Is there a unique LSE school of political economy?

Ricardo Puglisi has an essay in the 2005 STICERD Review which argues that the LSE approach to political economy sits between the grand theorizing (but non-empirical) public choice tradition of James Buchanan and Gordon Tullock, and the macro-empirical political economics of Persson and Tabellini.

The LSE approach, Puglisi tell his reader, is characterized by four distinctive traits in resarch: (1) combine theory and evidence; (2) focus on small, self-contained, and meaningful objects within a given set of political institutions rather than all-encompassing political institutions; (3) sound empirical methods as exemplified by panel data analysis as opposed to cross country analyses that intrinsically suffer from omitted variables and problems of heterogeneity, and (4) a search for black holes in the existing literature that might be filled in a manner similar to the Becker inspired Chicago approach.

Puglisi argues that the LSE approach to political economy results in politically feasible political economy.  This LSE approach to political economy is most closely identified with Tim Besley.  But does it really represent a separate school of thought in political economy as Puglisi suggests?  Follow this link to a list of papers in political economy and public policy.

While I was here at the LSE I read closely Tim Besley's Principled Agents?: The Political Economy of Good Government (Oxford University Press, 2006).  Besley seeks to place his contribution between the social welfare function tradition of public economics associated with traditional economics from Pigou through Samuelson up to Stiglitz, and the public choice tradition of public finance identified with Buchanan, Buchanan and Tullock, and Brennan and Buchanan.  Standard social choice theory is judged to be naively optimistic about government's ability to introduce public policy as if it is being done by a benevolent social planner, but standard public choice is too pessimistic with its assumption that all men are knaves.  Besley, instead, wants to focus on how political institutions can be set up to select political leaders that reflect the virtues and talents required to rule in the public interest.  Thus the title of his book.

It is a powerful book and reflects one of the most informed challenges to standard public choice yet written.  The older criticisms of public choice found in Green and Shapiro's The Pathologies of Rational Choice (which was empirical in nature) and Wittman's The Myth of Democratic Failure (which was theoretical in nature) both falter as criticisms of the work of Buchanan et.al., in the Virginia school of political economy.  But Besley's book is fundamentally different and constitutes both an internal critique of the Virginia School and a transcendent one that examines how the political structure can also feedback on to character traits of political actors (echoing in this regard the very insiightful paper by Brennan and Pettit the theme of how while power can corrupt political office can ennoble).  Besley's book gives the reader from within the Virigina School of Political Economy a lot to think about.

But it is not clear to me that Besley's work represents a different tradition in political economy any more than the William Riker inspired group of rational choice politics in the hands of Barry Weingast constitutes a significant break from the public choice economics of Buchanan and Tullock.  There are no doubt differences in the different approaches to public choice (Virginia, Rochester, Chicago and Bloomington were the traditional dividing lines).  But there are also common themes that unite political economists.  Also, even in a strict rendering of Virginia School Political Economy, this issue of political selection and character was not completely ignored in that literature.  As mentioned Geoff Brennan has looked at how office can ennoble man as well as how we must guard against politics corrupting them.  David Levy, Tyler Cowen, and Dan Klein have all written extensively on issues of approbation in politics and other non-market settings.  Gordon Tullock's work on bureaucracy deals at length with the principal-agent issue and the mechanisms constructed to attempt to cope with the problems identified.

There are problems with the standard public choice literature and Besley addresses a behavioral one (though as he notes this problem depends on the purpose for which the behavioral assumptions are being deployed), but there are also issues of the epistemic environment of politics which are not adequately addressed in imperfect information models of political processes.  My colleague Bryan Caplan has tackled one side of this issue with his work on rational irrationality in the context of politics.  But another approach could be in the application of Hayek's notion of the contextual nature of knowledge to the realm of politics.  If the work of Buchanan is pessimestic about government as a corrective device because of incentive issues, then Hayek inspired work in political economy would be pessimistic because of structural ignorance.  See my paper on Hayek's contributions to public choice theory in The Road to Serfdom and also my paper with Pete Leeson on Hayek and Arrow on democracy.

But admittedly a lot of analytical and empirical work must be done from within these different approaches, and Besley's book could be a great stimulus for research in the Virginia tradition--- especially on the issue of the selection mechanisms of politics and the principal agent problems that must be confronted.  I am going to organize a symposium on the book for the Review of Austrian Economics and also use the book next fal in my Constitutional Political Economy class.  I found this book by Besley much more challenging and satisfying than Daron Acemoglu and James Robinson's Economic Origins of Dictatorship and Democracy (see review below).

Last night I gave my last talk on my "2006 European tour" --- a talk to the Hayek Society at the LSE on Liberty and Power in the 20th and 21st Century in Economics and Public Policy.  Thanks to Dominique Lazanski for all her work with the Hayek Society and for organizing both my discussion group and my public lecture.

I return to the US on Friday morning.  I have had a very productive time here at the LSE.  Here are some of the reviews and papers I wrote while in residence here at the LSE.

Download daron_acemoglu_and_james_robinson.pdf

Download review_of_deirdre_n_mccloskey_bourgeois_virtues.pdf

Download from_approximate_value_neutrality_to_real_value_relevant_political_economy.pdf

Download richard_parker_john_kenneth_galbraith.pdf

Download comparative_historical_political_economy_101306.pdf

Download intro_to_the_economic_point_of_view.pdf

Comments and criticisms are of course welcomed.

I want to thank Tim Besley of STICERD and Toby Baxendale for giving me this opportunity to be the 2006 Hayek Fellow and visit the LSE for a second time in this capacity.  I also want to thank Angela Swain and also Sue Coles for making the environment at the LSE so comfortable and friendly for visitors.

Comments

[Rafe]

Some comments on the rather large amount of writing in the links. Somewhere there is a reference to Hayek's "premature senility", when he was benched from the main game in economics during the 1930s. That is similar to Hutt's mournful comment that he was forgotten in his own lifetime. Still, he lived long enough to see the revival of classical liberalism and the Austrians.

In the paper "Comparative historical political economy" there is a reference to Mirowkski's "More Heat than Light" for the story of the invasion of ideas from physics into economcs. There is a book by Ingrao and Israel that appears to cover the same topic. Some notes on their book can be found at the following link.
http://oysterium.blogspot.com/2006/02/maths-invades-economics.html
They identified John von Neumann as the person who introduced mathematical formalism into both quantum physics and economics.

I wonder if Popper's account of the long struggle for the "open society" to emerge from the "closed" or "tribal" society counts as an analytical narrative? The issue of tribalism has re-emerged with the problem of radical Islam.
http://alsblog.wordpress.com/2006/07/23/open-society-condensed-chapter-10/

Regarding the Acemoglu and Robinson book on the economic origins of dictatorship and democracy, Pete's critical comments could be augmented with some thoughts from Radnitzky on the pre-democratic achievement of limited government and free trade. Also some insights from Hutt on the downside of extending the franchise in Britain which provided leverage for the trade unions to obtain special privileges through the vote-buying motive of the politicians.
http://www.hrnicholls.com.au/nicholls/nichvo27/champion2006.pdf
That piece also has a list of Hutt's writings that are now available on line.

Finally on J K Galbraith, farm boy and genial dinner companion. In a memoire of his youth that was printed in "The Liberal Hour" circa 1970 he told a story about the time he was courting the girl from the farm next door. He was not making progress and one day they were leaning on a fence when a cow and bull started to do what cows and bulls do together. Seizing the moment he remarked "I would't mind trying that" to which the young lady replied "Well its your cow!".

I grew up among cows as well but I was never that forward with the girl on the farm next door.

[Rafe]

Checking my 35 year old memory of the Galbraith story. A slightly different source.

http://www.nieman.harvard.edu/pageone/galbraith/fellows.html

"Galbraith was chatting with our class at one of our Friday afternoon get-togethers. He told us of the days when he was a young man on the family farm in Canada. He and a girlfriend were leaning over the fence looking into the cow pasture. "A bull came up to the nearest cow and mounted her. I said to the young lady, 'My, that ought to be fun!' She replied, 'Well, go ahead, it's your cow.' "

[John]

I believe the link to the McCloskey review is broken.