Democracy in Deficit: The Political Legacy of Lord Keynes
<DIV>Democracy in Deficit is one of the early comprehensive attempts to apply the basic principles of public-choice analysis to macroeconomic theory and policy.
According to Robert D. Tollison in the foreword, The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest.
Democracy in Deficit opened the door for much of the current work on political business cycles and the incorporation of public-choice considerations into macroeconomic theory. Even in the area of monetarism, Buchanan s landmark work has greatly influenced the sway of contemporary theorists away from the nearly universally held belief of Keynesian theory.
Democracy in Deficit contributes greatly to Buchanan s lifelong fiscal and monetary rules to guide long-term policy in macroeconomics. The book serves to bolster Buchanan s central beliefs in the necessity of a balanced-budget amendment to the U.S. Constitution and in monetary rules rather than central bank discretion.
The book is co-authored with Richard Wagner, a respected colleague of Buchanan, whom Buchanan recognized as helping to keep the book free of polemics and on target with its central purpose of applying the elementary theory of public choice.
James M. Buchanan is an eminent economist who won the Alfred Nobel Memorial Prize in Economic Sciences in 1986 and is considered one of the greatest scholars of liberty in the twentieth century.
The entire series will include:
<p class="textbasic">Volume 1: The Logical Foundations of Constitutional Liberty
Volume 2: Public Principles of Public Debt
Volume 3: The Calculus of Consent
Volume 4: Public Finance in Democratic Process
Volume 5: The Demand and Supply of Public Goods
Volume 6: Cost and Choice
Volume 7: The Limits of Liberty
Volume 8: Democracy in Deficit
Volume 9: The Power to Tax
Volume 10: The Reason of Rules
Volume 11: Politics by Principle, Not Interest
Volume 12: Economic Inquiry and Its Logic
Volume 13: Politics as Public Choice
Volume 14: Debt and Taxes
Volume 15: Externalities and Public Expenditure Theory
Volume 16: Choice, Contract, and Constitutions
Volume 17: Moral Science and Moral Order
Volume 18: Federalism, Liberty, and the Law
Volume 19: Ideas, Persons, and Events
Volume 20: Indexes
About the Author
James M. Buchanan is an eminent economist who won the Alfred Nobel Memorial Prize in Economic Sciences in 1986 and one of the greatest scholars of liberty in the twentieth century. --This text refers to the Hardcover edition.
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Top customer reviews
This book is one of the first and best arguments anywhere for a balanced budget amendment to the Constitution. I was not persuaded by it but even those opposed to the arguments here will profit from understanding them better. Buchanan received a Nobel prize for his work, which has been quite influential. The argument here is made concisely in crisp and lucid prose refreshingly free of unnecessary jargon.
Buchanan and Wagner maintain that Keynes intellectually undermined what they think of as the effective "fiscal constitution" that had previously existed in the United States. This they describe as having been a broad bipartisan commitment to pay down, during normal times, any federal debt accumulated during wars and depressions. The authors acknowledge that Keynes himself never condoned budget deficits during healthy economic times. They even concede that Keynesian economics might work under a "truly benevolent despotism." Under democracy however, they insist that Keynes legacy has been the main reason we have had a seemingly permanent bias in public policy towards inflation and bigger government.
The main problem with this volume, and this argument, is not what it contains but what it leaves out. Public debt is discussed in nominal terms rather than the more relevant statistic which would be percent of GDP. No discussion is given to the fact that other governments had run up unmanageable debts for hundreds if not thousands of years before Keynes was born. No discussion is given to the fact that this is not a particular problem of democracy (as opposed to despotisms benevolent or not). Undemocratic regimes also struggle with public debt and inflation. No discussion is given to the fact that an increase in the size of government is, and always has been, a feature of countries with increasing wealth. As people become wealthier they tend to want more services of all types including government services. No discussion is given to the fact that, from roughly 1941 - 1966 broadly Keynesian policies were pursued in the U.S. with very good results.
Subsequent events make this volume (c1977) feel very dated. Ironically, as it turns out, it was published when U.S. debt to GDP was near its' post WWII low. Keynesian economics was widely believed to be discredited by the 70's stagflation. Keynesian influence was at its' low point when Reagan exploded the deficits with unprecedented borrowing in a time of peace and prosperity. It was supply side economics, not demand focused Keynesian economics, that was used as the intellectual justification for that. This in turn convinced the neocons that, in Dick Cheney's immortal words, "Reagan proved deficits don't matter."
Nevertheless, the idea that Keynes is responsible for the kind of endless deficit spending he always opposed is tirelessly kept alive by his friends and enemies alike. This volume is a very important part of that bizarre piece of intellectual history.
More important, however, is the authors' public-choice criticism of Keynesianism. The Keynesian doctrine of deficit spending provided the academic excuse for elected representatives to spend without taxing, thus removing the self-imposed discipline of balanced budgets that had existed prior to the adoption of Keynesian thinking (p. 4): "The legacy or heritage of Lord Keynes is the putative intellectual legitimacy provided to the natural and predictable political biases toward deficit spending, inflation, and the growth of government" (p. 26).
Keynesianism might perhaps work under a system of benevolent dictatorship, but not in a democratic setting with citizens who are both taxpayers and beneficiaries of public services, professional politicians, political parties and government bureaucracy (pp. 79-80). "Political decisions in the United States are made by elected politicians, who respond to the desires of voters and the ensconced bureaucracy. There is no center of power where an enlightened few can effectively isolate themselves from constituency pressures" (p. 98).
Elected public officials display a bias towards spending public funds on projects that yield tangible benefits to their constituents, and towards not encumbering them with a tax bill to pay for those projects. "The pre-Keynesian norm of budget balance served to constrain spending proclivities so as to keep governmental outlays roughly within the revenue limits generated by taxes. The Keynesian destruction of this norm, without an adequate replacement, effectively removed the constraint. Predictably, politicians responded by increasing spending more than tax revenues, by creating budget deficits as a normal course of events" (pp. 95-96).
Buchanan considers the argument of the book that in a democratic setting there is a bias towards deficit finance "perhaps the single most persuasive application of the elementary theory of public choice" (p. xv). Indeed, the reform proposals introduced, particularly the constitutional balanced budget amendment, are to be thought of as "rules...designed to constrain the short-run expedient behavior of politicians" (p. 9).
This is chronologically the first publication on public debt finance in the Collected Works series where Buchanan has proposed a constitutional balanced budget requirement (pp. 166, 183-184, 187-188). Buchanan, more than anyone else, offers the most persuasive argument for such a requirement, and thus this volume is still worthwhile. But volume 14 in the series (Debt and Taxes) offers a richer variety of papers by Buchanan on the subject of public debt finance, including the constitutional balanced budget amendment.
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