Arnold Kling  

Institutional Survival

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Henry Farrell argues against the view that institutions must reduce transactions costs in order to survive.


there are an awful lot of institutional arrangements out there that demonstrably have very little to do with efficiency or transaction cost reduction, and an awful lot to do with furthering the interests of social elites. Just look at the pervasiveness of corruption in various societies in the developing and developed world, at the practices of authoritarian regimes, and so on. Or, if you want to be tendentious (and I do), you could point to the Bush administration's eagerness to push tax cuts that disproportionately favour the rich, and don't do very much to improve economic growth in general, if they in fact do anything at all.

Economists might find Farrell's arguments persuasive for political institutions without finding them persuasive for private-sector institutions. An inefficient corporation that suits the needs of an elite should ultimately lose out to a more efficient corporation.

(I found the link to Farrell's post from Stephen Karlson)

For Discussion. Do you believe that for political institutions there is a natural evolutionary tendency for one type of institution to drive out another?


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COMMENTS (3 to date)
Eric writes:

First of all, Farrel has no clue what he is talking about in terms of the current Bush tax cuts.

Even so, his analysis is wrong, at least in the United States.

Elites hold very little power in the US. Compared to a place like France or Germany, the differences are striking.

Most importantly, the intellectual elite is quite separate from the economic elite. Not so in European countries.

And our republican, federalist system of government means that elites simply can't do much on their own. They need broad based coalitions to get things done, and those coalitions need people from non-elites to get things done.

This explains the Democrat party. It has the intellectual elite, but also non-elites like unions, as well as ethnic groups like blacks.

David Thomson writes:

Elites hold very little power in the US. Compared to a place like France or Germany, the differences are striking.

I know that you mean well, but could you please cease calling these people “elites.” These folks are actually the pseudo educated who often possess fraudulent degrees behind their names. We only encourage them further by referring them to them in a positive manner. They should have to earn what they get in life.

Andrew Martin writes:

Would either of the two authors, Eric or David, kindly offer some sort of argument or evidence to back up these statements?

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