majority view will prevail, and in doing so launched the modern study of public economy, sometimes referred to as

public choice, a subtopic of microeconomics. In this chapter, we will look at the economics of government policy,

why smaller, more organized groups have an incentive to work hard to enact certain policies, and why lawmakers
436 18 • Public Economy

ultimately make decisions that may result in bad economic policy.

As President Abraham Lincoln famously said in his 1863 Gettysburg Address, democratic governments are

supposed to be “of the people, by the people, and for the people.” Can we rely on democratic governments to

enact sensible economic policies? After all, they react to voters, not to analyses of demand and supply curves.

The main focus of an economics course is, naturally enough, to analyze the characteristics of markets and

purely economic institutions. However, political institutions also play a role in allocating society’s scarce
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