I reviewed Crisis Economics: a Crash Course in the Future of Finance By Nouriel Roubini with Stephen Mihm for the Irish Times “Book of the Day” slot. You can read the review here.
Paul Krugman recently blogged on the apparent shift in public opinion on health care reform from negative to positive once the bill had been passed by the House of Representatives. His comments brought to my mind the following influential paper from some time ago by Raquel Fernandez and Dani Rodrik on the political economy of reform processes:
Resistance to Reform: Status Quo Bias in the Presence of Individual- Specific Uncertainty
Author(s): Raquel Fernandez and Dani Rodrik
Source: The American Economic Review, Vol. 81, No. 5 (Dec., 1991), pp. 1146-1155
Published by: American Economic Association
Why do governments so often fail to adopt policies which economists consider to be efficiency-enhancing? Our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform. We show that there is a bias towards the status quo (and hence against efficiency-enhancing reforms) whenever some of the individual gainers and losers from reform cannot be identified beforehand. There are reforms which, once adopted, will receive adequate political support but would have failed to carry the day ex ante. The argument does not rely on risk aversion, irrationality, or hysteresis due to sunk costs.
The full paper can be found on jstor (which requires a subscription for full-text) here.
One could of course engage with the debate as to whether any given set of reforms are in fact truly efficiency-enhancing, which is fairly core to the health care debate in the US, but it was striking that proponents of the measure were frustrated that some of the opposition to the Obama proposals came from those who the administration felt would directly benefit from it.
I guess the precise terms of the paper weren’t exactly anticipating that perceptions of reform proposals would change so quickly i.e., merely by the passage of a reform proposal, as opposed to its implementation, but the paper cited above was I think a wonderful working-through of the logic of some important messages to political reformers. It speaks, I think, to the need for policy advocacy to maximize credible information for citizens about the consequence of reform, and to the ultimate necessity for political leaders in a representative democracy to actually lead, and not merely regard themselves as uncritical conveyers of existing social preferences. More generally still, it’s a line of thought that speaks, I think, to the political possibilities of creating constituencies for reform over time. That’s especially important, I would suggest, in the midst of a crisis, when it’s tempting to imagine, for both citizens and politicians, that nothing can change for the better.