Political Entrepreneurs

The Economic Engine of Political Change

Robert Samuelson on government spending: a public choice perspective

March 20th, 2013 by Wayne Leighton

A recent Washington Post op-ed by Robert Samuelson argues that both Democrats and Republicans are hesitant to address some of the biggest problems affecting the federal budget. It’s a nice primer on the political economy of government spending (whether or not you agree with the policy recommendations). Money quote:

What frustrates constructive debate is muddled public opinion. Americans hate deficits but desire more spending and reject higher taxes. In a Pew Poll, 87 percent of respondents favored present or greater Social Security spending; only 10 percent backed cuts. Results were similar for 18 of 19 programs, foreign aid being the exception.

In short, the median voter’s desire for high spending currently trumps the desire for low (or no) deficits. This is James Buchanan and Richard Wagner’s argument in Democracy in Deficit: The Political Legacy of Lord Keynes (1977).

A neglected dimension of Buchanan and Wagner’s book is its in-depth treatment of voters being fooled by their own cognitive biases. From 1977 Buchanan and Wagner are already incorporating what are now called “behavioral” arguments into the macroeconomic consequences of fiscal and monetary policy. This, alongside their more traditional interest group argument, runs through almost every chapter of their book and forms the backbone of their analysis.

Fast forward three decades and we come to Bryan Caplan’s The Myth of the Rational Voter: Why Democracies Choose Bad Policies (2007). Caplan argues that voters may be “rationally irrational” — holding beliefs that are simply not true, but which cost them little to maintain. Failure to grasp certain economic realities, such as the benefits of free trade, likely will have no direct cost to a single voter. While the consumer who fails to do a little research before buying a car may end up with a lemon, the voter with economically incorrect ideas is not likely to change the course of an election. But the effects of cognitive biases can add up. When many voters think high tariffs will make them richer, they’re likely to get what they want (tariffs, not riches).

This brings us to the Samuelson op-ed and the concern for “muddled public opinion” that frustrates debate. As one of many examples, Caplan points out that most people overestimate the percentage of the federal budget that goes to foreign aid. No surprise, then, that “cutting foreign aid” would be seen as a meaningful attempt to address the budget crisis. In reality, a much broader conversation about entitlements will be required.

Samuelson criticizes President Obama for not engaging in this conversation. His argument: “Only the occupant of the bully pulpit can yank public opinion back to reality.”

But as Ed and I point out in Madmen, the president also faces the preferences (and cognitive biases) of the voting public at a given moment. The bully pulpit can do only so much to change those preferences.

 

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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?

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
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.

©2018 Wayne A Leighton & Edward López • Web Design by Barrel Strength