9.1.14

BLACKBOARD ECONOMICS

The Welfare Economics Paradigm is so easy to diagram on a blackboard, and its conclusions make presumptive social engineers comfortable with their prejudices.  Peter Boettke notes, though, that for blackboard economics to work, the people who implement policies must behave in exactly the fully-informed, public-spirited way the model dictates.
[Blackboard economists] are more intellectually comfortable with theories of the political process that myopically focus on the self-interest of the critical actors.  It was no doubt a major step forward when poltical economists challenged public interest explanations of all governmental decisions.  In analytical politics it is always important to ask: 'Who benefits at whose expense?'  But it is one thing to insist that we should be mindful of interest group manipulations, it is quite another step to assume that we can always infer intentions from outcomes in the world of public affairs.  Yet that is what modern economists are most intellectually comfortable doing.
The problem, dear reader, is that models are supposed to be descriptions of what autonomous agents do, not procedures for autonomous agents. Dani Rodrick picks up the narrative from there.
There was a time when we economists steered clear of politics. We viewed our job as describing how market economies work, when they fail, and how well-designed policies can enhance efficiency. We analyzed trade-offs between competing objectives (say, equity versus efficiency), and prescribed policies to meet desired economic outcomes, including redistribution. It was up to politicians to take our advice (or not), and to bureaucrats to implement it.

Then some of us became more ambitious. Frustrated by the reality that much of our advice went unheeded (so many free-market solutions still waiting to be taken up!), we turned our analytical toolkit on the behavior of politicians and bureaucrats themselves. We began to examine political behavior using the same conceptual framework that we use for consumer and producer decisions in a market economy. Politicians became income-maximizing suppliers of policy favors; citizens became rent-seeking lobbies and special interests; and political systems became marketplaces in which votes and political influence are traded for economic benefits.

Thus was born the field of rational-choice political economy, and a style of theorizing that many political scientists readily emulated. The apparent payoff was that we could now explain why politicians did so many things that violated economic rationality. Indeed, there was no economic malfunction that the two words “vested interests” could not account for.
He goes on to propose new tasks for the policy-minded economist.
By endogenizing politicians’ behavior, political economy disempowers policy analysts. It is as if physicists came up with theories that explained not only natural phenomena, but also determined which bridges and buildings engineers would build. There would then scarcely be any need for engineering schools.

If it seems to you that something is wrong with this, you are on to something. In reality, our contemporary frameworks for political economy are replete with unstated assumptions about the system of ideas underlying the operation of political systems. Make those assumptions explicit, and the decisive role of vested interests evaporates. Policy design, political leadership, and human agency come back to life.
That project, however, will come with the baggage of A implies C, A' implies Not C as researchers look for those Minimal Publishable Units.

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