June Sekera on ‘Economics and the Near-Death Experience of democratic governance’
June Sekera has published a new working paper which sets out to “outline the elements of a theory of the public non-market, and suggest a model to explain its forces, flows and dynamics“. She wants to do this because: “More than a century ago, the effective operation of the public economy was a significant, active concern of economics. But, with the rise of market-centrism and rational choice economics, government was devalued and allowed a role only in cases of “market failure.” The very idea of a valid, valuable public non-market almost disappeared from sight. So today we lack a coherent, comprehensive theory of the public economy“.
Sadly, if anything she is not overstating her case The introduction of the 4th edition of ‘Advanced macroeconomics’ by David Romer starts with the sentence ‘Macroeconomics is the study of the economy as a whole’. We all know that the government has a very important economic role, not just to guarantee law and order or to redistribute income but also als a producer. So, we expect that government production (just one kind of public non-market, according to Sekera) is included in the Romers’ model of the ‘whole’ economy. And we expect this for good reasons. Graph 1 (Eurostat) shows that government expenditure on education, health or ‘general public services’ like roads and bridges is immensely important. Large parts of this expenditure are in fact government production (almost all educational spending, a lot of health spending). So, it is quite surprising that Romer, when in his chapter 7 discussing the ‘canonical New-Keynesian Dynamic Stochastic General Equilibrium model’, does not mention the government – at all. His ‘economy as a whole’ consists of households, firms and the central bank. There is no government. Below some excerpts (references deleted) of this ambitious but necessary endeavour by Sekera (you may send comments or observations to firstname.lastname@example.org).
Despite the barrage of headlines telling (sometimes falsified) stories of government failures, in realitygovernment succeeds far more often and far more widely than it fails. The successes, however, golargely unseen or unacknowledged, for reasons I shall soon discuss. David Leonhardt, reviewing one of many books about government failure, will tolerate neither the dogma nor the blindness: “If you wanted to bestow the grandiose title of ‘most successful organization in modern history,’ you would struggle to find a more obviously worthy nominee than the federal government of the United States. In its earliest stirrings, it established a lasting and influential democracy. Since then, it has helped defeat totalitarianism (more than once), established the world’s currency of choice, sent men to the moon, built the Internet, nurtured the world’s largest economy, financed medical research that saved millions of lives…” In a new book that challenges the dogma of incompetence, Charles Goodsell shows how American government has performed both complex and routine tasks efficiently and effectively.” And Allan Rosenbaum, a professor of public administration and recent past-president of the American Society for Public Administration, has directly taken on “the myth of public sector failure and incompetence,” pointing to such achievements as the construction of our national system of superhighways and statewide public higher education.. Government hasn’t failed, he writes, but public administrators have — in “being hesitant to speak of the central importance of what we are about boldly, loudly and effectively,” while “practitioners in the private sector and business school faculty glorify the power and creativity of the American private sector.”
One purpose of this paper is to trace the baneful influence of the values and principles of mainstream, market-centric economics on the current practice of public administration—and in so doing to demonstrate the seriously dark consequences that follow from the absence of a coherent, valid theory of how the public non-market works. Crucially missing from economic thinking as well as from the principles and practice of public administration is an understanding of the forces and dynamics of the public non-market production economy. Lacking a valid theory or cogent model, we have no sturdy intellectual equipment on the basis of which to counter theoretical and actual attacks on government and restore its capacity to operate effectively on behalf of all citizens. In this paper, I will outline the dynamics and forces of the public economy that are not adequately addressed, let alone explained, by
mainstream economics.Professor Luiz Carlos Bresser-Pereira, former Minister of Public Administration for Brazil, asks: “Why don’t we have a literature discussing the relations between public managers and economists?” Another aim of this paper is to reclaim and foster such a relationship, which a century and more ago had been nurtured by late-19th-century European writers on “public finance”. That relationship was derailed by the juggernaut of market-centric economics that views public production as a glaring symbol of market failure.
My principal argument in this paper has been that we need a new conceptual framework – a model of the public nonmarket economy – upon which to ground a revitalized practice of public administration. Crucially missing from current economic thinking and from current principles of public management is an understanding of the forces and dynamics of nonmarket production in the public economy. In this section I outline basic elements of the public nonmarket economy and offer a prospective model of the forces and dynamics of production within this environment. I explain how these characteristics differ from the market model and why those differences matter. The nonmarket economy has three parts: the “core” economy (primarily represented by householdsand local communities); the non-profit sector; and the public nonmarket. I am concerned in this paper only with the public nonmarket. By “public nonmarket” I mean that part of the economy in which goods, services and other products are paid for collectively (through taxes), and originated, in a democratic nation-state, through collective choice (voting). In the U.S., this economy includes essentially all government operations at all levels – federal, state and local. It does not include “government enterprises” – public entities that charge prices sufficient to cover the cost of production
The market model doesn’t recognize the inherently distinct properties of the public non-market
economy. Specifically, the market model fails to recognize, explain or account for the factors listed below. For each factor, I will identify its manifestation in a non-market, public production environment and, explain why it differs from the market.
purpose: need-driven, not demand- or profit-driven
systemic driver: collective choice, electorally manifested
source of income to the producer: collective payment
public nonmarket flow relationships and dynamics
separate agents in the generation, creation and production of public products
unique factors of public non-market production
o voting as a unique input resource
o authority to enforce as a unique asset
unique supply conditions
o required rationing
expenditure without spending
the absence of buyers
invisibility as a hallmark of effectiveness
the uncommon complexity of judging results
Methodologically individualistic, public choice economics maps a set of individual preference orders onto a social preference order.186 Public choice economics treats the concept of collective choice from an exclusively theoretical perspective, addressing questions of how collective decisions may be made. In their critique of public choice theory, Stretton and Orchard ask: “Why theorize so artificially when political life is accessible to more direct study? From studying the theorists’ activity we have come to believe that many of them chiefly want to discredit government, but that for many of them a main purpose is to develop theory of a certain formal kind for its own sake, and to debate and elaborate its internal forms as an acceptable academic activity.”.“Social choice” theory has been another avenue by which mainstream economists address collective choice. This theory, too disregards the real-world operation of electoral collective choice and its impact on the public economy. As Stretton and Orchard observe, “Leading social choice theorists claim to be broadly concerned with the relation between citizens’ individual judgments and their collective social decisions, a subject which has occupied political philosophers since Plato.” In fact, these theorists have been “narrowly concerned with some logical qualities of sets of individual preferences, and with the impossibility of deriving collective preferences from them by mathematical procedures.” One of the most prominent theorists, Kenneth Arrow, produced an “elegant” formulation that came to be known as “Arrow’s Impossibility Theorem,” which demonstrated that a mathematics of ideal societal choice was unattainable. As Stretton and Orchard write: “There the business ought to haveended. But instead an extraordinary thing happened. The searchfor a consensus machine did effectively cease, but forty years and a thousand books and articles later, scores of economists are still writing variations of Arrow’s work.” To compound the problem, “The theories which Arrow showed to be impossible, and most of the impossibility theorems themselves, are concerned with attempts to arrive at social policies without considering their effects.
But the question at hand is not whether voting works. For better or worse, voting is how, in reality, collective choice is manifested in a democracy. It is crucial that we better understand the role of voting (collective choice) in producing public goods and services. An understanding of how voting is central to economic collective choice has been impaired, and its centrality obscured, by neoliberals and the political right, which insist on the priority and superiority of individual choice, as taught by mainstream economics. Whether in the guise of public choice economics, Arrow’s Impossibility Theorem, the writings of Coase or Hayek, or strands of rational choice theory, mainstream economics has an elemental “hostility to democracy” (and here I am quoting an economic historian, Philip Mirowski. Although rarely characterized as such, economic attacks on government are really attacks on democracy, and a devaluing of electorally-expressed collective choice. Before we can act as a society o clear the way toward effective voting, we must therefore shape a valid theory of public goods provision in the public economy. Only then will we have an intellectual infrastructure that demonstrates that the public goods economy is not only viable but vital.