Political Entrepreneurs

The Economic Engine of Political Change

Fiscal Reform: When Will It Come? Will It Require A Crisis?

January 2nd, 2013 by Wayne Leighton

As both sides ponder the results of the “Fiscal Cliff” negotiations, one thing is clear. This was not a major reform. It was a short-term fix.

In the opening chapter of Madmen, Ed and I argue that while significant reform often comes about as a result of a crisis, this need not always be the case. (In chapter 6 we discuss airline deregulation as an example of a major reform that did not emerge from crisis.)

Nonetheless, in the case of fiscal reform in the United States — especially in the area of entitlements — many observers believe that significant reform will only happen when conditions force the hands of the madmen in authority.

What’s particularly interesting is the number of commentators who believe such reform need not happen anytime soon. Consider the New Republic’s Noam Scheiber:

Even absent new revenue, rising spending on Medicare and Social Security will be the political path of least resistance in the coming decades. And if the government is determined to bring its books more into balance, it turns out generating new revenue, or freeing up money from elsewhere, won’t be that hard. (Or at least raising enough money to muddle through for a long time even if we can’t balance the budget entirely.) While it may not be economically desirable to let the welfare state hoover up a larger and larger portion of government spending and GDP — and while polls show the public opposes this in the abstract — there will be no political imperative for Democrats to stop it. When actually forced to choose, no one wants their Medicare cut.

Note the key turn of phrase regarding continued spending: “there will be no political imperative for Democrats to stop it.” Is this accurate? Perhaps.

In short, if the majority of Americans reject the idea of reform — perhaps because intellectuals such as Scheiber say there is no rush — then madmen in authority will have relatively little incentive to act. And significant reform will be slow in coming. Of course, Scheiber could be wrong.

 

 

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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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