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Holcombe’s _Political Capitalism_

Summary:
During the run up to his election as President in 2016, candidate Trump often bragged that he knew full well about the pay to play schemes in politics because he was a master of using them to advance his own business interest.  It was time, he said to clean out the swamp. But no swamp cleaning is going on. What was unique about Trump was his brazen admission of his own complicity in the entanglement of business and politics that characterizes the rent-seeking society.  Most politicians see the rent-seeking going on, and condemn it, but that is because it is the other side, not their side. Their side does politics right, and keeps business in check.  Politics isn't about profits, but about doing good.  Those other guys though, they do politics for profits. In the extreme cases we

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During the run up to his election as President in 2016, candidate Trump often bragged that he knew full well about the pay to play schemes in politics because he was a master of using them to advance his own business interest.  It was time, he said to clean out the swamp. But no swamp cleaning is going on.

What was unique about Trump was his brazen admission of his own complicity in the entanglement of business and politics that characterizes the rent-seeking society.  Most politicians see the rent-seeking going on, and condemn it, but that is because it is the other side, not their side. Their side does politics right, and keeps business in check.  Politics isn't about profits, but about doing good.  Those other guys though, they do politics for profits.

In the extreme cases we get corruption charges filed against those in office, or formerly in office, but for the most part, pay to play politics is just part of the ordinary business of politics.  Dollars and votes on one side, politics and policy on the other, and rationally ignorant, rationally abstaining, and specially interested voters mediating the process.  The logic of politics is to concentrate benefits on well-organized and well-informed voters (the specially interested ones), and disperse the costs on the unorganized and ill-informed mass of citizens (the rationally ignorant and the rationally abstaining), and to do so in the short-run rather than in the long-run.

So unless this logic is countered, this is how political life is played out.  Trump's depiction of politics as pay to play emerges as bi-partisan and rather ordinary, though his rhetoric was (and remains) of course unusual.  He is politics in the raw.  Imagine Boss Tweed in NYC, Huey Long in Louisianna, James Michael Curley in Boston, and Richard Daley in Chicago rolled into one embodiment and given modern technology and the social media platform.

But the political economy project from Smith and Hume was to find a set of governing rules that would constrain the abuse of power.  Hume argued simply that in designing the institutions of governance we must presume that all men are knaves.  He did not argue that men were knaves -- it was not a description of humanity -- but that in designing robust institutions of governance, we would be wise to presume they were so we could guard against the downside risk of a knave grabbing power.  And, wouldn't the most knavish of us all be really good as convincing us he wasn't the knave, but others were?!

Knavery comes in the form of opportunism  arrogance.  Smith argued that power to dictate economic decisions could not be trusted in the hands of any governor, but also would be nowhere as dangerous as in the hands of a man who thought he could be so trusted.  Arrogance can do us in just as much as opportunism with guile. Let that sink in a bit. And, then think through what that might mean for standard public economic assumptions of stable social welfare functions that are being maximized by benevolent and omniscient planners.  What could possibly go wrong? Again, LET THAT SINK IN.

So we search for constitutional rules that bind the hands of the rulers, while also empowering the rulers to govern effectively.  To translate into more modern times, James Buchanan sought to establish a system of governance that empowered the protective state (law and order) and the productive state (public goods), yet constrained the predatory state (the redistributive and rent-seeking state).  How well does his intellectual effort fare?

Well, Buchanan was an academic and never was a political actor, and his ideas are actually far removed from any practical policy changes one can reasonably connect in any sort of historically responsible account.  John Maynard Keynes and Milton Friedman are different stories altogether, but even there Keynes was far more directly involved in policy architecture than Friedman.  Even John Kenneth Galbraith would be someone far closer to the role of policy architect than either Friedman (mildly close) or Buchanan (far removed).  BUT, Buchanan asked philosophical and analytical questions that went to the heart of the interaction between positive economics, welfare economics and political economy. So as academic economists trying to understand the world of political capitalism, his ideas are critical.

Among his direct students, Richard Wagner (UVa) and Randy Holcombe (VPI) have probably pursued Buchanan's unique research program in public finance, political economy and social philosophy more thoroughly than others -- at least that would be my judgment call.  I consider Richard Wagner's book on Buchanan to be the most definitive discussion of that research program yet penned.

But Holcombe's understanding the strengths and limits of the constitutional political economy project is right there with Wagner's.  In this new book, Political Capitalism, Holcombe explains how cronyism, corruption, capture all follow from the political economy of the interventionist state. And, he demonstrates how this was tided to an alliance forged due to changes in ideology and the interest groups that formed.  It is required reading for all students of political economy.

A few weeks ago, Mercatus hosted a book panel discussing Holcombe's new book and that is now available for your listening.  I hope you enjoy it and explore more deeply by reading his book.  We live in a world of entangled political economy and political capitalism --- this is true of the military industrial complex as well as the financial industrial complex -- and more careful and critical thought needs to be devoted to thinking through the implications and the possible reform measures that could potentially address the most pressing problems this creates.  The important Buchanan lesson to learn -- institutional problems demand institutional solutions.  Lets get thinking. 

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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