Katrinanomics: The politics and economics of disaster relief

Hurricane Katrina revealed massive governmental failure at the local, state and federal levels. This commentary brings the modern theory of property rights and public choice reasoning to bear in explaining why officials failed to strengthen New Orleans's levee system despite forewarning of its weaknesses, failed to pre-deploy adequate emergency supplies as the storm approached landfall and failed to respond promptly afterwards. Its main lesson is that no one should have expected government to be any more effective when confronted with natural disaster than it is in more mundane circumstances.     

The war on poverty: between economics and politics

A wealth of solutions to poverty have been proposed, with little understanding of the forces required to turn a sound idea into an implementable program. A system approach is suggested to overcome this deficiency. This implies analyzing the effects of antipoverty measures on other elements of a society and a polity and the feedback effects of changes in these other elements on the new programs which are being introduced. Such an approach is seen overcoming the limitations of fragmented views of the issue—such as the purely economic one—as well as the lack of systematic analysis of a progam's costs, benefits, sources of funds, and nonfinancial resources. Consequently, a challenge is also offered to those who formulate programs without taking into account dominant values (e.g., questions of consensus) and other political considerations (e.g., which groups would benefit or suffer from the program). This is seen as leading to undemocratic action or, most frequently, to inaction due to resistance. The article concludes with a brief review of the recent Nixon-Moynihan proposal in terms of the societal-system approach here advocated, and adds a cautionary note on the limits of planning.In revising this article, I benefited from comments by Daniel Bell, Carolyn O. Atkinson, and Sarajane Heidt.     

The interaction between economics and politics: modelling cycles

Abstract. In this article simulation results are used to analyze the capacity of a general politico-economic model, developed by one of the authors, to generate cycles of various lengths. The model describes behaviour of individuals and organizations in the economic as well as the political sphere. The interaction between both spheres gives rise to short term (business) cycles as well as long term (Kondratieff) cycles. The analyses concentrate on the effect variations in the political sector (regarding, e.g., party identification on non-economic grounds, the sensitivity of voters, and the discount parameter for past economic results) have on the cycles found.     

Robert D. Tollison and the economics of politics

This paper tracks economists’ rising, yet elusive and unstable interest in collective decision mechanism after World War II. We replace their examination of voting procedures and social welfare functions in the 1940s and 1950s in the context of their growing involvement with policy-making. Confronted with natural scientists’ and McCathythes’ accusations of ideological bias, positive studies emphasizing that collective decisions mechanisms were unstable and inefficient, and normative impossibilities, economists largely relied on the idea the policy ends they worked with reflected a “social consensus.” As the latter crumbled in the 1960s, growing disagreement erupted on how to identify and aggregate those individual values which economists believed should guide applied work, in particular in cost-benefit analysis. The 1970s and 1980s brought new approaches to collective decision: Arrow’s impossibility was solved by expanding the informational basis, it was showed that true preferences could be revealed by making decision costly, and experimentalists and market designers enabled these mechanisms to be tested in the lab before being sold to those public bodies looking for decision procedures that emulated markets. In this new regime, the focus paradoxically shifted to coordination, revelation and efficiency, and those economists studying collective decision processes were marginalized.     

The politics and economics of revenue growth: A cross-national analysis

Abstract Despite considerable interest in comparative fiscal policy in general, and the high salience of tax policy and tax reform in the industrialized democracies, there are relatively few cross–national studies of the economic and political correlates of revenues over time. We undertake a cross–national time series study of revenue growth in fourteen OECD countries between 1958 and 1990.We test a number of political and economic hypotheses about revenue change, including political business cycle, 'fiscal illusion', elasticity, and ideological theories. For the 1958—1990 period, we find that all countries, regardless of revenue structure, experience higher real revenue growth as a result of inflation, but that revenue growth is more responsive to unemployment in countries that rely more on direct taxes compared to countries with less direct–tax reliance. We find that this effect is most pronounced in the post–1972 period. We also find that revenue tends to increase in the years following elections, consistent with the idea that governments try to minimize the political fallout from tax increases by separating them as much as possible from election campaign periods; this effect, too, is most pronounced in the post–1972 period. We find no support for 'fiscal illusion' and ideological theories of revenue growth.     

The politics of mortgage credit expansion in the small coordinated market economies

Abstract

Recent contributions to the comparative political economy literature claim that liberal market economies are vulnerable to asset booms and busts because of financial deregulation, shrinking welfare states and a political ideology emphasising financial self-sufficiency. This article examines the rapid expansion of mortgage lending in three coordinated market economies (CMEs): Denmark, Sweden and the Netherlands. This expansion is puzzling given that all three countries are CMEs with generous welfare states. Yet the pattern of mortgage lending resembles the Anglo-Saxon or liberal market economies (LMEs) more than other CMEs. The article argues that mortgage bubbles in the small CMEs emerged as the unintended outcome of pairing neoliberal programmes to expand home ownership with collectivist housing institutions. This resulted in supply restrictions and rising property values which saddled households with extraordinarily high mortgage debts. In short, mortgage credit bubbles are not unique to Anglo-liberal welfare states and may have different origins.     

Reversal of fortune: the politics and economics of the superconducting supercollider

Congress approved the superconducting supercollider (SSC), but later cut all funding after construction for the project had begun. We claim that this reversal was due, in part, to a problem of time inconsistency. Representatives from states in contention to receive the project had an incentive to support it early in the process. Once Texas was chosen as the SSC site, the other contender states had a greatly diminished incentive to continue to support it. Our empirical results show that the probability of switching from ‘for’ to ‘against’ the project is significantly higher for representatives from the former contender states.     

Passions and interests revisited: the psychological foundations of economics and politics

Homo Politicus, Homo Oeconomicus. Can these two abstract human types meaningfully be distinguished? Is there a characteristic set of motivations that drive human beings in so far as they are political actors and a different set that drive their economic lives? What are the psychological foundations of economics and politics? The answers to these questions have significant implications both for the study and the practice of economics and politics. If homo politicus is essentially identical to homo oeconomicus, it is safe to generalize from the study of economic behavior to political phenomena. If not, such a procedure will distort our understanding of politics. Similarly, if we design political institutions and public policies assuming that people will behave as they do when they confront economic choices, we may find our intentions thwarted if we have neglected the distinctive motivations characteristic of political action.     

Varieties of Limited Access Orders: The nexus between politics and economics in hybrid regimes

This article advances our understanding of differences in hybrid stability by going beyond existing regime typologies that separate the study of political institutions from the study of economic institutions. It combines the work of Douglass North, John Wallis, and Barry Weingast (NWW) on varieties of social orders with the literature on political and economic regime typologies and dynamics to understand hybrid regimes as Limited Access Orders (LAOs) that differ in the way dominant elites limit access to political and economic resources. Based on a measurement of political and economic access applied to seven post‐Soviet states, the article identifies four types of LAOs. Challenging NWW's claim, it shows that hybrid regimes can combine different degrees of political and economic access to sustain stability. Our typology allows to form theoretical expectations about the kinds of political and/or economic changes that will move different types of LAOs toward more openness or closure.     

The politics of unemployment: Rates of unemployment and labour market policy

This article analyses the claims advanced by Robert McKenzie about the distribution of power in British political parties. It considers McKenzie's mode of analysis (with particular reference to Labour), his definition of terms, selection of evidence and interpretation of it. The major argument is that McKenzie over‐generalised from the events of the 1950s and 1960s and that subsequent events have severely undermined his thesis.     

The politics and economics of pork barrel spending: The case of federal financing of water resources development

This paper empirically investigates the economic and political factors that have influenced annual Corps of Engineers water resource spending. Despite the common view that “pork barrel” spending is economically unjustified and purely politically motivated, economic factors have been important in determining water resource spending. From 1865–1920, economic development and industrialization increase spending, and from 1921–1988, spending appears to be counter-cyclical. There is also evidence that majority parties control spending levels in the post-Civil war period, while in recent times, legislators act under a norm of “constrained universalism” and are influenced by the costs to their constituents of increased spending.     

When market and territory collide: Thatcherism and the politics of regional decline

This article examines the politics of regional economic decline in two British administrative regions since 1979. Variations in economic problems and in government policy have combined with the presence or absence of indigenous resources to produce distinctive responses by groups and organisations in these regions. The findings highlight the strong influence of government policy in structuring the options for regional groups, as well as the mediational role played by regional civil servants. The politics of territory is alive and well in Britain, although it occurs within well‐defined parameters set largely by central government.     

The social cost of trading: Measuring the increased damages from sulfur dioxide trading in the United States

The sulfur dioxide (SO₂) cap and trade program established in the 1990 Clean Air Act Amendments is celebrated for reducing abatement costs ($0.7 to $2.1 billion per year) by allowing emissions allowances to be traded. Unfortunately, places with high marginal costs also tend to have high marginal damages. Ton‐for‐ton trading reduces emissions in low damage areas (rural) while increasing emissions in high damage areas (cities). From 2000 to 2007, conservative estimates of the value of mortality risk suggest that trades increased damages from $0.8 to $1.1 billion annually relative to the initial allowance allocation and from $1.5 to $1.9 billion annually relative to a uniform performance standard. With U.S. Environmental Protection Agency (USEPA) values, trades increased damages from $2.4 to $3.2 billion annually compared to the initial allowance allocation and from $4.4 to $5.4 billion compared to a uniform performance standard. It is not clear that the ton‐for‐ton SO₂ cap and trade program is actually more efficient than comparable command and control programs. The trading program needs to be modified so that tons are weighted by their marginal damage. © 2011 by the Association for Public Policy Analysis and Management.     

The big,bad wolf and the rational market: portfolio insurance,the 1987 crash and the performativity of economics

This article distinguishes two meanings of the performativity of economics, a thesis advanced by Michel Callon: ‘generic’ performativity, according to which markets and other economic relations are not to be taken as given, but as performed by economic practices; and ‘Austinian’ performativity, in which economics brings into being the relationships it describes. The two versions of performativity are explored by means of an examination of the history of portfolio insurance (a financial-market technique based on the economics of option pricing), of the 1987 stock market crash, and of subsequent efforts to diagnose the causes of the crash and to redesign the market to avoid future catastrophe. The article emphasizes the extent to which the financial markets of high modernity are designed entities, and argues that the question of their design is always a political question, even if it is seldom recognized as such.