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March 01, 2006

Quote of the Day

In the real world of rent extraction, the only thing worse than a corrupt government official is an honest one.

Fred S. McChesney.

March 1, 2006 in Politics | Permalink


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How would he know?

Posted by: Bob B | Mar 1, 2006 11:30:04 AM

I was awaiting a come-back but to no avail.

UK politicians seem to have only recently (re)discovered the possibility of trade-offs and conflicts between achieving both economic efficiency and social justice but that contingency is thoroughly familiar territory for aged students (and teachers) of welfare economics - as disentangled in eg: IMD Little: A Critique of Welfare Economics (OUP 2nd ed. 1957).

There are no set (economists') rules for deciding between an inefficient resource allocation with a deemed "better" income distribution in situation A compared with situation B, which has economic efficiency but goes with deemed less equitable income distribution WHEN it is not also feasible to then redistribute income to get to a more equitable distribution. Value judgements need to be invoked to make the critical choice - whether yours, mine or the government's. And then we need to agree a means for making that choice and also what to do about inconsistent rankings and tie-breaks. So much is mainstream orthodoxy - and many trees have been felled getting there.

The trouble with corruption in government is that left unchecked it tends to become pervasive because corrupt officials (and politicians) can make additional income (or gain favours) on the side. The end result on that route is either the bandit capitalism that permeated Russia's economy during Yeltsin's presidency or the stagnation and periodic coups that characterise the economies of so many world3 countries.

An early casualty of growing corruption in government is public trust:

"people who do not trust one another will end up cooperating only under a system of formal rules and regulations, which have to be negotiated, agreed to, litigated and enforced, sometimes by coercive means. . . .Widespread distrust in a society . . . imposes a kind of tax on all forms of economic activity, a tax that high-trust societies do not have to pay."
[Francis Fukuyama: Trust (Penguin 1995) p.27]

However, the market liberalisation of China's economy has led to spectacular rates of GDP growth in the last decade or so as well as to extensive corruption among ruling elites there, by many reports. Arguably, the monopoly over power in government exercised by China's permanently ruling communist party serves as a backstop and so prevents the otherwise relentless slide into the chaos and low performance of bandit capitalism.

An issue still debated and of topical relevance despite its historic setting is how and why was industrialisation pioneered in Britain, starting in the late 18th century, by the despised means of laissez-faire, anglo-saxon economics.

Tim adds: Sorry about the no comeback, didn’t have a suitable quip handy. I worked in Russia in the Yelstin years and believe me, we much preferred the corrupt officials to the ones who insisted upon the letter of the law being carried out. As the law then was it was physically impossible to actually obey them all.
I agree with your point about efficiency and social justice. Which is the "correct" answer depends on the convictions of those defining "correct", not anything set or fixed in the economic models.

Posted by: Bob B | Mar 1, 2006 1:59:37 PM

The correct answer is easy...

Q: When should you use extortion and force AKA the government?

A: As little as possible!

Posted by: Rob Read | Mar 1, 2006 3:11:40 PM