13 September 2011

The Need for Democratic Institutional Imagination

Dani Rodrik has just published this Op-Ed in which he chastises elites in countries with developed economies for lacking "institutional imagination." I could hardly agree more with that broad charge. (Rodrik, by the way, is apparently yet another economist who seems to think - if only tacitly here - that Robert Barro's recent pro-austerity ideological manifesto is wrongheaded.) But I am not persuaded by Rodrik's proposal for an "independent" fiscal policy board to help depoliticize current fiscal dynamics. The proposal is anti-democratic (as are central banks). On this I rely on William Keech's under-appreciated but indispensable Economic Politics Cambridge UP, 1995.* As is usually the case, I read much of the "news" on macro-economic policy through the very useful prism that Bill Keech provides.

There are at least two relevant factors here. The first is that (as Keech establishes) there is no reason to think that the basic distortions in macro-economic policy emerge from the demands of an irresponsible, opportunistic, venal citizenry. The problem seems to reside instead with our venal and irresponsible political and economic elites. Maybe the evidence has changed remarkably since Keech's study appeared. I doubt it. The second factor is that we cannot presume that any such board would proceed in an apolitical, technocratic manner. It will not be any more apolitical than its membership and those who appoint the membership. Think Alan Greenspan, for instance. And ask why the Fed is so beholden to markets and preoccupied with price stability while being more or less resolutely unresponsive to matters of unemployment. (On this I recommend Alan Blinder's old Central Banking in Theory & Practice among other sources that raise that question). It will not be technocratic because, among other things, there is (and here again I am relying on Keech) there is no precise economic knowledge that can be applied in a social engineering sort of way to this problem.

What we require, in other words, is not just a more robust institutional imagination but a more robustly democratic imagination. One good place to start would be Keech's own reflections on accountability in the macro-economic policy-making process. What we need is more, and more effective, democracy not less. And the sort of board Rodrik proposes would, I am pretty confident, give us considerably less.
* You can link to a recent conference paper in which Bill updates his argument in light of the current depression here.

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