Economic Politics: The Costs of Democracy.

Perhaps the most interesting current topic in political economy is the relationship between aggregate economic behavior and the electoral process. Are politicians able to manipulate the economy in order to enhance their own electoral prospects, or are they more akin to a rudderless boat on a stormy sea, and only survive at the cyclical whim of the macroeconomy? If able to manipulate the economy, what level of control exists, which goals will be pursued, and how is blame or credit apportioned? In this book William Keech has provided a complete review of current thinking in both political science and economics on these interrelationships, and extend that work by providing a well reasoned and cogent analysis of the costs of the democratic process.

This book is highly accessible, and provides an excellent starting point for either economists interested in the relevant work in political science, or political scientists interested in the relevant work in economics. The analysis is both theoretically and empirically complete, with balanced presentations of the relevant material in both economics and political science. The bibliography provides an invaluable entre into the current literature. Perhaps the sole weakness of this work is its focus on the United States, a weakness the author readily acknowledges. Since most of the research on political macroeconomy is on the United States, this cannot be avoided. The first four chapters are devoted to reviewing current work in economics and political science. These chapters are extremely useful in demonstrating the degree to which political and economic issues and institutions are intertwined and inseparable. The presentations can be easily understood by any one with principles level course work, allowing the focus to be on political economy, as opposed to theoretical or empirical technique.

In chapter five Keech persuasively argues that there is no authoritative basis for the unambiguous or uncontestable specification of the public interest, or, basically that an authoritative social weftare function does not exist. Naturally, if there is no authoritative specification of the public interest, then the entirety of macroeconomic policy management comes to involve a debate surrounding the often normative or subjective judgements of those involved in the debate. Chapter six discusses the issue of accountability. An important conclusion is that politicians don't need to be opportunistic to be successful, with voters tolerating a wide variation in policies and outcomes. Keech does not argue that opportunism and pandering do not occur, only that they may not be necessary.

Chapters seven and eight discuss the institutions and processes surrounding the discretion and accountability of fiscal and monetary policy. The most interesting analysis is that of the effectiveness of formal and informal institutions in the achievement of macroeconomic policy objectives. Keech clearly demonstrates that formal rules or institutions that lack credible and effective enforcement mechanisms may not work, and that informal institutions or rules may in fact be superior in the achievement of macro policy objectives. The major cost of democracy is that involved in any principle agent relationship, or that the agent will attempt to make his performance look better than it is at the time of contract renewal. The sole pathology is an asymmetry between the creation and the elimination of a problem. Democratic processes may systematically obstruct the resolution of pathological situations.

John P. Speir American Institute of Business and Economics Moscow, Russia