recent post by Brad DeLong evokes this democracy/policy relationship.
The classic Eichengreen view is starting to look a bit incomplete. The missing part of the argument must surely be that the population needs to have some understanding of what the implications of policy are. At the moment there is a populist backlash in the United States against fiscal stimulus and monetary expansion, on the grounds that it's not reducing unemployment fast enough and threatens higher inflation. But this populist backlash could lead to a policy that would be far worse for the populace.
So we need to revisit the argument about democracy and policy. It could be, of course, that the population is no longer mobilized around a 'working class' interest, so that the views that really count are those of comfortable centrist voters, who could well benefit from liquidationism (especially if there are retirees who own their own homes and have adequate pensions), or at least think they would. In which case Eichengreen's thesis works as long as there is working class mobilization, but if the poor are not organized, orthodoxy can be imposed.
Or it could be that Eichengreen's thesis presupposes that the population has a clue about what is going on. After all, if you have an inadequate understanding of what's happening in the world and current policy is not quickly producing miracles, you may well believe someone who comes along and says (the contemporary equivalent of) 'bring back the Gold Standard'.
Of course, the Tea Party is a funny kind of populism, with its close links to hugely wealthy interests. But this doesn't alter the argument if it is successful in winning popular support. The last couple of decades have shown us that democracy isn't enough to stop elitist interests getting their own way. Mass interests need organization and mobilization if they're to take part in the game.