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How Laws Are Passed, Maintained, and Changed

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Madmen, Intellectuals, and Academic Scribblers: The Economic Engine of Political Change by Wayne A. Leighton and Edward J. Lopez (Stanford Economics and Finance 2013), 209 pages.

Have you ever wondered why democracies so often generate public policies that are wasteful and unjust? Have you asked why such policies persist over long periods, even when they are known to be harmful and better policies exist? And if you’ve pondered those questions, do you want to understand why, on rare occasions, bad policies get repealed, while most of them remain untouchable?

Congratulations. If you have entertained those questions, or now see that they are worth entertaining, this is a book you must read. In Madmen, Intellectuals, and Academic Scribblers, economics professors Wayne Leighton (Universidad Francisco Marroquin) and Edward Lopez (Western Carolina University) take readers on an intellectual journey in search of the answers. The authors explain the connection between ideas, the “products” of the academic scribblers of their title, and the political actions that turn them into laws — and sometimes into ex-laws.

Starting with the first question above, why do democracies often produce bad public policies? The authors find the key to the explanation in what might seem a surprising place, namely John Maynard Keynes’s most famous book, The General Theory of Employment, Interest, and Money. No, not the book’s macroeconomic nonsense and its advocacy of government countercyclical fiscal policy, but instead a line that Keynes tossed in at the very end of the book, on how “madmen in authority” usually take their guidance, unwittingly, from “academic scribblers” in the past.

Leighton and Lopez state the point this way: “The ideas of academic scribblers might originate in ivory towers, but they become concrete and influential as they work their way down to shape what broader circles of people believe. Madmen in authority might speak to the masses in everyday language, but whether they know it or not, the depth of their message was penned by some bygone academic.”

Keynes himself was one of those academic scribblers. So, in a sense, was Karl Marx (though not formally). So were the American “Progressives” who argued circa 1900 that the government had to play a dominant role in education, in money and banking, in controlling competition, and so forth. But their ideas would have merely gathered dust in seldom-read books and journals if it weren’t for intellectuals.

Here, Keynes’s great antagonist, F.A. Hayek, enters the narrative. He explained that the ideas produced by scholars (not all of whom should be denigrated by calling them “scribblers”) are ineffectual unless they are popularized and disseminated by intellectuals, whom he referred nonperjoratively to as “second-hand dealers in ideas.” Intellectuals sort through the ideas of scholars and spread those they like and try to squelch those they don’t. For example, why do so many Americans, politicians and voters, believe that “stimulus spending” is necessary to “get the economy going” after a recession? It is because intellectuals keep telling them that this Keynesian idea is true.

One of the biggest of those academic ideas of the past century is the belief that markets often fail; that they lead to unsatisfactory results for society because they tend to underproduce social goods (such as education) and overproduce social bads (such as smoking). Government, however, can step in to correct those failures, argued many academics, beginning with British economist A.C. Pigou.

As intellectuals spread the idea that markets were defective but could be fixed by wise government policies, politicians had an apparently sound reason for enacting a great many policies that sounded good but actually were harmful and unjust. Labor markets, for instance, were said to be unfair to workers who had little “bargaining power” and therefore government had to intercede with minimum-wage laws and pro-union policies. The trouble, of course, is that few people can see past the superficial attractiveness of such policies to grasp the damage they do to many individuals in the labor market.

Exactly why so many public policies turn out to be harmful and unjust was explained by economists who came up with a very different set of ideas from those of the interventionists — the Public Choice school. The authors give their readers a detailed account of the rise of the small number of economists who, starting in the early 1960s, explored how government really works, not how most academic scribblers thought it should work. Even if we accept the idea that the results of free markets aren’t always ideal, what about the possibility that government action will make things worse? What if we drop the assumption that the political process is geared to advance “the public interest” and assume instead that politicians will pursue whatever they think is in their own interest?

Public Choice theory is still relatively little known, at least in part owing to the general hostility of intellectuals who are wedded to big-government utopianism. When James Buchanan, one of the Public Choice founders, won the Nobel Prize in economics in 1986, his award was scorned by many of second-hand dealers in ideas who were unhappy that someone who challenged their cherished notions about government benevolence had been honored. To this day you will rarely see any acknowledgement from writers at our leading newspapers and magazines that democracy often has perverse results. The way our intellectuals have largely smothered the ideas of Public Choice is a good illustration of the power they have.

Persistence and loose spots

Public Choice not only explains why we have so many bad policies, but it also answers the authors’ second question — why do they persist?

The short answer is that some set of people gains from whatever the government does. Many laws come about because interest groups have allied themselves with powerful politicians to obtain some benefit they could not have gotten (or at least couldn’t have gotten so inexpensively) through voluntary means. The gains to the members of the interest group are large, while the costs are widely dispersed throughout society. Furthermore, there is an asymmetry of knowledge at work: the beneficiaries know about the policy that favors them and how to work the system to keep it going, while the people who are harmed by it usually are unaware even of its existence.

Government policies to limit imports of sugar are a good illustration. For decades, the government maintained quotas on imported sugar to boost the profits of domestic sugar producers. It has long been known that that raises prices for consumers and drives producers who use a lot of sugar inputs out of the country, thus making many relatively poor people worse off. But those costs are widely dispersed and hidden among unorganized consumers.

That brings us to the third question — why are bad policies sometimes overturned? Leighton and Lopez write, “The opportunity for reform emerges in specific issues or policies, in particular times and in particular places. In our language, a ‘loose spot’ emerges in the nexus of ideas, institutions, and incentives. It becomes possible for a new idea to overcome the vested interests. But this possibility must first be noticed by alert people in the society. In short, political change happens when entrepreneurs notice and exploit those loose spots.”

The authors give several cases to show their theory at work, among them the case of airline deregulation.

The stories Leighton and Lopez tell (and always with gusto, I must add — the book is filled with fun facts and clever writing) include the shift from government licensing of frequencies in the electromagnetic spectrum to auctioning them to the highest bidder (Ronald Coase was the “scribbler” most responsible for that change), welfare reform in the 1990s (for which Daniel Patrick Moynihan and Charles Murray get the most credit) and the housing bubble and resulting financial crisis (where, alas, no idea entrepreneur has yet gotten anywhere in dismantling the ugly array of policies and organizations responsible for the housing boom).

The authors are right about the crucial role ideas play in government for good and for ill. Mostly for ill, though — the deck seems stacked in favor of authoritarian, meddlesome ideas rather than truly liberal, laissez-faire ideas. Just as it is easy for a person to get into bad habits but hard to break them, so is it easy for a society to fall into bad, unjust, harmful policies. Creating the Federal Housing Administration, Fannie Mae, and Freddie Mac, for example, was politically easy, but no one has yet gotten anywhere in eliminating them. People who understand the need for change rarely find themselves in propitious circumstances.

Madmen, Intellectuals, and Academic Scribblers answers those three questions, but invites another: Is it possible to engineer the right conditions for political change? Do those of us who oppose the reigning statist order merely have to wait until the stars are in alignment for success in eliminating harmful and unjust policies? Or, now that Leighton and Lopez have shown that entrepreneurs of ideas need to find the “loose spots,” shouldn’t we look more diligently for means of identifying and exploiting them?

This article originally appeared in the October 2014 edition of Future of Freedom.

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    George C. Leef is the research director of the George C. Leef is the research director of the Martin Center for Academic Renewal in Raleigh, North Carolina. in Raleigh, North Carolina. He was previously the president of Patrick Henry Associates, East Lansing, Michigan, an adjunct professor of law and economics, Northwood University, and a scholar with the Mackinac Center for Public Policy.