Public choice is a field of study that is a relative new-comer in the discipline of economics. Even more recent is the attempt to incorporate ideas into models of political economy. In Madmen Ed and Wayne have made a giant leap in the development of an economic framework, a “transmission mechanism” if you will, whereby ideas influence political outcomes. This approach offers great potential for helping to explain political change. Transportation deregulation during the 1970s is a case in point.
Standard models of political economy seek to explain regulation and deregulation in terms of the changing power of interest groups. During the 1980s, attempts were made to explain transportation and telecommunications deregulation (for example here , here , and here) using the economic theory of regulation. A loss of rents preceding deregulation and/or interest groups demanding to be deregulated would have supported the economic theory. Given that the relevant interest groups were by-and-large opposed to deregulation, and/or were still receiving fairly substantial rents – member of the teamsters union, for example—economic explanations for deregulation appeared less than robust.
The enactment of deregulation in the presence of interest group opposition to political change provided ammunition to other social scientists who favored a politics of ideas framework (see also here). In this narrative, the academic critique of economic regulation was the driving force in political change, and it was the fashion and feasibility of deregulation fostered and demonstrated by economists in charge of regulatory agencies (such as Alfred Kahn at the CAB) that over-powered interest group opposition to change.
Public choice economists tend to be justifiably skeptical of such “public interest” arguments for government policy– particularly in this case since the academic critique of economic regulation developed and matured at least fifteen years before deregulation took place. Ideas matter, but the challenge from an economic perspective has been to understand how ideas work though incentives and institutions to affect political outcomes.
On page 108 of Madmen Ed and Wayne have an apt quote from John Stuart Mill:
Ideas, unless outward circumstances conspire with them, have in general no very rapid or immediate efficacy in human affairs . . .
Political actors must have an incentive to use an idea to further an agenda. In future posts I will discuss some earlier scholarship on deregulation, and more on how the ideas put forth in Madmen can be incorporated to explain the deregulation that occurred during the 1970s, particularly interstate air passenger service.