The discussion of the structural form results into the need for more scientific clarity. Though much seems to depend upon empirical parameters, some aspects however are more fundamental. This leads to the discussion of the reduced form. We first develop a theorem on the influence of taxation on employment and unemployment regimes in welfare states. Since taxation depends upon social choice, we then discuss Arrow’s theorem on social choice (structural form again). We also note that there may be a confusion about inefficiency and the existence of a ‘free lunch’. Having established the possibility of rational social choice, we then develop a theorem on stagnation in the policy making process (reduced form again).
21. Direct application to the Economic Supreme Court
In chapter 8 we stated: “If the government on the one hand would desire to use the results of scientific advice for its budget process, and on the other hand would not opt for an Economic Supreme Court, then its definitions would be logically inconsistent, and it would thereby tend to create a cause for dishonesty and improper manoeuvreing and thereby corrupt its processes.”
We can directly apply our Definition & Reality methodology. The point is that desiring for a scientific base and not making a Court is logically inconsistent. Parliament and President may ‘define’ their ‘Council of Economic Advisers’ as ‘scientific’ but when there are little safeguards, then reality takes over, and the Council will de facto not have sufficient power to resist political meddling.
The appendices contain an example draft for a Constitutional Amendment for an Economic Supreme Court and a description, taken from the White House internet site, of the CEA. The difference should be clear.
Law-givers know: If a law does not fit logic and reality, then people will see themselves forced to ‘break’ the law. “You are damned if you do, and damned if you don’t.” People in such situations will tend to grow dishonest, since it is often easier to massage events rather then clearly state that the law is impossible and go on strike or whatever. They don’t see it as ‘dishonest’, but as ‘flexible’. And once people are on that road, they will rationalise their behaviour by thinking that this is the way that the world works, and become more willing to perform other acts of dishonesty.
Conversely, once sufficient safeguards are in place, then the Council is de facto an Economic Supreme Court (even if it does not have that name). With a properly defined scientific base for the budgetary process, economists could also more confidently predict the economy’s course, since there would be less random noise and chaos about the application of known knowledge.
22. Methodological summary
We consider all Western economies, or, more properly with Japan included, the OECD area. Hence, the student of this book will expect masses of OECD data, and masses of structural models of the OECD countries, or at least a model for the whole OECD area. There is none of that. We in fact use only some example data for the small country of The Netherlands. Why is that ? And how can we possibly utter our ambitious claims ? The answer to these questions is fourfold:
· there are mathematical theorems and proofs for the reduced form of a typical welfare state