Political vs economic competition, or why a two-party system can be OK

Max Kaehn, an occasional MR commentator, expressed a common sentiment when he wrote:

You think a voting system that sticks us with a two-party cartel instead of a diverse market in political representatives isn’t a major problem? Are you sure you’re an economist?

Here are a few reasons why political competition isn't the same as economic competition:

1. Economic competition lowers costs.  For the average worker, it cost a month's wages to buy a book in eighteenth century England and today it might cost well under an hour's wage.  The competitive incentive to use and introduce new technologies drove that change.  Political competition may support cost-reduction enterprises in an indirect manner, by providing good policy and spurring the private sector, but the mere ability to supply candidates and parties at lower cost is no great gain.

2. Having lots of parties means you get coalition government.  This works fine in many countries but again it is not to be confused with economic competition.  Coalition government means that say 39 percent of the electorate gets its way on many issues, while 13 percent of the electorate — as represented by the minor partner in the coalition — gets its way on a small number of issues.  Whatever benefits that arrangement may have, they do not especially resemble the virtues of economic competition.  

3. Many people think that greater inter-party competition, and/or more political parties, will help their favored proposals.  Usually they are wrong and they would do better to realize that their ideas simply aren't very popular or persuasive.

4. Often the U.S. system is best understood as a "no-party" system, albeit not at the current moment, not yet at least.  The bigger a party gets, often the less disciplined it will be.

5. Stronger electoral competition, in many cases, brings outcomes closer to "the median voter or whatever else is your theory of political equilibrium."  That's better than autocracy, but again there are limits on how beneficial that process can be.  It's not like economic competition where you get ongoing cost reductions in a manner which saves lives, brings fun, and enriches millions.

The bottom line: Political competition is better than autocracy, but its benefits are not well understood by a comparison with economic competition.


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