Madmen, Intellectuals, and Academic Scribblers: The Economic Engine of Political Change

Citation

Christopher Shultz (2015), "Madmen, Intellectuals, and Academic Scribblers: The Economic Engine of Political Change", Journal of Entrepreneurship and Public Policy, Vol. 4 No. 3, pp. 394-396. https://doi.org/10.1108/JEPP-09-2014-0037

Ideas and incentives drive change

Madmen, Intellectuals, and Academic Scribblers presents an alternative framework for the examination of political policy and change. Written by Wayne A. Leighton and Edward J. Lopez, the book begins by stating that: “Political change happens when entrepreneurs exploit loose spots in the structure of ideas, institutions, and incentives.” This quote sets the tone for the remainder of the reading, as each chapter is an examination of political structures from the perspective of ideas, institutions, and incentives.

Leighton and Lopez set off to answer three interrelated questions:

1. Why do democracies generate policies that impose net costs on society?

2. Why do such policies persist over long periods of time, even if they are known to be socially wasteful and better alternatives exist?

3. Why do certain wasteful policies eventually get repealed, while others endure?

The title of the book is explained in the preface, in which the authors argue that ideas, rules, and incentives are matched up with those who take political action: madmen in authority, intellectuals, and academics.

Chapter 1 begins with a seemingly unrelated example. The authors tell the story of a college basketball game which set the stage for a significant change in the status quo. Incentives were strong for coaches and players to play “keep away” once the score was to their advantage. This led to disgruntled fans and reduced attendance. Despite the fact that coaches around the country hated the idea, a 35-second shot clock was introduced in an effort to keep teams from holding the ball for too long. This led to happier fans and a rise in the popularity – and profitability – of college basketball.

The motivation for telling this story is to illustrate that coaches, players, and administrators are motivated by incentives. Their behavior is highly dependent on the rules of the game. With the examination of the aforementioned change in the rules, the authors reveal that this is an ideal look into the way incentives shape strategies, behaviors, and tactics. The rules for politics are no different. Individuals, politicians, bureaucrats and corporations are driven by incentives.

Using the previous example, the authors develop the idea that the status quo is not some random occurrence but actually the aggregate result of many individual decision-makers, all driven by their own set of incentives. There are vested interests that benefit from the status quo rules. These incentives are built into the foundation of our institutions. Making significant political change means tearing away at the “institutional fabric” that people are comfortable with, and resistance seems only natural.

Using the theoretical background of Friedrich Hayek, John Stuart Mill and John Maynard Keynes, the authors make the case that political change is most likely to occur when the madmen in authority (politicians, lawmakers) have a strong incentive to oppose the status quo and adopt new ideas.

Chapter 2 takes an in-depth look into the world of philosophers. The idea is to consider the “why” in addition to the “how.” This allows the reader to examine some of the timeless questions about some of the normative issues in political economy. The goal is to retain the implications for the identification and implication of “good” rules within society. The chapter contains examples from a large range in time, the most influential of which being the American Progressives. The progressives changed the landscape of political economics with their egalitarian philosophy. Their main push was for government to represent the general welfare, not simply the protection of individual rights. This can be seen in modern politics as those with progressive thought battle in debate against those with a more individualistic viewpoint.

The authors then examine the relationship between modern economic theory and efficiency in government. This begins a discussion of neo-classical welfare economics, which includes the discussion of government intervention in cases which traditional markets fail. Beginning with an example from the life of economist Robert Tollison, this chapter takes a look into the lives and ideas of many prominent economists including Paul Samuelson, James Buchanan, Alfred Marshall, Friedrich Hayek and more. This allows the reader a relatively comprehensive overview of government efficiency and philosophy, provide an appropriate stage for transition into the examination of public choice theory.

Chapter 4 provides an overview of public choice theory – the idea that economists should examine a unified theory of decision making – bridging the gap between commercial and political decisions. Public choice economists argue that an examination of market failure warrants a parallel examination of government failure. Buchanan’s foundations of public choice theory are identified with three “presuppositions” about politics: methodological individualism; rational choice; and politics-as-exchange. This leads into a discussion of voting systems, interest groups, regulations and Tullock’s transitional gains trap, which identifies the need to compensate the “losers” in a policy change if possible, and the only way to avoid this is not to enact the offending policy in the first place. Despite the air of negativity toward government failure in this chapter, the authors provide a restorative note in closing, by noting that public choice should be taken as one approach to social science that offers a realistic account of order as well as a hopeful course for political reform.

Chapter 5 attempts to begin where public choice theory leaves off, answering the question of why some policies get repealed and others do not. It does this by presenting a framework for political change. The authors summarize this framework using four points:

1. incentives determine people’s behavior;

2. institutions frame incentives;

3. ideas influence institutions when “outward circumstances” become favorable; and

4. entrepreneurs make change happen.

This is an expanded representation of the quote at the beginning of the book. “Political change happens when entrepreneurs exploit loose spots in the structure of ideas, institutions, and incentives.” This seems to be the authors’ driving focus, and they use Chapter 6 to present real-world illustrations of this statement.

Four case studies were examined regarding political change. The most powerful being that of the housing crisis from 1997 to 2006. It is an illustration of the negative impacts that can emerge when – as stated by the authors – unproductive entrepreneurship becomes systemic. This was the simple result of each individual within the system responding rationally to the circumstances they faced: optimistic investments, low mortgage rates, and many others. The rules to home ownership changed over time, which changed the rules of each actor. A textbook example of market failure.

To close the book, the authors take an in-depth look at the role of political entrepreneurs, the end results of their actions, and some real examples of political entrepreneurship. One such example is that of the MacArthur Foundation’s “Genius Grant,” which essentially provides fellowships to extraordinary individuals in order for them to pursue their ideas. The return on this investment is that the recipients have the ability to make a favorable impact on the human condition through the advancement of their field. This chapter is likely to be of primary interest to the readers of JEPP. They end with a particularly powerful quote by Hayek (1967):

We must make the building of a free society once more an intellectual adventure, a deed of courage.

In conclusion, this already highly regarded book presents an interesting and unique perspective on the thoughts and ideas that shape the politics and economics unfolding in modern times. The framework presented also provides an excellent path through which to examine the historical unfolding of politics, policy, and economics. I recommend this book to anyone from the interested consumer to the economics PhD. This book would be especially useful to “academic scribblers” as an alternative framework for the examination of political economics.