markets are forbidden to clear, political markets will clear. Rent-seekers would try to influence which models will be put on the ballot, which producers will thus be privileged, and how long the monopoly will last.
(11) Consider the financing aspect of car purchases, ignored up to now. This issue would also need to be decided by an equally imperfect referendum. Suppose that “our national car” is to be paid by the government and financed by public debt. All the voters who think that their individual votes count and who want “social justice” hic et nunc would likely vote for Cadillacs to be paid by their descendants.
What most people do not understand, even apparently in America and in other sophisticated countries, is that individual choices are preferable to collective choices for both economic and moral reasons. This is true not only for cars but also for most other goods. Only goods or services that must be consumed simultaneously by all—what economists call “public goods”—escape this characterization but a separate argument has to be made for them.