Towards a New Economic Theory of the State

The present article traces the authors’ approach to constructing a new economic theory of the modern state, considering the theory of patronized goods and a general concept of mixed economy failures as its two important components. This approach is based on the original interpretation of the term ‘irrationality’ and proposes a more general definition of ‘paternalism’, revealing negative consequences of its present interpretation. Along with the other failures of the mixed economy, the authors describe a special case—‘paternalist failure’—that may be considered a combination of failures in social choice and irrational government bureaucrats’ activities. There are five types of bureaucratic irrationalities: Vyazemsky’s law, dilettantism, ‘cashier effect’, Parkinson’s law and government officers’ ‘rent seeking’ behavior, that lead to their failure. The authors show that in contrast to market failures impacting government activities, paternalist failures require other responses demanding different activities,—democratic procedures for creating paternalist lines and the introduction of the procedures limiting bureaucratic tyranny