Democracy in Deficit: The Political Legacy of Lord Keynes

by Richard E. Wagner and James M. Buchanan

Book Overview

Democracy in Deficit is one of the early comprehensive attempts to apply the basic principles of public-choice analysis to macroeconomic theory and policy.

According to Robert D. Tollison in the foreword, "The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest."

Democracy in Deficit opened the door for much of the current work on political business cycles and the incorporation of public-choice considerations into macroeconomic theory. Even in the area of monetarism, Buchanan's landmark work has greatly influenced the sway of contemporary theorists away from the nearly universally held belief of Keynesian theory.

Democracy in Deficit contributes greatly to Buchanan's lifelong fiscal and monetary rules to guide long-term policy in macroeconomics. The book serves to bolster Buchanan's central beliefs in the necessity of a balanced-budget amendment to the U.S. Constitution and in monetary rules rather than central bank discretion.

The book is co-authored with Richard Wagner, a respected colleague of Buchanan, whom Buchanan recognized as helping to keep the book free of polemics and on target with its central purpose of applying the elementary theory of public choice.

James M. Buchanan (1919-2013) was an eminent economist who won the Alfred Nobel Memorial Prize in Economic Sciences in 1986 and was considered one of the greatest scholars of liberty in the twentieth century.

• Format: Paperback
• Language: English
• ISBN: 0865972281
• ISBN13: 9780865972285
• Release Date: July 2000
• Publisher: Liberty Fund
• Length: 223 Pages
• Weight: 0.85 lbs.
• Dimensions: 0.7" x 6.0" x 9.0"
• Age Range: 18 to 10 years
• Grade Range: Postsecondary to Grade 5

Customer Reviews

Rare Political Economy Case Study

Comprehensive analysis of the political and economic effects of Keynesianism from a public choice perspective. This is an impressive look at the lasting changes in the economic order since Keynes' ideas were adopted by politicians and influential economists alike.

Public-choice perspective of public debt finance

The authors, James M. Buchanan and Richard E. Wagner, offer two main points of criticism of the Keynesian prescription of deficit spending during recession. They first expose the internal inconsistency of Keynesianism that, if it were true, during an economic recession with slack resources, public spending increases could simply be financed by the creation of money rather than the issuance of interest-bearing debt (pp. 34-35). More important, however, is the authors' public-choice criticism of Keynesianism. The Keynesian doctrine of deficit spending provided the academic excuse for elected representatives to spend without taxing, thus removing the self-imposed discipline of balanced budgets that had existed prior to the adoption of Keynesian thinking (p. 4): "The legacy or heritage of Lord Keynes is the putative intellectual legitimacy provided to the natural and predictable political biases toward deficit spending, inflation, and the growth of government" (p. 26). Keynesianism might perhaps work under a system of benevolent dictatorship, but not in a democratic setting with citizens who are both taxpayers and beneficiaries of public services, professional politicians, political parties and government bureaucracy (pp. 79-80). "Political decisions in the United States are made by elected politicians, who respond to the desires of voters and the ensconced bureaucracy. There is no center of power where an enlightened few can effectively isolate themselves from constituency pressures" (p. 98). Elected public officials display a bias towards spending public funds on projects that yield tangible benefits to their constituents, and towards not encumbering them with a tax bill to pay for those projects. "The pre-Keynesian norm of budget balance served to constrain spending proclivities so as to keep governmental outlays roughly within the revenue limits generated by taxes. The Keynesian destruction of this norm, without an adequate replacement, effectively removed the constraint. Predictably, politicians responded by increasing spending more than tax revenues, by creating budget deficits as a normal course of events" (pp. 95-96). Buchanan considers the argument of the book that in a democratic setting there is a bias towards deficit finance "perhaps the single most persuasive application of the elementary theory of public choice" (p. xv). Indeed, the reform proposals introduced, particularly the constitutional balanced budget amendment, are to be thought of as "rules...designed to constrain the short-run expedient behavior of politicians" (p. 9). This is chronologically the first publication on public debt finance in the Collected Works series where Buchanan has proposed a constitutional balanced budget requirement (pp. 166, 183-184, 187-188). Buchanan, more than anyone else, offers the most persuasive argument for such a requirement, and thus this volume is still worthwhile. But volume 14 in the series (Debt and Taxes) offers a richer var