MACROECONOMIC POLICY AND strongCOLLECTIVEstrong ACTION.pdfVIP

1 MACROECONOMIC POLICY AND COLLECTIVE ACTION by David Colander June 2008 MIDDLEBURY COLLEGE ECONOMICS DISCUSSION PAPER NO. 03-32 DEPARTMENT OF ECONOMICS MIDDLEBURY COLLEGE MIDDLEBURY, VERMONT 05753 /~econ 2 MACROECONOMIC POLICY AND COLLECTIVE ACTION An individual cannot by saving more protect himself from the consequences of inflation if others do not follow his example: just as he cannot protect himself from accidents by obeying the rule of the road if others disregard it. We have here the perfect opportunity for social action, where everyone can be protected by making a certain rule of behavior universal. Keynes (1940) In his posthumously published book, Power and Prosperity (2000), Mancur Olson returned to his long concern with why some countries are rich and others poor, and pushed his analysis a bit further. As seen from his early work, The Logic of Collective Action (1965), he focused on the ability of small groups to come together to obtain special-interest benefits and the failure of government to provide genuine public goods. As in his Presidential address to the Eastern Economic Association (1995), he described the relative merits of stationary bandits that have fairly encompassing interests, and roving bandits that “take and run.” He then points out that small-scale market activity flourishes everywhere; it is the effectiveness of large-scale economic activity that determines whether an economy is prosperous or not. Effective large-scale economic activity requires, a