Tuesday, December 14, 2010

Rational fools

I've spent a lot of time recently pondering the Meltzer/Richard model, which (correctly over time, but inaccurately across space) predicts that competitive elections will lead to redistribution because redistribution benefits the median voter. Democracy is associated with a steady growth in the size of the state - and hence the extent of redistribution - over time, but a secondary prediction of the model - that more unequal societies would demand more redistribution - turns out to be flatly wrong. Unequal countries, such as the US, actually seem to resist greater redistribution, even though the logic of the M/R model should push them to demand it.

US voters challenge the logic of the Meltzer/Richard model by supporting policies - such as the Bush tax cuts - which largely reward very rich taxpayers and penalize middle income groups, who end up with fewer public goods  in return for a meagre tax break. More recently, the blogosphere has been alive with liberal Americans wondering why, in the midst of a desperate economic slowdown, the hard-pressed median voter supports candidates who long to reimpose the Gold standard and cut government spending.

But Jeff Frankel has inadvertently provided an answer to the conundrum. In his blog he outlines the various ways in which Republicans have talked the talk of balancing budgets and securing price stability, whilst opening gaping budget deficits and bullying central bankers to unleash demand whenever they get the chance. Eureka! Maybe American voters have understood something liberal commentators assume to be beyond them - that Republican talk of responsible economic policy is pure bull****. By voting for balanced budgets and an end to quantitative easing, Joe the Plumber understands that what he'll get is actually the biggest deficit since Bush I and red-hot printing presses down at the Fed.

OK, that does leave the irrationality of opting for the least stimulating kind of deficit and allowing the rich to bail out of social solidarity altogether, but... give me time, I'm still working on trying to rationalize that one.