Alex Tabarrok assures me that one of my most under-rated papers is “The Idea Trap,” published in the June 2003 issue of the European Journal of Political Economy. In this paper, I set up a simple political-economic model with three variables: growth, policy, and ideas. The model is governed by three “laws of motion.” The first are near-tautologies:
1. Good policies cause good growth.
2. Good ideas cause good policies.
The third law is much less intuitive:
3. Good growth causes good ideas.
The inspiration for law #3 was my empirical finding that people with high income growth “think more like economists.”
These assumptions have an interesting implication: there exist “multiple equilibria” – one where growth, policy, and ideas are all good, and another where growth, policy, and ideas are all bad. I call the later “the idea trap,” because bad ideas sustain bad policy, bad policy sustains bad growth, and bad growth reinforces bad ideas. Implausible? Think about any of the world’s economic/political basket cases. How often do the people in those countries admit that their worldview is a failure, and humbly turn to their more successful neighbors? Not often. Or consider: When do crazy demagogues get the most serious hearings? In most cases, when a country is already going down the drain.
In any case, I was recently reading Whittaker Chambers’ Witness, and noticed that his story about communist conversions is directly relevant to my model:
[A] man does not, as a rule, become a Communist because he is attracted to Communism, but because he is driven to despair by the crisis in history through which the world is passing… In the West, all intellectuals become Communists because they are seeking the answer to one of two problems: the problem of war or the problem of economic crisis.
Think about the inter-war period. The problems of war and economic crisis loom large. So what happens in the world of ideas? People flock to a new viewpoint almost guaranteed to make both problems vastly worse! The effects of Communism on economic crisis are all too familiar: famine, chaos, slave labor camps. And of course any country that might go Communist is going to have a lot of trouble retaining domestic capital, much less attracting foreign investors.
The effect of Communism on war is less direct, but the history is pretty clear. The rise of Communism greatly increased the demand for Fascism in Italy and Nazism in Germany. By terrifying people, the Communists convinced many to hold their noses and support brutal dictatorships as an alternative. And by allying with Hitler against Poland in 1939, Stalin made Communism the junior sponsor of World War II.
My take: Bad ideas launched the bad policies of World War I, which in turn devastated Europe. The devastation in turn made people like Chambers embrace even worse ideas, leading to even worse policies, culminating in World War II. The only thing that surprises me is that the world ever recovered… but then again, in my model escapes from the idea trap are supposed to be random surprises.