Saturday, 19 January 2013

In honour of James M. Buchanan

The Economist's Free Exchange column has a very good eulogy for the late Nobel-prize winning James Buchanan, entitled the Voice for Public Choice. I suggest you read the whole thing. 

Here's a particularly good excerpt from the follow-up text:

"Public choice suggests that politicians are influenced by the incentives around them and aren't simply members of a priestly class dedicated to advancement of the public interest. That, of course, means that swapping one set of politicians for another without changing the institutional incentives will have a minimal effect on governing behaviour. Not no effect, of course; different parties are in hock to different interest groups. But the op-ed pages of America overflow with demands that politician x behave better or party y pay less attention to interest group z. Ultimately, if you're unhappy with the outcomes of political business as usual you need to reflect on and argue for reform of the underlying institutional, or constitutional, arrangement. That is a lesson from Buchanan."
And it's a great lesson indeed, particularly in today's perspective on solving the euro crisis and fining the cure for a jobless recovery.

As was thought by the Virginia School and as is embedded in the public choice theory, changing politicians in power without reforming institutions and institutional incentives of those who govern, will not change the outcome new incumbents hope to bring. New incumbents adhere to new interest groups and are too often reluctant (or prevented) to change the balances of power within the society. This can clearly be observed with conservative parties reluctant to cut military spending or supporting the interests of big business (pro business is not pro market - Milton Friedman and Margaret Thatcher taught us that), while social-democrat parties are reluctant to cut public sector jobs and wages, or to reform labour market rigidities. This is normal behaviour from politicians who need to satisfy the preferences of their voters. This can very much explain all the major battles in parliaments over budget redistribution or new taxation. And it can very well explain the behaviour and outcomes of the fiscal cliff bargaining game

This type of behaviour of politicians has been a characteristic of democracies for a long time, and this is the central point of interest for the public choice theory. Buchanan and Tullock in particular offered groundbreaking insights on this area of research. What they also noted was that in order to change this type of behaviour new institutional incentives must be designed. Hence the definition of some of Buchanan's work as constitutional economics

My academic training as a political economist and as an institutionalist shapes my opinion on why I think that an institutional reform is crucial to combat the consequences of the crisis and misguided approaches to recovery. Having one or another political option in power doesn't make a difference unless this political option is changing the status quo and basically going against its own base support. Introducing constitutional rules that will govern the incentives of politicians would be the first step to reforming the decision-making system in politics, in democracies. 

If you wanna catch up on prof. Buchanan and his ground-breaking contributions, I suggest the following sources: 

EconLib's portrait of Buchanan and his collected works.

Eulogies at Forbes, Bloomberg (by Amity Shlaes), Cato (by David Boaz), Marginal Revolution (also from Richard McKenzie), New York Times, Wall Street Journal (by Don Boudreaux), etc.

Buchanan's work you should read:

"The Calculus of Consent", with Gordon Tullock, 1965

"Public Principles of Public Debt: A Defense and Restatement", 1962

"The Demand and Supply of Public Goods", 1968

"Cost and Choice: An Inquiry in Economic Theory", 1969

"The Limits of Liberty: Between Anarchy and Leviathan", 1975

"The Reason of Rules: Constitutional Political Economy", with Geoffrey Brennan, 1985

"The constitution of economic policy", by James Buchanan, Nobel Prize lecture, 1986

Public Choice Society 

Let's also not forget that James Buchanan was the co-founder (with Gordon Tullock) and first president of the Public Choice Society. This year will mark the 50th anniversary of the Public Choice Society, to be celebrated by a conference in March, in New Orleans. I am both deeply honored and excited to be presenting my paper on political agency and persistent electoral success (here's an earlier working paper version) on this year's conference, where I will have the chance to meet all the greatest political economists of today. One will be missing though. Rest in piece prof. Buchanan. 

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