Ideas and Political Entrepreneurs: Explaining Institutional Change

by on December 21, 2012 at 8:15 am in Economics, Political Science | Permalink

None of my entries this week has directly discussed Wayne Leighton’s and my new book, Madmen, Intellectuals, and Academic Scribblers. This post briefly conveys the book’s motivation and argument. A follow up post will illustrate the argument with the case of airline deregulation.

Alex describes Madmen as “revolution without romance,” analogous to Jim Buchanan’s account of public choice as “politics without romance.” It’s an apt comparison because although Madmen is rooted in public choice, we explain why public choice cannot account for political change without incorporating ideas and entrepreneurship.

To do so, we focus throughout the book on three questions:

1. Why do democracies generate policies that are wasteful and unjust?

2. Why do failed policies persist over long periods, even when they are known to be socially wasteful and even when better alternatives exist?

3. Why do some wasteful policies get repealed (for example, airline rate and route regulation) while others endure (such as sugar subsidies and tariffs)?

Traditional public choice answers question #1 (concentrated benefits & diffuse costs) as well as question #2 (transitional gains trap). Yet wasteful institutional arrangements do sometimes get repealed or reformed. In addition to airlines, other network industries such as trucking and energy pipelines were significantly deregulated in the 1970s, followed by income tax reform in the 80s, spectrum license auctions and welfare reform in the 90s, and more.

Madmen argues that better institutions derive from better ideas, through a political process that is driven by key players: madmen, intellectuals, and academic scribblers.

The academic scribblers originate ideas, which must then face off with vested interests and long-held beliefs in the status quo. The “intellectuals” (Hayekian traders in ideas) propagate the ideas they think are best. When political opportunity strikes, it then becomes in the interests of the madmen in authority (those who grip the levers of political power) to implement the new idea and change the rules of the game (that is, to change the institutions). New rules reshape people’s incentives, which in turn directs people’s decisions toward different outcomes—for better or worse.

The process can be revolutionary, creating new institutions through a crisis such as war or depression. Lenin and the Bolsheviks come to mind; so do the American Founders and Franklin D. Roosevelt. At other times, this process can be evolutionary, not born out of a crisis but emerging as part of a nonviolent battle of ideas.

At the end of the day, ideas do not surmount established interests on their own; nor do ideas automatically shape new institutions when political opportunity strikes. Instead, institutions change when political entrepreneurs notice areas of weakness in the structure of ideas, institutions, and incentives, and then find ways to implement different rules in those areas. The entrepreneurs in political change may be philosophers, opinion makers, political leaders, or other types of influencers. What they have in common is access to a stock of ideas, a knack for perceiving times when a different idea can take hold, and the grit to drive madmen in authority toward changing institutions accordingly.

That’s stating things generally. Alex’s post gives flavor to the argument in the case of spectrum license auctions. And tomorrow I will follow up to show how Alfred Kahn and Teddy Kennedy were political entrepreneurs who revolutionized the airlines by implementing a different idea.

mw December 21, 2012 at 10:26 am

This makes it sound like the idea peddlers are just sitting ready with their stock of ideas waiting for the opportunity to implement them, which pushes back the question to what governs the incentives of the idea peddlers? What theory explains why the heritage foundation turned on their own health policies when Obama embraced most of them?

JWatts December 21, 2012 at 10:46 am

“What theory explains why the heritage foundation turned on their own health policies when Obama embraced most of them?”

a) the Heritage foundation isn’t monolithic and the people from 20 years ago aren’t necessarily the people today
b) the Heritage proposals never got complete buy in from the Right in the 1990’s, in any case and
c) Obamacare was much broader than any Heritage proposal from the time period.

Andrew' December 21, 2012 at 12:18 pm

Enough.

Maybe it’s because the band-aid to force people to pay ostensibly for emergency care when a government law forces people to pay their way was poisoned by the rest of Obamacare.

Or maybe it was just a dumb idea to begin with. I’d bet it’s not the only thing Heritage said that I think is dumb, it’s just the only one you know of.

Andrew' December 21, 2012 at 12:20 pm

If you want me to sign something saying that I’ll pay for my own emergency care or pay into the fund that compensates hospitals for being forced by government to provide emergency services, then that’s fine. Still wrong, but understandable. If you want that to mean that I support the rest of Obamacare that is horse shit.

mulp December 21, 2012 at 5:18 pm

The free market solution would be to sign a statement saying that if you fail to pay for any medical bills, the doctor, hospital, or their agent will take possession of your body and do whatever is required to pay the bills including slavery and selling your body parts after being humanely euthanized.

That how it works if you don’t pay the bills for your car or your house repairs.

DocMerlin December 21, 2012 at 10:28 am

“3. Why do some wasteful policies get repealed (for example, airline rate and route regulation) while others endure (such as sugar subsidies and tariffs)?”

You saw what happened, it took tireless and ideologically motivated work on part of a certain bureaucrat to remove it. It wasn’t academics that did it, heck at the time many academics said that “airline rate and route regulation” was a good thing. (They claimed airlines were a game with a hollow core.)

You can always find an academic willing to shill for your side. What matters is if you can find someone with power, who is ideologically motivated enough to go against their financial interests and fight for your side.

mulp December 22, 2012 at 2:53 am

One can hardly argue the deregulation of the airlines has been good for the airlines.

Airlines are capital intensive, but the aircraft makers are so desperate to sell planes since the government no longer props them up with massive government spending, so loans are made to buy the planes. Loans that are highly leveraged, so regularly the airlines have gone bankrupt, with the shareholders, banks, pension funds, aircraft makers losing their capital investment in the airline debt.

And along the way, governments have bailed out the airlines, the aircraft makers, and the bankers over and over.

Workers have taken big hits along the way too.

Meanwhile, passengers have fewer options for travel, as a matter of policy. While huge subsidies for airports are made by all levels of government, the same isn’t true for train or bus terminals. Subsidies to provide air access to communities that otherwise have no other public transport are common.

The air craft industry has been consolidated into several major makers who rely heavily on government spending to support their innovation and investing, and that they go to for ensuring loans can be floated when times are tough.

The airline industry has also been consolidated to eliminate competition, but not enough to keep the industry out of trouble.

The air travel and cargo market is like any utility – its strength comes from providing universal service, but universal service requires subsidizing many customers to create the network effect that produces the maximum utilization and profit for the entire system.

My guess is that without the subsidies provided by governments, only 50 to maybe 100 airports would have enough passenger traffic retain passenger service.

JWatts December 21, 2012 at 11:03 am

“Madmen, Intellectuals, and Academic Scribblers.”

Ouch $30! Can I just get Madmen for $10 on my kindle?

JWatts December 21, 2012 at 11:05 am

If it was good enough, I’d be willing to pick up Intellectuals and then Academic Scribblers for another $10 each.

Dale December 21, 2012 at 2:35 pm

“Why do some wasteful policies get repealed (for example, airline rate and route regulation) while others endure (such as sugar subsidies and tariffs)?”

Your book may indeed help explain things like this. But the wording is curious. “Wasteful” policies presumably refers to policies that do not pass a potential Pareto improvement test. There are few policies that are clearly Pareto inferior – where everybody can be made better off and nobody worse off. Almost always, there are winners and losers and it may be common for the winners to gain more than the losers lose – but compensation is rarely part of the deal. Thus, the explanation for why some changes are made, and others are not, becomes a political or sociological matter (and economists may have contributions to make here). I do object to the lack of questioning of “wasteful” as if it is self-evident that these policies are wasteful. I was never a fan of airline regulation, but it was only wasteful in a potential Pareto sense, not a Pareto sense. Perhaps if more policy proposals included real compensation, policy change would be facilitated.

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