Termites of the State: Why Complexity Leads to Inequality

Description

In Termites of the State, renowned public economist Vito Tanzi presents a sweeping account of the industrialized world's economic development during the twentieth century to today. In the tradition of grand economic histories, Tanzi connects the biggest issues of the modern world including extreme gaps in income distribution, increasing complexity of government actions and regulations, and asymmetry of access to information and to political influence between the elite and the rest of society. Part one covers the growth of state intervention since the early twentieth century - a time before income taxes, central banks or social welfare programs. Part two investigates how and why laws and regulations have expanded in industrialized economies. Part three, building from this foundation, explains the forces behind the precipitous rise in global inequality. With a talent for clear, non-technical writing, Tanzi has produced an important book that will be of interest to any instructor, student, or general reader of economics and public policy.

Vito Tanzi, an economist of international renown, served for twenty years as Director of the Fiscal Affairs Department of the International Monetary Fund in Washington, DC with which he was affiliated for nearly three decades. Dr Tanzi is the author or editor of over 25 books, including Government Versus Markets (2011) and Public Spending in the 20th Century (2000, with Ludger Schuknecht). A former Undersecretary for Economy and Finance of the Italian Government, he was President of the International Institute of Public Finance (IIPF) from 1990 to 1994. Dr Tanzi is known for the Tanzi effect, or Olivera-Tanzi effect, which refers to the diminished real value of tax revenues in periods of high inflation due to collection lags. He has served as a consultant to the World Bank and the United Nations and previously taught at George Washington University, Washington, DC, and American University, Washington, DC.

'This book is the most thorough and intelligent review of the western world's economic development and the corresponding intellectual debates and lines of thought in economics and public policy from the end of World War I to the present that I have seen. Vito Tanzi is one of the most prominent public finance economists in modern times, and probably the one with the broadest practical experience. Offering unparalleled deep explanations, his book is a fascinating read. I was compelled enough to read the entire book in one swoop.' Hans-Werner Sinn, Emeritus Professor of Economics and Public Finance, University of Munich 'This book, in which you find both civil passion and scientific analysis, masterly explains how corruption and inequalities have nurtured two figures that seriously injure the functioning of our economies: the termites, who contribute to abuses in the application of the laws, and the new aristocrats, who seize for themselves skyrocketing compensations and live their exclusive lives ignoring the others. Will a new wisdom restore the healthy features of our democracies?' Giuliano Amato, former Prime Minister of Italy 'This book is a fascinating discussion of why government may sometimes aggravate the problems which they are set to solve. It offers a wealth of examples from New Zealand to the US to Italy, from current events to the Great Depression. Read it if you want to reflect upon the role of the public sector in modern economies. You will learn a lot from Vito Tanzi.' Alberto Alesina, Nathaniel Ropes Professor of Political Economy, Harvard University 'Vito Tanzi's breadth and depth of coverage of the changing role of the state in the last century is amazing. It is a masterpiece and I highly recommend it to both public finance experts, economists and the broader public.' Carol Cottarelli, former head of the IMF's Fiscal Affairs Department and Director of the Observatory on the Italian Public Sector 'In the Termites of the State, the reader is invited on a tour of public finance covering ideas, practices, and events over time and around the world. With more than fifty years of experience and reflection, of which about twenty years as the director of the IMF's Fiscal Affairs Department, Vito Tanzi is the best guide to explore such rugged landscape. This book, full of deep insights and practical wisdom, is an essential reading for policymakers but also for anyone with an interest in public policies.' Vitor Gaspar, Director of the Fiscal Affairs Department, International Monetary Fund 'In his long career as an academic and policymaker, Vito Tanzi has seen it all. In this book, he goes back to the 'Scienza delle Finanze' school developed by Italian economists between 1850 and the early 1920s and describes the dangers of overambitious government interventions. This is a must read for everybody interested in the role of the government in modern economies, especially for those who do not share Tanzi's views about the role of activist policies.' Ugo Panizza, Pictet Chair in Finance and Development, The Graduate Institute Geneva 'Vito Tanzi's latest tour de force is an unfashionable book, in the sense that it does not build on the latest fads in economics, but takes a holistic view of the role of the state and markets based on the classics of public economics. The book is in the tradition of Musgrave's seminal contribution of 1959, which Tanzi revisits in a critical way, showing how what the author dubs 'termites' - vested interests of private agents and bureaucracies leading to regulatory capture and rent seeking - affect allocation, stabilisation, and redistribution, as well as their interactions. The book, however, is not shy in pointing to the 'termites' of the market, which prevent the latter from being the easy alternative to state interventions. Vito Tanzi's book benefits from his unique experience as an academic, political economist and policy maker. It shows that, in carrying out their functions, economists have to take into account the increasing complexities of our economies and cannot rely on two-dimensional maps (state/markets), but need three-dimensional ones that show where 'termites' have excavated valleys and eroded mountains.' Marco Buti, Director General for Economic and Financial Affairs, European Commission 'In this age of polarization, Tanzi's book on the changing role of the state is ideally timed. Similar warnings have been sounded by others, but not with the acumen, tight reasoning, balanced arguments and respect for reality of Vito Tanzi's analysis. Read this very important book.' S. Schiavo-Campo, Formerly Senior Advisor, Asian Development Bank and University of Massachusetts 'Vito Tanzi, a former senior official at the International Monetary Fund, has written a thoughtful, historically grounded analysis of the discontents of today's high-income democracies. Our governments are overstretched and, in some respects, dysfunctional. Yet a plutocratic elite has also emerged, threatening to undermine both our democracy and our competitive economy. This development is partly due to deregulation and globalisation, but it is also partly due to regulation. So is government the problem or the solution? Tanzi concludes that we need a 'new wisdom' for our new age.' Financial Times 'Brimming with an abundance of scholarly knowledge and practical experience, this book offers much timely wisdom in our troubled times.' Thomas Pogge, Yale University 'In the light of the Covid-19 pandemic, this ambitious book examines the challenges our modern society and our economies have faced historically as a result of natural disasters such as plagues and pandemics. It then considers how, given the future challenges humanity faces with climate change, tax and fiscal policy should be deployed. Policymaking under extreme uncertainty is of great current interest in the 21st Century. This book from an experienced economist provides some fascinating insights.' Professor Sir Anton Muscatelli, University of Glasgow 'This book provides an excellent and original analysis about the role of government during unexpected events and exceptional situations, including pandemics and major disasters, such as climate changes. In times of the COVID-19 pandemic, it offers a timely and stimulating discussion about how and why uncertain and future events should be included into policy decisions. The author, an outstanding expert of public finance, competently guides the readers through the understanding of our complex real world.' Paola Profeta , Bocconi University 'Vito Tanzi has written an important book on a set of main challenges of our time: how to anticipate and manage pandemics, earthquakes, famines, nuclear accidents, climate change and ecological destabilization. The book identifies the difficulties posed by intractable uncertainty, missing markets, short-termism of governments, denial and neglect for finding adequate responses to shocks and processes that can have a high toll both on human lives and the planet. Tanzi's writing is balanced, wise, elegant and well informed by theory and a wealth of historical episodes relevant for the world of today and tomorrow. Strongly recommended!' Andres Solimano, University of Oxford 'This is the most thorough and intelligent review of the western world's economic development, corresponding intellectual debates, and lines of thoughts in economics and public policy from the end of World War I to the present that I have seen.' Hans-Werner Sinn, University of Munich 'A fascinating discussion of why governments may sometimes aggravate the problems they set to solve. Read it if you want to reflect upon the role of the public sector in modern economics.' Alberto Alesina, Harvard University