May 12, 2011

PESKY VOTERS:

Economists and Democracy (Dani Rodrik, 5/11/11, Project Syndicate)

I have been presenting my new book The Globalization Paradox to different groups of late. By now I am used to all types of comments from the audience. But at a recent book-launch event, the economist assigned to discuss the book surprised me with an unexpected criticism. “Rodrik wants to make the world safe for politicians,” he huffed. [...]

My discussant found it self-evident that allowing politicians greater room for maneuver was a cockamamie idea – and he assumed that the audience would concur. Remove constraints on what politicians can do, he implied, and all you will get are silly interventions that throttle markets and stall the engine of economic growth.

This criticism reflects a serious misunderstanding of how markets really function. Raised on textbooks that obscure the role of institutions, economists often imagine that markets arise on their own, with no help from purposeful, collective action. Adam Smith may have been right that “the propensity to truck, barter, and exchange” is innate to humans, but a panoply of non-market institutions is needed to realize this propensity.

Consider all that is required. Modern markets need an infrastructure of transport, logistics, and communication, much of it the result of public investments. They need systems of contract enforcement and property-rights protection. They need regulations to ensure that consumers make informed decisions, externalities are internalized, and market power is not abused. They need central banks and fiscal institutions to avert financial panics and moderate business cycles. They need social protections and safety nets to legitimize distributional outcomes.

Well-functioning markets are always embedded within broader mechanisms of collective governance. That is why the world’s wealthier economies, those with the most productive market systems, also have large public sectors.

Once we recognize that markets require rules, we must next ask who writes those rules. Economists who denigrate the value of democracy sometimes talk as if the alternative to democratic governance is decision-making by high-minded Platonic philosopher-kings – ideally economists!


In the kingdom of the economists, is the one-armed economist the king?


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Posted by at May 12, 2011 2:41 PM
  

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