The Invisible Hand of Rent Seeking: Capitalism, Democracy, and the Budget Deficits
DOI:
https://doi.org/10.6000/1929-7092.2017.06.40Keywords:
Democratic capitalism, interest groups, rent seeking, economic inefficiency, political inefficacyAbstract
Historically, social and economic grievances resulted in sociopolitical instability, which served as a medium of institutional changes in the evolution of Western Europe toward a more inclusive regime. In today's democratic capitalism, however, a great many interest groups have burgeoned and acquired political power to seek their own interest at the expense of the welfare of the general public. Interest groups thrive on a tacit agreement with those members of the political body whose primary interest lies in their own aggrandizement. Such agreement inevitably leads to excessive claims on public resources, interferes with the market system by perpetuating rent in many sectors of the economy, erodes the moral values of trust and respect, and causes moral hazard among the legislators by undermining budgetary discipline. Moreover, the inevitable friction among the legislators often results in gridlock in public decision making. The democratic capitalism thus is losing on both ends: the market efficiency and political efficacy, with reduced prospect of economic growth. This paper attempts to explain these phenomena as a strategic equilibrium of the major players in the politico-economic arena.
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Avner, Grief. 1994. “Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualistic Societies.” Journal of Political Economy 102(5): 912-950.
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https://doi.org/10.1515/9781400883363
Bastiat, Frederick. [1850] 1998. The Law, trans. by Dean Russell with introduction by Walter Williams and foreword by Sheldon Richman, New York: Foundation of Economic Education.
Bisin, Alberto, and Thierry Verdier. 2001. “The Economics of Cultural Transmission and the Dynamics of Preferences.” Journal of Economic Theory 97(2): 298-319.
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https://doi.org/10.3998/mpub.7687
Buchanan, James M. 1965. “An Economic Theory of Clubs.” Economica, New Series 32(125): 1-14.
https://doi.org/10.2307/2552442
Buchanan, James M., and Richard E. Wagner. 1977. Democracy in Deficit: The Political Legacy of Lord Keynes. New York: Academic Press.
Caplan, Bryan. 2001. “Rational Ignorance versus Rational Irrationality.” Kyklos 54(1): 3-26.
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Downs, Anthony. 1957. An Economic Theory of democracy. New York, NY: Harper and Brothers.
https://doi.org/10.2307/2127236
Drutman, Lee. 2015. The Business of America is Lobbying: How Corporations Became Politicized and Politics Became More Corporate. New York: Oxford University Press.
https://doi.org/10.1093/acprof:oso/9780190215514.001.0001
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https://doi.org/10.1093/poq/nfu064
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http://doi.org/10.1017/S1537592714001595
Hammond, Thomas H., and Garry J. Miller. 1987. “The Core of the Constitution.” American Political Science Review 81(4): 1155-1174.
https://doi.org/10.2307/1962583
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https://doi.org/10.2307/1914185
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https://doi.org/10.1257/002205103771799999
Kurer, Oskar. 1993. “Clientelism, Corruption, and the Allocation of Resources.” Public Choice 77(2): 259-273.
https://doi.org/10.1007/bf01047869
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny. 1997. “Trust in Large Organizations.” AEA Papers and Proceedings: 333-338.
Lakoff, Sanford. 1996. Democracy: History, Theory, Practice. Boulder, CO and Oxford: Westview Press.
Mazower, Mark. 1998. Dark Continent: Europe's Twentieth Century. New York: Vintage Books.
Myrdal, Gunnard. 1957. Economic Theory and Underdeveloped Regions. London: Duckworth.
Myrdal, Gunnard. 1944. An American Dilemma: The Negro Problem and Modern Democracy. New York: Harper & Bros.
Niskanen, William. 1971. Bureaucracy and Representative Government. Chicago, IL: Aldeine-Atherton.
Olson, Mancur. 1965. The Logic of Collective action: Public Goods and the Theory of Groups. Cambridge, MA: Harvard University Press, 1965.
Ostrom, Elinor, and James Walker. 1997, “Neither Markets Nor States: Linking Transformation Processes in Collective Action Arenas.” Pp. 35-72 in Perspectives on Public Choice: A Handbook, edited by D.C. Mueller. Cambridge: Cambridge University Press.
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https://doi.org/10.1257/jpe.14.3.137
Stigler, George. 1971. “The Theory of Economic Regulation.” Bell Journal of Economics and Management Science 2(1): 3-21.
https://doi.org/10.2307/3003160
Tabellini, Guido. 2007. “Institutions and Culture.” Presidential lecture presented at the Meetings of the European Economic Association, Budapest, August. Published in Journal of the European Economic Association 6(2-3, 2008): 255-294.
https://doi.org/10.1162/JEEA.2008.6.2-3.255
Temple, Jonathan, and Paul A. Johnson. 1998. “Social Capability and Economic Growth.” Quarterly Journal of Economics 113(3): 965-990.
https://doi.org/10.1162/003355398555711
Tsebelis, George. 2002. Veto Players: How Political Institutions Work. Princeton, NJ: Princeton University Press.
Venieris, Yiannis P. and Dipak K. Gupta. (1983). “Sociopolitical and Economic Dimensions of Development: A Cross-Sectional model.” Economic Development and Cultural Change, 31(4), 727-56.
https://doi.org/10.1086/451355
Venieris, Yannis P. and Javier Alcántar-Toledo. 2014. “Fiscal Policy, Growth, Income Distribution, and Sociopolitical Instability.” European Journal of Political Economy (June): 315-331.
https://doi.org/10.1016/j.ejpoleco.2014.03.002
Wolbrecht, Christina and Rodney E. Hero, eds. 2005. Politics of Democratic Inclusion. Philadelphia, PA: Temple University Press.
Wolfinger, Raymond E. 1972. “Why Political Machines Have Not Withered Away and Other Revisionist Thoughts.” Journal of Politics 34(2): 365-398.
https://doi.org/10.1057/9781137289056.0008
Young, Iris Marion. 2002. Inclusion and Democracy. New York: Oxford University Press.
https://doi.org/10.1093/0198297556.001.0001
Zak, Paul J., and Stephen Knack. 2001. “Trust and Growth.” Economic Journal 111 (470): 295-321.
https://doi.org/10.1111/1468-0297.00609
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Published
2017-06-09
How to Cite
Hayakawa, H., & P. Venieris, Y. (2017). The Invisible Hand of Rent Seeking: Capitalism, Democracy, and the Budget Deficits. Journal of Reviews on Global Economics, 6, 380–394. https://doi.org/10.6000/1929-7092.2017.06.40
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