Political Entrepreneurs

The Economic Engine of Political Change

Category: Policy Issues

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…
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Airline Deregulation: Political Entrepreneurs at Work

July 7th, 2014 by Gary McDonnell

Policy ideas do not always bear fruit in the real world. What was different with 1970s transportation deregulation? In a previous post I noted that political entrepreneurs find ways to use ideas to break down resistance to change, to overcome “structure-induced stability”. Ed and Wayne write in Madmen  that, “political change happens when entrepreneurs notice and exploit those loose spots in the structure of ideas, institutions, and incentives” (134). As noted by Rodrik , political entrepreneurs will…
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Rodrik on Political Entrepreneurship: Ideas Overcome Interests

July 3rd, 2014 by Gary McDonnell

In my previous posts ( here and here ) I have attempted to highlight some of the important research with respect to the economic theory of politics and how well it explains the deregulation of the 1970s. In one sense, the debate is whether deregulation can best be explained by resorting to government officials acting in the public interest, or whether there was a change in the relative power of interest groups. I have suggested that the…
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How Well Does the Economic Theory of Politics Explain Deregulation?

July 2nd, 2014 by Gary McDonnell

The theory of economic regulation developed by Stigler and expanded by others is sometimes referred to as the Chicago theory of politics. Politicians broker resources, typically transferring them from large, unorganized groups whose individual members have a small stake in the outcome, to well-organized groups whose individual members have a large stake in a political outcome. Voter ignorance and apathy help this process along. There is a tendency for government regulatory bodies to be captured by the interest groups they…
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Taxi Cab Medallions, Uber, and the Transitional Gains Trap: Part 2

June 27th, 2014 by Todd Nesbit

In my earlier post , I discussed the conditions that led to New York City enacting in 1937 the first policy to establish taxi cab medallions.  In short, the public’s discontent with high taxi fares, the cabbies’ dissatisfaction with their compensation, the relatively few but large fleet owners, and a general tendency to support government intervention in the wake of the stock market crash and depressed economy created an environment ripe for a new idea to change…
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Taxi Cab Medallions, Uber, and The Transitional Gains Trap: Part 1

June 24th, 2014 by Todd Nesbit

As Ed Lopez suggested in this post  back in December 2012, the political battles surrounding the emergence of Uber and other ride-share services have proven to be a goldmine for those of us studying and teaching political economy, with the taxi cab medallion at the center of this story of political change.  Both the introduction of the taxi cab medallion and the more recent political struggle in reaction to the entry of ride-share service firms provide for…
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Buchanan on the Economics and Morality of Deficits: It’s all Public Choice Theory

June 11th, 2014 by Edward Lopez

Here is James M. Buchanan (1919-2013) writing in “The Moral Dimension of Debt Financing,” Economic Inquiry, January 1985. Economists have almost totally neglected moral or ethical elements of the behavior that has generated the observed modern regime of continuing and accelerating government budget deficits. To the extent that moral principles affect choice constraints, such neglect is inexcusable. It is incumbent on us, as economic analysts, to understand how morals impinge upon choice, and especially how…
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Ways of Financing Government Spending — Old and New

June 11th, 2014 by Edward Lopez

Suppose a government proposes to spend an additional dollar of spending. Today’s conventional economics says there are three means of financing that proposal: 1) raise current taxes; 2) raise future taxes by issuing current debt; or 3) print money. Ah, the simplicity of the modern state. According to economic historian Alvin Hansen, the 16th Century French philosopher Jean Bodin approved only six sources of state revenue: the public domain, conquest, gifts (which are “rare”), annual…
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Institutional Detail on the Armchair

May 6th, 2014 by Edward Lopez

Armchair theory can sometimes look naive from the perspective of institutional detail. Case in point, my recent post on high-frequency trading in which I speculate how best to allocate the privilege that HFTs enjoy of proximity to exchange servers and access to dark pools. In other words, what do the HFTs pay for their advantage? And who is receiving these payments? Clearly there are capital investments (a form of private sector rent seeking). But I wonder if there are forms of licensing…
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Property and Contract Rights in High Frequency Trading?

April 30th, 2014 by Edward Lopez

Robert Levy, Chairman of the Cato Institute, responds to Burton Makiel and Aurthur Levitt’s Wall Street Journal op-ed on the most recent firestorm over high-frequency trading (HFT). Highlighting its downsides, critics have called for bans and regulations to stem or eliminate the practice. These critics allege the practice lends unfair advantage to large and inside traders relative to small and retail traders, worsens market volatility such as flash crashes, and amounts to “front-running”. Levy’s approach is to…
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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.

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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