17) the theorem on the possibility of co-ordination, via the reduced form
18) description of actual bureaucratic processes on these subjects, so that we better understand how the Great Stagflation came about (comes about)
19) the concept of the Economic Supreme Court, in its political and historical relation to both the Trias Politica and economic science, and a draft constitutional amendment to start thinking about
20) clarification of the moral imperative with regards to Russia and Eastern Europe
21) positioning this analysis with respect to a standard small macro model and the work of other authors.
Abstract
The prime conclusion of this book is that Western democracies are well-advised to install an Economic Supreme Court. This volume includes a draft constitutional amendment that shows that such a measure can indeed enhance democracy.
The fundamental structure for current policy making in a democracy is Montesquieu’s model of the separation of powers, i.e. the Legislative, Executive and Judicial branches that form the “Trias Politica”. It appears that this structure still allows room for economic policy making that is detrimental to the life and liberty of the citizens of the state. The key issue appears to be that there is no independent protection of the quality of information. With all the social, economic and political interests involved, the current process of economic policy making allows the current constitutional powers too much room for distortion of the information. Economic theory then suggests the creation of an Economic Supreme Court as a separate constitutional power with the task of the scientific management of information. The legislative and executive branches would still decide on policy targets and policy execution, but they would lose the power to interfere with the scientific handling of information. This argument can be developed purely theoretically. The economic experience of the last century shows that the argument is also practically relevant.
Political Economy as a science has the general objective of explaining and advising the management of the state. Two hallmark reference points exist in the General Theory by Keynes (1936) and the analysis by Tinbergen (1956) on the principles and design of economic policy making. These studies show that the state can be subject to long periods of economic recession and even depression if not properly managed. Since the end of World War II, application of these ideas has allowed spectacular economic growth while depression has been prevented indeed. However, the economic record especially since the 1970s is mixed, with issues like stagflation, problems with the welfare state and continued poverty and also with the issue of sustainable development and protection of the environment. It can be shown beyond reasonable doubt that economic policy has been detrimental to the life and liberty of many of its citizens while this came about by mismanagement of the available information.
An element of self-reference arises when economic policy uses economic theory itself, so that theory should include theory. Increasingly over the years, economic theory has gotten a role in the management of the state, and developments in the real economy cannot be properly understood without reference to the economic ideas adopted for national policy. Since economic theories give conflicting advice, part of the management problem of the state is the selection of the appropriate theory, and this selection is more and more the key management problem. At the next higher level of abstraction, the process of selection becomes the focus of attention. The problem then becomes what that process is, what criteria of transparancy and fairness it satisfies, and how the process itself affects the economy. The current structure gives too much room for political elites and bureaucrats to neglect the basic rights of the population at large. The criterion to judge an optimal improvement in the structure of economic policy making is not just economic growth but can be taken in the concept of democracy itself and the citizen’s right to be properly informed.