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Letting the Second Singer Sing: The Death of Romance in Politics

Letting the Second Singer Sing: The Death of Romance in Politics. Peter J. Boettke Econ 881/Spring 2005 February 21. Main Points. The Elementary Logic of Political Interaction Concentrated benefits/Dispersed Costs The Policies of Lord Keynes as if Politics Was Perfect

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Letting the Second Singer Sing: The Death of Romance in Politics

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  1. Letting the Second Singer Sing: The Death of Romance in Politics Peter J. Boettke Econ 881/Spring 2005 February 21

  2. Main Points • The Elementary Logic of Political Interaction • Concentrated benefits/Dispersed Costs • The Policies of Lord Keynes as if Politics Was Perfect • The theory of functional finance • The Political Consequences of Lord Keynes • Permanent budget deficits • Monetization of debt

  3. US Budget Deficits in the Period 1960-

  4. Why The Clinton Surpluses? • Reagan surpluses • Checkmated government • Economic Growth in the 1990s • Real income in the first 3.5 years of Clinton increased by 10.4% • Job growth --- 11 million • Fiscal Conservative Democrat • Change in fiscal religion • It is all an illusion --- off budget sector

  5. Why Deficits are So Politically Viable? • Robbing Peter to Pay Paul • Intergenerational Politics • Good Politics, Bad Economics • Good economics ---- immediate and secondary consequences of policy have to be taken into account (what is seen, what is unseen) • Good politics --- immediate impact on voters • Shortsightedness bias

  6. Boom-Bust and Political Business Cycle • Ferejohn Model of political behavior • Principal/Agent Model • Fed policy and the election cycle • Interest rates • Inflation rates • Monetary distortions

  7. Political Machinations Policy Choice Voter Preferences Political Process

  8. Put Another Way “Price” Supply P Demand “Quantity” Q

  9. Structure Induced Equilibrium • Rules and the Strategies within Rules, and not a simple preference induced model • Policy choice is constrained by Institutional Framework • Rent Seeking Games and Constitutional Solutions • Constraining the natural proclivities of democratic politics

  10. Summing Up • Ideas and Interests • Keynes eradicated the ideological resistance to government fiscal mismanagement, and interest groups exploited the situation • Freedom in Constitutional Constraint • Rules that constrain the natural proclivities of man enable men to live in freedom and in prosperity

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