Democracy in Deficit: The Political Legacy of Lord Keynes

Foreword

Richard E. Wagner

The analytical core of the argument in
Democracy in Deficit is simple and straightforward. Indeed, the argument is perhaps the single most persuasive application of the elementary theory of public choice, which focuses primary attention on the incentives faced by choosers in varying social roles.

Richard Wagner and I did not sense any purpose of the book beyond that of laying out the elementary propositions along with the implications. Wagner, as colleague and coauthor, was helpful in placing the concept into its history-of-ideas context, and in his continued insistence that even the simplest arguments must be elaborated to be convincing to skeptics.

Neither Dick Wagner nor I suffer fools gladly, but without our mutually enforcing constraints, a book by either of us would have surely lapsed too readily into polemics.

Preface

The
economics of Keynes has been exhaustively discussed, in the popular press, in elementary textbooks, and in learned treatises. By contrast, the
politics of Keynes and Keynesianism has been treated sketchily and indirectly, if at all. This is surprising, especially in the light of accumulating evidence that tends to support the hypotheses that may be derived from elementary analysis. Our purpose is to fill this void, at least to the extent of initiating a dialogue. We shall advance our argument boldly, in part because our central objective is to introduce a different aspect of Keynesianism for critical analysis. Those who feel obligated to respond to our prescriptive diagnosis of economic-political reality must do so by taking into account elements that have hitherto been left unexamined.

The book is concerned, firstly, with the impact of economic ideas on political institutions, and, secondly, with the effects of these derived institutional changes on economic policy decisions. This approach must be distinguished from that which describes orthodox normative economics. In the latter, the economist provides policy advice and counsel in terms of preferred or optimal results. He does not bother with the transmission of this counsel through the processes of political choice. Nor does he consider the potential influence that his normative suggestions may exert on the basic institutions of politics and, through this influence, in turn, on the results that are generated. To the extent that observed events force him to acknowledge some such influence of ideas on institutions, and of institutions on ideas, the orthodox economist is ready to fault the public and the politicians for failures to cut through the institutional haze. Whether they do so or not, members of the public “should” see the world as the economist sees it.

We reject this set of blindfolds. We step back one stage, and we try to observe the political along with the economic process. We look at the
political economy. The prescriptive diagnosis that emerges suggests disease in the political structure as it responds to the Keynesian teachings about economic policy. Our specific hypothesis is that the Keynesian theory of economic policy produces inherent biases when applied within the institutions of political democracy. To the extent that this hypothesis is accepted, the search for improvement must be centered on modification in the institutional structure. We cannot readily offer new advice to politicians while at the same time offering predictions as to how these same politicians will behave under existing institutional constraints. By necessity, we must develop a positive theory of how politics works, of public choice, before we can begin to make suggestions for institutional reform.

In our considered judgment, the historical record corroborates the elementary hypotheses that emerge from our analysis. For this reason, we have found it convenient to organize the first part of this book as a history of how ideas developed and exerted their influence on institutions. We should emphasize, however, that the acceptability of our basic analysis does not require that the fiscal record be interpreted in our terms. Those whose natural bent is more Panglossian may explain the observed record differently, while at the same time acknowledging that our analysis does isolate biases in the fiscal decision processes, biases which, in this view, would remain more potential than real.

Some may interpret our argument to be unduly alarmist. We hope that events will prove them right. As noted, we are pessimistic about both the direction and the speed of change. But we are not fatalists. This book is written in our faith in the ability of Americans to shape their own destiny. We hope that the consequences predicted by the logic of our argument will not, in fact, occur, that our conditional predictions will be refuted, and that institutions will be changed. Indeed, we should like to consider this book to be an early part of a dialogue that will result indirectly in the destruction of its more positive arguments. We offer our thoughts on Keynesianism and the survival of democratic values in the hope that our successors a century hence will look on the middle years of the twentieth century as an episodic and dangerous detour away from the basic stability that must be a necessary element in the American dream itself.

Our analysis is limited to the impact of Keynesian ideas on the United States structure of political decision making. The “political legacy” in our subtitle should, strictly speaking, be prefaced by the word “American.” We have not tried to incorporate a discussion of Keynesian influences on the political history of other nations, notably that of Great Britain. Such a discussion would be valuable in itself, and the comparative results would be highly suggestive. But this extension is a task for others; we have chosen explicitly to restrict our own treatment to the political economy that we know best.

Acknowledgments

Many of the ideas developed in this book have been recognized by many persons for many years, and these have been hinted at in various passing references. We have, ourselves, lived with these ideas for many years, and one of us has a draft of a speech written as early as the middle 1950s which contains in very general terms much of what we say here. Many of the ideas themselves are not, therefore, new or novel. Instead, they are ideas whose time has come. Our efforts here are motivated by the conviction that purpose may now be served by extending these ideas more fully and by presenting them systematically.

Specific acknowledgments are limited to those who have been helpful in bringing this book into being. We are directly indebted to our colleagues and graduate students who have been exposed to various aspects of our argument and who have made helpful comments. Among our colleagues at the Center for Study of Public Choice, we should especially note the assistance of Victor Goldberg, Nicolaus Tideman, and Gordon Tullock. We also acknowledge the helpful comments of Thomas Borcherding, of Simon Fraser University; Fred Glahe, of the University of Colorado; James Gwartney, of Florida State University; and Robert Tollison, of Texas A&M University.

This book emerged as part of the continuing research program of the Center for Study of Public Choice, which provided the facilities for our efforts. Work on this book was also greatly facilitated by Liberty Fund, Inc., of Indianapolis, Indiana, which incorporated the effort into its overall program, directed toward study of the ideals of a free society. Some of our research was also supported by the Ford Foundation. Peripheral inputs into our own thinking during the final stages of the writing were provided by the participants in a Liberty Fund conference, “Federal Fiscal Responsibility,” at Hot Springs, Virginia, in March 1976. The papers and discussion of this conference will be published separately.

Mrs. Betty Ross provided the clerical assistance that has by now come to be expected and without which our manuscript production would probably grind to a screeching halt.