I set up a simple political-economic model with three variables: growth, policy, and ideas. The model is governed by three ‘laws of motion.’ The first are near-tautologies:
1. Good policies cause good growth.
2. Good ideas cause good policies.
The third law is much less intuitive:
3. Good growth causes good ideas.
The inspiration for law #3 was my empirical finding that people with high income growth ‘think more like economists.
These assumptions have an interesting implication: there exist “multiple equilibria” — one where growth, policy, and ideas are all good, and another where growth, policy, and ideas are all bad. I call the later “the idea trap,” because bad ideas sustain bad policy, bad policy sustains bad growth, and bad growth reinforces bad ideas. Implausible? Think about any of the world’s economic/political basket cases. How often do the people in those countries admit that their worldview is a failure, and humbly turn to their more successful neighbors? Not often. Or consider: When do crazy demagogues get the most serious hearings? In most cases, when a country is already going down the drain.