For a Democratic, Fair and Efficient Society: A Restatement of the Need for a Unitary Discipline of Economic Policy
Agreeing on these goals implies referring to a discipline of economic policy that must be unitary in its conception. A democratic society can only be built by deriving some social-choice rule out of the preferences of citizens.
In order to do this, value judgments - or more generally, a theory of justice - must be accepted and used. By definition, a theory of justice specifies criteria of fairness. Proper institutions should ensure not only the procedures for deriving social preferences out of any kind of individuals’ preferences but also that the latter are not influenced by vested interests and the power of some agents, which can establish interest groups, lobbies, etc. to protect them due to their income and wealth. Proper institutions should also be devised in order to ensure the essence of democracy, which implies not only a democratic election but also democratic government, i.e. a government that requires continuous forms of control by citizens (see e.g. the recent contribution by Rosanvallon 2015).Education plays an essential role in this conception, as it can inoculate the seeds of change as well as social cohesion and cooperation, protecting from concentrations of power and the actions of vested interests, which would destroy democracy or make it only apparent, as is the case in many - or most - countries.
Once social goals are derived, proper institutions should organise available instruments or devise new ones in a coordinated way that makes them effective with respect to those goals. From this point of view, a combination of market and non-market institutions can preserve personal freedom in the economic realm, microeconomic and macroeconomic efficiency as well as equity and pursuit of the common good.
Solving incentive problems and carefully programming public actions - consistently with this design - are two essential steps. ‘Implementation theory' and both the ‘positive' and the ‘normative theory' of economic policy are essential ingredients to this end that have institutional counterparts. Finally, any practical suggestion of policy action should refer to a given institutional - and historical - environment.
Thus, institutions are the glue connecting the three parts of a discipline - economic policy - that must be unitary and differentiate itself from other economic disciplines, which either largely leave institutions aside, such as economic analysis, or focus on a limited set of institutions, such as public finance.