Modern Political Economy

The book is a theoretical and empirical analysis of the mutual interaction of the economy and the polity. Economy and polity interact closely in a modern society, and the government's role is steadily increasing. Traditional economics disregards this interdependence because it concerns itself only with the functioning of the price system. The book shows that this traditional view can lead us into error and that it tends to make economics irrelevant. The book attempts to show how Public Choice deals with the workings of parties (political competition), government, interest groups and bureaucracies. The main emphasis is on the political economy of the Unorthodox (including writers such as Galbraith, Hirschman, Boulding, Kaldor and Myrdal) ; and on Public Choice, which applies modern economic theory to political processes and thus bridges the gap between economics and politics as well as providing a theory of institutions. The book suggests that a combination of the political economy of the Unorthodox and Public Choice is able to provide most interesting and valuable insights into the interaction of economy and polity. This combined approach - which may be called New Political Economy - is used to analyse evolutionary developments. They are characterised by cycles that arise from the specific nature of the demand and supply of infrastructure and public goods. The final part of the book is devoted to a quantitative study of politico-economic interdependence. It is (econometrically) demonstrated, for the United Kingdom and the United States, how unemployment, inflation and growth affect government popularity and elections, and how the government uses public expenditure to realise its ideological goals and to guarantee re-election.