« "The Fork in the Road for Health Care" | Main | Disbelief in Climate Science: Is It Stupidity? »

Tuesday, May 29, 2012

"The Iron Law of Oligarchy"

You can't keep a good oligarch down:

Shock Therapy on the Altiplano, by Daron Acemoglu and James Robinson: In our last post we explained how the Bolivian Revolution of 1952 was an example of what the German sociologist Robert Michels called the Iron Law of Oligarchy. Michels noted in his book Political Parties

society cannot exist without a …dominant… or… political class, and that the ruling class, while its elements are subject to frequent partial renewal, nevertheless constitutes the only factor of sufficiently durable efficacy in the history of human development. [T]he government, or, … the state, cannot be anything other than the organization of a minority. It is the aim of this minority to impose upon the rest of society a “legal order” which is the outcome of the exigencies of dominion and of the exploitation of the mass … Even when the discontent of the masses culminates in a successful attempt to deprive the bourgeoisie of power, this is … effected only in appearance; always and necessarily there springs from the masses a new organized minority which raises itself to the rank of a governing class…” (pp. 353-354).

...In our paper with Simon Johnson and Pablo Querubín “When Does Policy Reform Work?”, we analyzed exactly this process. We explained why policy reform, against the background of unchanged political institutions, may create a seesaw effect, whereby the reform of one distortionary, extractive policy leads to the rise of another. We then illustrated these ideas with central bank independence, adopted enthusiastically by many countries with the encouragement of international organizations since the 1990s. Central bank independence, except in places such as Zimbabwe where it doesn’t mean anything at all, does take away some of the tools that politicians under extractive institutions can use for clientelism or for personal enrichment. But if their incentives and constraints facing them and the political elites are unchanged, they will often find other tools to achieve the same objectives — and these other tools may sometimes be even more distortionary. So with more constraint on monetary policy after central bank independence, many countries with weak institutions start running bigger budget deficits. ...

Tax cuts seem to be the major extractive tool presently. Despite pledges from Obama and others to stand up to this and undo some of the extraction, it continues. When it comes to raising taxes on the wealthy or cutting benefits for the not so well off to balance the budget, its pretty clear whose interests are likely to prevail.

    Posted by on Tuesday, May 29, 2012 at 10:13 AM in Economics, Income Distribution, Politics | Permalink  Comments (22)


    Feed You can follow this conversation by subscribing to the comment feed for this post.