The Grabbing Hand: Government Pathologies and Their Cures

Rating:
Summary: Unique and compelling theories of government pathologies
Review: I bought The Grabbing Hand because I was interested in reading more by Andre Shleifer after I read another of his books on financial market inefficiency. I enjoyed that book and felt that Shleifer's work worthy of his Clark medal -- he couples great theoretical arguments with empirical support. This book, The Grabbing Hand, is a series of articles Shleifer wrote with Robert Vishny and others (including Kevin Murphy another Clark medal winner).

The book attempts to offer an alternative view of government. They add a third view to the already common "helping hand" view which argues that government works to make the economy better and the "invisible hand" view which argues for only a minimal government. Here they use the public policy argument that government acts in its own self-interest. The first article is an examination of cities in Europe prior to the 19th-century to observe the effects of oppressive government's. One of the most interesting articles is a new explanation of why socialist governments tend to have shortages. The authors argue the shortages result from government's attempts to extract bribes from individuals looking to obtain those limited goods. This explanation explains why, when socialist governments have raised prices, it has not eased the shortage as a conventional supply and demand with a fixed-price argument would conclude. Though this new argument is a little more sinister, it is clever and compelling.

Another insightful article is on the conversion of Russia to a more market economy. This article is especially eye-opening if you've read Stiglitz's Global book. Stiglitz argues that Russia's problem was going too fast in their conversion and the government not doing enough economic stabilization. Shleifer and Vishny argue that this is not the case and then present some interesting data on corruption to support alternative explanation. Where Stiglitz makes simple broad generalizations with little support, Shleifer and Vishny dig into the details and find data to support their position.

Some articles are less compelling. For example, they attempt to explain why some local governments contract out services to private contractors instead of using in-house governmental services. Though they find many interesting statistically significant results, the explanatory power of their findings is usually very weak (usually under 10%).

My only complaint would be in the subtitle of the book is suggest that they will explain cures for the examined government pathologies. Though some cures are suggested it certainly isn't a major feature of the book. After all, many of the results are the result of politics, and it is unlikely politics is going away.

I highly recommend the book for some unique and insightful theories on government pathologies. Be warned: the book is not an introductory book to economic analysis of government. Nor is it comprehensive in examining theories of government pathologies. That is not the intention of the book. The book, instead, is made up of articles that attempt to add to the body of work on analysis of government. The articles are written for other economists. Though I think good upper division econ students can take something away from the book, the book is not for the novice.