Political Entrepreneurs

The Economic Engine of Political Change

Stephen Miller reviews Madmen

December 6th, 2012 by Edward Lopez

My colleague here at Western Carolina, economist Steve Miller, has posted his review of Madmen to the book’s Amazon page. Steve is a political economist who specializes in empirically modeling the effects of intelligence and education on people’s beliefs about human affairs (yes, that’s a broad description but for more detail you can visit Steve’s research page).

Like other reviewers so far, Steve has highlighted the fact that Madmen is rooted in public choice theory, but that it extends beyond traditional public choice to incorporate more than the effect of political incentives. The analysis of political change requires looking at incentives as shaped by institutional rules, and in turn looking at institutions as being shaped by political entrepreneurs advancing particular ideas over others. Unlike other reviewers so far, Steve homed in on the theme (a central one in the book) that political change can and does occur in the absence of a “crisis” situation. And to Wayne’s and my delight, we seem to have provoked a change in Steve’s way of looking at politics.

To me, as a Public Choice economist, perhaps the most interesting part of the book is the discussion of the role crises play in bringing about policy changes. I must admit that I had previously accepted Friedman’s view that a crisis is a necessary precondition for meaningful political change. Obviously, a crisis often is the trigger for reform, as it was for New Zealand’s agricultural and trade reforms in the late 20th Century. However, Leighton and Lopez have now convinced me that crisis is not necessary. Obviously a crisis presents an opportunity for political entrepreneurs, but other opportunities exist, and often those opportunities happen to be synergies between people with the right ideas, the right ambitions, and the right incentives at the right time.

A natural question then, is, how do these predictions hold up against the evidence? This is where the four case studies of Chapter 6 come in. We illustrate how our framework applies to the real world by detailing four episodes of political change: airline rate & route deregulation of the 1970s, spectrum license auctions in the 1990s, welfare reform in the 1990s, and finally the political aspects of the housing bubble in the 2000s. As we continue blogging here, we’ll unpack these case studies. But even more so, we’ll be writing about additional empirical episodes of major change (ones that aren’t in the book), while sharpening our framework along the way. We hope you tune in.

Thanks for the thoughtful review, Steve!

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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