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Description
The Political Economy Program is new at the NBER, and thus needs an introduction. What is political economics? And, why has the NBER chosen to have a program in it?
The best way to answer is to set back the clock to the mid-1980s. This was a time of great turmoil and transformation in the American economy. President Reagan was in the middle of his "revolution": there were large deficits, taxes were being cut, and the economy was being deregulated. Continental Europe, in contrast, was entering a long period of sclerosis: some countries in Europe (but not all) had accumulated debt that was rising towards wartime levels. The need for structural reforms and liberalization in Europe was evident, but they were delayed. A dozen European countries were heading towards uncharted territories of monetary, and some sort of political, union. Latin America was in the midst of a huge debt crisis and a "lost decade", with very high or even hyperinflations, foreign debt defaults, and large budget deficits. Unavoidable policy reforms were delayed, increasing the economic costs and leading to crisis. The Soviet Bloc was about to collapse; when it did, it opened a Pandora's box of politico-economic questions.
It was increasingly difficult to fit all of these complexities and varieties of experiences into traditional models of economic policy in which benevolent social planners maximize the utility of a representative individual. Some economists started exploring how political forces affected the choice of policies, paying special attention to distributive conflicts and political institutions, which are absent in representative agent models.
Let's be clear: they had predecessors; they were not building from scratch. The "Public Choice School" of Buchanan, Tullock, and associates had made contributions that cannot be overemphasized, especially in constitutional theory (together with Hayek), and in modeling politicians as self-interested agents. But, it remained on the sideline of mainstream economics, and the responsibilities lie on both sides. The Public Choice School refused to embrace the methodology of the field, which was in great transformation in the mid-1970s with the rational expectations revolution, game theory, and advances in econometrics. Traditional economists did not look outside the box, and ignored, with a hint of intellectual arrogance, the important contribution of Public Choice. There were exceptions: some economists made important contributions that were in a sense ahead of their time, from Becker's model of lobbies, to Nordhaus's political business cycle model, just to name two.
But from the mid-1980s onward, the new (or "renewed) field of political economics became more and more mainstream and established: in fact, it has been one the most rapidly growing and exciting field in economics. Even a cursory look at the NBER Working Paper series from the late-1980s onward reveals that, in a variety of different programs, political economics was more and more present: in macroeconomics, closed and open, from trade to public finance to labor, even in finance. Therefore, it makes sense to have a program that provides a home for those working... |
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