An 'Austrian' Economist's Perspective on Transitional Political Economy

After the failure of western advice to aid former communist countries in their transitions to market economies, economists are faced with dilemma at the beginning of the 21st century that was widely recognized in the 19th century: to do good economics one must study the interaction of the economy, polity, and society and that nothing is so dangerous as an economists who attempts to offer advice based on a study of the economy isolated from all other factors. In this working paper, Dr. Boettke stresses three simple points about the transition from the former socialist system to a market economy: 1. Transition problems are not economic problems, but political and legal problems; 2. Change requires an accurate defining of the "here" from which reforms start and a good idea of the "there" to which change is to accomplish; 3. Effective change of the political and legal institutions requires government to establish a binding and credible commitment to reform.