Taming Leviathan

by Michael Boskin

Project Syndicate
January 27, 2013

A successful society needs effective, affordable government to perform its necessary functions well, and that includes sufficient revenue to fund those functions. But a government that grows too large, centralized, bureaucratic, and expensive substantially impairs the private economy by eroding individual initiative and responsibility; crowding out private investment, consumption, and charity; and damaging incentives with high tax rates. It also risks crowding out necessary government functions such as defense. That is today’s Europe in a nutshell, with America not far behind.

The recent death of James M. Buchanan, the father of public-choice economics, is reason to reflect on his sage warnings. Buchanan was awarded the Nobel Prize in 1986 for bringing to the study of government and the behavior of government officials the same rigorous analysis that economists had long applied to private economic decision-making. Buchanan concluded that politicians’ pursuit of self-interest inevitably leads to poor outcomes.

Buchanan’s analysis stood in marked contrast not only to Adam Smith’s dictum that the pursuit of self-interest leads, as if “by an invisible hand,” to desirable social outcomes, but also to the prevailing approach to policy analysis, which views government as a benevolent planner, implementing textbook “solutions” to market failures.

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Η αποτυχία των θεσμών

του Π.Κ.Ιωακειμίδη

Τα Νέα
25 Ιανουαρίου 2013

Στο σημαντικό βιβλίο τους Γιατί τα έθνη αποτυγχάνουν: Οι καταβολές της ισχύος, της ευημερίας και της φτώχειας (Why Nations Fail: The Origins of Power, Prosperity and Poverty - Profile Books, 2012), οι καθηγητές D. Acemoglu και J. Robinson διατυπώνουν τη βασική υπόθεση ότι «οι χώρες διαφέρουν στον βαθμό της οικονομικής τους επιτυχίας λόγω της ποιότητας των θεσμών και των κανόνων που προσδιορίζουν το πώς λειτουργεί η οικονομία καθώς και των αξιών και κινήτρων που εμπνέουν τους πολίτες». Οι συγγραφείς αποδίδουν δηλαδή την ύπαρξη ευημερίας ή φτώχειας καθώς και την οικονομική σταθερότητα σε μια χώρα σε πολιτικούς (θεσμούς) και πολιτιστικούς λόγους (κίνητρα για δράση). Μολονότι οι συγγραφείς μελετούν κυρίως αναπτυσσόμενες κοινωνίες και οικονομίες (Αφρικής, Λ. Αμερικής, Ασίας κ.ά.), η θέση τους ότι «οι θεσμοί είναι αυτοί που ευθύνονται, αυτοί που κρατούν τις φτωχές κοινωνίες φτωχές και τις εμποδίζουν να προωθήσουν τη διαδικασία ανάπτυξης ή ακριβώς το αντίθετο» προβάλλεται ως ισχύουσα και για άλλες περιπτώσεις ανεπτυγμένων κρατών. Και όταν αναφέρονται στους θεσμούς συμπεριλαμβάνουν το σύνολο των κρατικών, διοικητικών, πολιτικών δομών που συγκροτούν μια ορισμένη πολιτική οντότητα.

Η θέση των συγγραφέων είναι απολύτως σχετική με την Ελλάδα. Κατά βάση η οικονομική κρίση στην οποία οδηγήθηκε η χώρα συνιστά θεσμική/πολιτική αποτυχία ενώ τροφοδοτήθηκε από ένα ορισμένο πολιτιστικό μόρφωμα. Η θεσμική αποτυχία έγκειται στην αδυναμία κρατικού συστήματος, διοίκησης και πολιτικών φορέων να επιλύουν προβλήματα, να λειτουργούν ουδέτερα για την προαγωγή του γενικού συμφέροντος, να υπηρετούν την κοινωνία και τους πολίτες γενικώς και όχι επιμέρους συμφέροντα. Το πολιτιστικό μόρφωμα που τροφοδότησε την κρίση συναρθρώνεται με τα στοιχεία του ανορθολογισμού, της απουσίας εμπιστοσύνης σε θεσμικές δομές και ανάδειξη των διαπροσωπικών σχέσεων, στην ελάχιστη έμφαση στην ανάγκη απαρέγκλιτης τήρησης των κανόνων (ανομία), την ανάδειξη του κράτους στο ρόλο του απόλυτου προστάτη (ή του απόλυτου αντιπάλου), στην προβολή της προσωπικότητας μέσω εξωτερικών στοιχείων (κατανάλωσης, επιδεικτικής συμπεριφοράς).

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The voice of public choice

Economist
January 19, 2013

A list of things that Americans judge more favourably than Congress, according to Public Policy Polling, a survey firm, includes colonoscopies, root canals, lice and France. America seems to have stumbled from economic crisis to political paralysis. That would have come as little surprise to James Buchanan, a Nobel prize-winning economist and the architect of “public-choice theory”, who died on January 9th, aged 93.

Mr Buchanan was an outlier in his field. He eschewed the profession’s embrace of complex models and maths in favour of serious reflection on political philosophy (leading some to dismiss him, wrongly, as a lightweight). A Tennessean by birth, he mistrusted north-eastern elites and spent most of his career at universities in Virginia. He challenged his profession’s casual treatment of variables such as economic cost, which he considered to be a deeply subjective matter. He adopted heterodoxies such as a 100% inheritance tax, on egalitarian grounds. Yet his greatest contribution was in the realm of political economy.

His interest in the workings of the state reflected its growing importance. From having only a minimal role in pre-industrial days, Leviathan came to control swathes of economic activity as the 20th century progressed. National-security demands were partly responsible. Government responses to market failures, from unscrupulous business practices to the trauma of the Depression, also played their part. As demands on the state grew, so too did the need to understand its behaviour.

Mr Buchanan was one of a small group of economists wondering whether the state was up to the task. Untrammelled markets may fail—by producing more pollution than society as a whole would prefer, for example. That creates the potential for welfare-improving government intervention, such as a tax on pollution. Yet there is no guarantee a state will get it right. Whether interventions are justified, Buchanan pointed out, depends on whether government officials are motivated by self-interest as well as a sense of public duty. Weighing up the pros and cons of policy choices requires an unsentimental view of government actions, a position he called “politics without romance”. In exploring this he helped create public-choice theory.

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Extrenalities and the Coase Theorem

Learn Liberty
June 29, 2011

In economic activity, there are sometimes 'externalities' or spillover effects to other people not involved in the original exchange. Positive externalities result in beneficial outcomes for others, but negative externalities impose costs on others. Prof. Sean Mullholland addresses a classic example of a negative externality, pollution, and describes three possible solutions for the problem: taxation, government regulation, and property rights. The first two options are difficult to monitor and may create perverse incentives. A better solution to overcome the externality is property rights, as described by Ronald Coase. As long as property rights are well-defined, divisible, and defendable, parties can negotiate to reduce the impact of the pollution.

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Have We Lost the War on Drugs?

by Gary S. Becker and Kevin M. Murphy

Wall Street Journal
January 4, 2012

President Richard Nixon declared a "war on drugs" in 1971. The expectation then was that drug trafficking in the United States could be greatly reduced in a short time through federal policing—and yet the war on drugs continues to this day. The cost has been large in terms of lives, money and the well-being of many Americans, especially the poor and less educated. By most accounts, the gains from the war have been modest at best.

The direct monetary cost to American taxpayers of the war on drugs includes spending on police, the court personnel used to try drug users and traffickers, and the guards and other resources spent on imprisoning and punishing those convicted of drug offenses. Total current spending is estimated at over $40 billion a year.

These costs don't include many other harmful effects of the war on drugs that are difficult to quantify. For example, over the past 40 years the fraction of students who have dropped out of American high schools has remained large, at about 25%. Dropout rates are not high for middle-class white children, but they are very high for black and Hispanic children living in poor neighborhoods. Many factors explain the high dropout rates, especially bad schools and weak family support. But another important factor in inner-city neighborhoods is the temptation to drop out of school in order to profit from the drug trade.

The total number of persons incarcerated in state and federal prisons in the U.S. has grown from 330,000 in 1980 to about 1.6 million today. Much of the increase in this population is directly due to the war on drugs and the severe punishment for persons convicted of drug trafficking. About 50% of the inmates in federal prisons and 20% of those in state prisons have been convicted of either selling or using drugs. The many minor drug traffickers and drug users who spend time in jail find fewer opportunities for legal employment after they get out of prison, and they develop better skills at criminal activities.

Prices of illegal drugs are pushed up whenever many drug traffickers are caught and punished harshly. The higher prices they get for drugs help compensate traffickers for the risks of being apprehended. Higher prices can discourage the demand for drugs, but they also enable some traffickers to make a lot of money if they avoid being caught, if they operate on a large enough scale, and if they can reduce competition from other traffickers. This explains why large-scale drug gangs and cartels are so profitable in the U.S., Mexico, Colombia, Brazil and other countries.

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Brazilian student auctions virginity

CNN
January 2, 2013

A Brazilian student set off a firestorm in her hometown by putting her virginity up for auction.

 

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