When we think about how to get the most out of our government, it is important to distinguish between ordinary politics and constitutional rules. Constitutions establish the procedures utilized to make political decisions. Constitutions can also limit the activities of government.
The framers of the U.S. Constitution were aware that even a democratic government might undertake counterproductive actions. Thus, they incorporated restraints on the economic role of government. They enumerated the permissible tax and spending powers of the central government (Article I, Section and allocated all other powers to the states and the people (Tenth Amendment). They also prohibited states from adopting legislation “impairing the obligation of contracts” (Article I, Section 10). Furthermore, the Fifth Amendment specifies that private property shall not be “taken for public use without just compensation.” Over time, however, these restraints have been significantly eroded, due in part to Supreme Court decisions that have effectively reinterpreted the Constitution. To- day, it is difficult to think of an economic activity that is beyond the reach of majority rule or normal legislative procedure.
Public-choice analysis highlights the importance of constitutional rules and procedures capable of restraining government activities to those areas in which it will promote prosperity. If left alone, even democratic governments will tend to cater to special-interest groups and draw significant resources into rent seeking. If we can figure out how to constrain the activities of government to those areas in which it is most likely to be productive, higher income levels can be achieved. The challenge before us is to develop constitutional rules and political institutions more consistent with economic efficiency and prosperity. The theory of public choice and its applications can help us do that. Needless to say, this topic is one of the most exciting and potentially fruitful areas of research in economics.