Like Robert Caro before he wrote the The Power Broker, many of us hold to the anachronistic idea that “power in a democracy comes from the ballot box.”
Not Greg Mankiw, though. For him, a federalist democracy is all about state and local governments competing with one another and corporations voting “with their feet.”
Because capital is more mobile than labor, competition among governments significantly constrains how capital is taxed. Corporations benefit from various government services, including infrastructure, the protection of property rights and the enforcement of contracts. But if taxes vastly exceed these benefits, businesses can — and often do — move to places offering a better mix of taxes and services.
Add to capital’s ability to play one government off against another the fact that, as a result of the Citizens United decision, corporations can purchase both politicians and elections. What we end up with is neoclassical economists’ conception of a perfect democracy.