political entrepreneurs

Thanks again to Alex and Tyler for having me as a guest blogger this week. It has been a pleasure sharing thoughts with you about ideas, fashion, and politics.

My last nugget for the week is about how market and political entrepreneurs learn differently from failure. Market entrepreneurs learn from the relentless forces of profit and loss. They even host conferences and websites where they speak openly about their failures. In part because political entrepreneurs lack the same signals of profit and loss, this type of learning does not happen to the same extent in political markets. My co-author Wayne has further analysis on our blog.

Following up on my post from yesterday, the Civil Aeronautics Board (CAB) regulated U.S. airline rates and routes from the 1930s through the 1970s. It also kept mountains of data. Aspiring Ph.D. candidates found worthy dissertation material from the agency’s files. The research lent support to an important idea—regulation was failing in this market—but no one listened to these young academic scribblers.

By the early 70s, an established academic produced a groundbreaking treatise arguing for sensible regulation. Alfred Kahn would soon make the jump from academic to regulator—of public utilities in the State of New York, not airlines.

By the mid-1970s, criticism of airline regulation had moved from academics to economists in think tanks (Brookings, AEI) and in government. At an economic conference on inflation convened by the Ford Administration, the delegates focused unexpectedly on a different idea: existing regulations were producing high prices. Yet as every economist in Washington knows, many reform ideas never become policy. Then came the political entrepreneurs.

First, Senator Ted Kennedy. An ambitious member of the Senate Judiciary Committee and chairman of the subcommittee on administrative procedure, Kennedy saw an opportunity to attack the over-regulated and under-competitive airline industry by critically examining the rules it played by.

Most judiciary subcommittee hearings were mind-numbingly boring, but airlines were sexy, and Kennedy turned the CAB hearings into high theatre, trotting out real but outrageous examples. A flight from Los Angeles to San Francisco (intrastate and thus not CAB-regulated) cost half as much as a flight from Washington to Boston (interstate and CAB-regulated). Even the dimmest reporter could connect the dots. The CAB looked bad. Kennedy looked good, as did the odds for reform.

Then the Carter Administration tapped Kahn to run the CAB. He allowed “experiments” in price flexibility (Super Saver fares). He approved new routes. Eventually, he questioned the agency’s purpose. The CAB had to go. This meant Kahn had to sell a very big idea to the madmen in authority, the decision-makers in Congress.

An accomplished economist who dabbled in theatre on the side, Kahn played his role perfectly. The former academic scribbler was funny, smart, patient and on point. He was a master communicator with press and politicians alike.

Kahn built on Kennedy, who built on the work of intellectuals in Washington’s think tanks and policy circles, who in turn built on good academic research. Importantly, he found allies across the political spectrum, from the American Conservative Union to Common Cause, from business interests to consumer groups. This odd mix prevented easy dis­missal of reform as the pet project of the left, the right, or any special interest.

With passage of the Airline Deregulation Act of 1978, Congress closed the CAB and left behind an unprecedented example of radical reform. A better idea had made its way from academic scribblers, through the intellectuals and on to madmen in authority, who were compelled to act. Yet so much of the story hinges on the actions of Kennedy and Kahn—two very different individuals, two very effective political entrepreneurs.

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.