Political Entrepreneurs

The Economic Engine of Political Change

Why License a Tour Guide? Some Final Thoughts on the Economics of Political Change

July 8th, 2014 by Gary McDonnell

I have discussed in some detail airline deregulation as a case study of political change within the economic framework laid out in Madmen. Interstate trucking, long-distance telecommunications, railroads, banking, stock brokerage, oil and gas, are additional cases where deregulation occurred.  Future research into these cases may suggest ways in which political entrepreneurs were able to “arbitrage between academic ideas and political inefficiencies.”  But political change– or at least the potential– is in the here and the now.

My fellow guest blogger Todd Nesbitt discussed (here and here) the political economy of taxi cab medallions and the rise of ride sharing technology such as Uber and lyft. Whether these new technologies can overcome the vested interests of those who benefit from the status quo is unclear for now. As Todd points out, whatever the outcome, this current issue will be an interesting case for those who study public choice and the determinants of political change.

Another policy that is ripe for change is occupational licensing. As this New York Times article points out there is not only growing bipartisan support for the repeal of occupational licensing, but the economist’s critique of the rent-seeking nature of this type of regulation is part of the rhetoric in favor of reform.  There has been some success in overturning licensing regulations, but so far major attempts to undo them have been blocked. Vested interests have so far, and to a large degree, won out over ideas.

The academic critique of laws that control the number of cabs in a city or that require an individual to have two years of college to braid hair has been around for some time.  And as the New York Times article suggests, there is a significant amount of intellectual support from both the left and the right of the political spectrum for freer entry into occupations.

Perhaps what is lacking in the cases of occupational licensing and ride share technology is the political entrepreneur who can benefit from making these issues resonate with voters and innovatively usurp the power and influence of groups with an interest in the status-quo. It should be noted that “the Kennedy administration . . . sent a procompetitive reform bill to Congress in 1962 but [it] elicited no response. In neither house was the bill even reported to the floor”. * In the case of interstate transportation, early attempts at loosening restrictions on entry and prices were unsuccessful. During the 1960s, without “outward circumstances” and the powerful individuals (i.e., Madmen) each with a vested interest in reform, change did not happen.

 

 

 

* Derthick and Quirk 1985. The Politics of Deregulation, 56.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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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