Let′s talk about James Buchanan. No, not the last American president born in the 18th century. About James McGill Buchanan. Why him? He was a Nobel Prize laureate and American economist who got recognized for his study on public choice theory, and who just recently passed away (January 9, 2013).

So why is his work still relevant today? Mainly because Buchanan initiated research on how non-economic forces and politicians’ personal interests affect economic policy.

His research includes extensive writings on macroeconomics, constitutional economics, the public debt, public finance and voting – all that is very important especially now, at the time of global economic crisis.

What is even more important, looking at the entire government €œstruggle against the economy,€ is that in his studies Buchanan rejects “any organic concept of the state as superior in wisdom, to the citizens of this state.” This is where the interesting part begins.

Thanks to his philosophical position the basis of constitutional economics can be formed. According to Buchanan, every constitution is created for the time period of at least several generations and therefore, it should be able to balance interests of the society, state and each individual.

Unfortunately we don′t see this happening all around us. There are, of course, exclusions, but in whole we see just the opposite. The rich are getting richer or at least are well off anyways. And middle class is getting the full blow of the recession.

It is interesting that Buchanan’s ideas were always seen as a challenge to John Maynard Keynes. And Keynes is recognized to be one of the most influential economists of the last century and founder of modern macroeconomics. He was among those who advocated the use of monetary and fiscal measures to reduce the negative effects of economic recessions.

Once Keynes’s ideas became widespread, they were adopted by leading economies. Even though the outburst of the global financial crisis in 2007 caused degradation in Keynesian thought, the principals of Keynesian economics are still used to give response to the crisis. Unfortunately, neither the administration of George W. Bush or Barack Obama developed new approaches.

In his works Buchanan poses a question, €œWhat do individuals seek in politics if they do not seek to maximize their own expected net wealth?€ Which seems to make perfect sense, doesn′t it?

The main point is that modern politics can be adjusted only through the change to the constitution. In this way individuals will be able to act according to the long-term interest of the community and not their own short-term interests.

James M. Buchanan says, “Until and unless we begin to take the long-term perspective in our private and in our public capacities, including the adoption of new and binding constitutional constraints on the fiscal and monetary powers of government, we are doomed to remain mired in the muck of modern politics.”