Political Entrepreneurs

The Economic Engine of Political Change

Excerpt about Bob Tollison (1942-2016)

October 24th, 2016 by Edward Lopez

Robert D. Tollison was dissertation adviser to both Wayne (in 1996) and me (in 1997). Bob passed away this morning, no details are available. I will be posting soon a memorial of Bob, and no doubt we will be arranging a memorial at the 2017 Public Choice Society meetings. For now, here is an excerpt of Madmen chapter 3, in which we introduce neoclassical welfare theory before next contrasting it with public choice theory.

Chapter 3: Economists Join the Battle of Political Ideas

For a modern “mixed economy” in the post-Keynesian era, fiscal and monetary policy can definitely prevent chronic slumps, can offset automation or under-consumption, can insure that resources find paying work opportunities.  —Paul A. Samuelson, The New York Times (1970)

The . . . approach that I suggest places “the theory of markets” and not the “theory of resource allocation” at center stage . . . The same basic data are central to the allocation approach and the exchange approach. But the interpretation of these data, and even the very questions that we ask of them, will depend critically on the reference system within which we operate.
—James M. Buchanan, What Should Economists Do? (1964)

It was the summer of 1985 in northern Virginia. A young, accomplished economist held pen to paper and gazed off his back screened porch onto Fairfax County’s lush rolling hills. In a few months’ time he would fly to Dallas to deliver his presidential address to the fifty-fifth meeting of the Southern Economic Association, the oldest of the “regional” economics societies in the United States. His audience would be a room filled with hundreds of his fellow economists. Most of them would be the speaker’s senior, and all of them would be wondering what he might have to say. Patting the head of his snoozing dog, sipping his sweet tea, and watching the wind in the trees, the young Robert D. Tollison pondered the same. He looked down at his yellow pad and wrote, “Economics is economics.”

Knowing the speaker as a leading scholar of the public choice school of thought, the economists in Dallas may have anticipated a lecture on mercantilism, that protectionist system of international trade, or a theory of legislation, or another subject of his past work. As it turned out, Tollison didn’t talk about any of these topics that day. Instead, he talked about them, his audience, the economic thinkers in the room.

Bob Tollison has spent his career challenging economic theory to explain not only markets and governments but a range of human experience, too. He has written piles of studies on novel topics like the geographical patterns of Civil War mortality rates, the productivity of basketball players, the formulaic structure of pop music, the evolution of the English language, the racial integration of pro baseball, and more. On this occasion in Dallas, he would push economic theory in yet another direction, this time by bringing it closer to home. Under the title, “Economists as the Subject of Economic Inquiry,” Tollison’s presidential address turned the lens of economic theory onto the production of economic theory. “Economics is economics,” he said. “The economist cannot take a measure of the world without obeying its postulates.”

There is a deep parallel between Tollison’s approach toward economists and Lionel Robbins’s approach toward philosophers, which we discussed at the start of Chapter 2. The production of ideas, whether philosophy or economics, is an economic enterprise—both in terms of providing alternatives to consumers and in terms of their having to compete with other producers.

In his Dallas address, for example, Tollison is preoccupied with analyzing economists as Homo scientificus—as rationally self-interested individuals who can be modeled exactly like consumers and firms. Tollison shifts the lens of economic theory onto the producers of economic theory; the basic economic tool kit can be used to understand the creation of ideas in economics, just as it can be used to explain the production of basketball games, potatoes, even public policies. Punctuating things, Tollison surmises: “The economist is a rational, maximizing individual, subject to the predictions of economic science.” As one implication, he predicts, we should expect the supply of economic ideas to be high in situations that offer low costs of innovation, and vice versa.

Certain biographical sketches of some great economists seem to obey Tollison’s postulate. For example, the Victorian economist Alfred Marshall invented the concept known as price elasticity of demand—a brilliant stroke of creative genius—while on an extended convalescent vacation on the coast in southern Italy. The cost of creative production is low while sunning oneself on the roof at Palermo. On the other hand, Adam Smith all but quit writing once he took on the responsibilities as commissioner of the Scottish customs office, just two years after publishing The Wealth of Nations. The immediate lesson is that time constraints matter. The broader moral is that examining biography offers much understanding about the creation and dissemination of ideas.

We can parlay Tollison’s rational thinker approach into a view of economics itself as exchange. Individual economists might very well adhere to the tenets of the rational individual model. As a group, economists compete with each other in the marketplace of ideas. Aside from a handful of fundamentals on which all competent economists agree, there is wide and deep dissent on the rest. Take, for example, our first motivating question from Chapter 1: Why do democracies generate policies that are wasteful and unjust? A majority of economists likely would not care to study or comment on justice. And while most do occasion themselves with the issues of waste, there is dissent there as well. The old joke is, you could line up all the economists in the world, and they still would not reach a conclusion.

In the marketplace of economic ideas, scholars are in the business of crafting arguments, techniques, theorems, policy recommendations, and so forth, all in the hope of exchanging their craft for the currency of readership, praise, influence, and ultimately some prominent place in the body of economic scholarship. Economists act like idea entrepreneurs, identifying niches of unexplored opportunity and areas where innovative work is most needed. Seeking audiences and like-minded thinkers, scholars select themselves into groups and schools of thought. Over time, as with all crowds, schools of thought and areas of inquiry come into and out of fashion. And so, the history of economics, like that of political philosophy, is one of certain ideas being picked up and systematically adapted into orthodoxy, while other ideas get left behind with only the lonely hope of being rediscovered by future wandering scholars.

As modern economic thought roared into the twentieth century, the battleground of economic ideas shifted ever more toward government policy and the public interest. Two competing schools of thought emerged: welfare economics and public choice. With the great Paul Samuelson as its figurehead, welfare economics advanced theories of market failure and enlightened government intervention. It construed the basic economic problem as one of allocation—how society can allocate its scarce resources so as to best serve the public interest. In stark contrast, public choice theory, with James Buchanan as Samuelson’s counterpart, advanced theories not of market failure, but of government failure. Buchanan argued that the fundamental economic question is not allocation but exchange. Viewing politics as exchange, public choice theory would show cracks in the thinking that enlightened public policy can achieve a sort of Nirvana in human affairs. Interestingly, both the welfare and public choice schools of thought spawned directly from the model of neoclassical economics that took shape between 1870 and 1950, and both trace their lineage directly to the seat of Adam Smith. Yet the competing schools couldn’t be more different from each other in the advice they would lend to those who grip the levers of economic policy.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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