Political Polarization and Economic Policy

This book by Nolan McCarty, Keith Poole, and Howard Rosenthal has a pessimistic message. When there is rising inequality, as now, there is generally a corresponding increase in political polarization. The polarization makes it difficult for government to address serious economic problems which, as a consequence, often go unattended. What is the solution? With government unable to address serious problems due to the political stalemate, then unfortunately, "[p]revious periods of polarization have ended as major events, such as World Wars I and II and the Great Depression":

McCarty explores economic roots of today’s political strife, by Eric Quiñones, Princeton Weekly Bulletin: Nasty clashes on hot topics such as the Iraq war, social issues and corruption may dominate the current political discourse, but the answer to why America is so polarized ultimately lies in the widening gulf between its richest and poorest citizens.

That is the message of “Polarized America: The Dance of Ideology and Unequal Riches,” written by Princeton’s Nolan McCarty ... and two colleagues. The book, which has been cited as a breakthrough in the study of America’s bitterly divided political environment, shows that growing income disparities and increasing immigration levels have driven the current and previous periods of polarization. As Republicans and Democrats have locked horns in promoting policies catering to their core constituents, they have, in turn, exacerbated the divisions between America’s economic classes.

“The consequences of polarization that a lot of scholars have focused on have primarily been the tone and the tenor of politics. But this book focuses a lot more on how it has affected economic policy,” said McCarty, a professor of politics and public affairs and associate dean of the Woodrow Wilson School of Public and International Affairs. “In a more polarized environment, it is much more difficult for political coalitions to form and to pass new legislation and adapt to changing economic and social circumstances.

“The main effect has been a lack of government response to problems. You can identify current issues such as the lack of health care reform, the inability of the minimum wage to keep up with inflation and the deterioration in several other social benefits,” McCarty said. “The main consequences for policy are either that serious problems go unaddressed or the solutions tend to be ideological and one-sided.” ...

The book debunks a common refrain of political pundits that America’s political divisions have never been as stark as they are today. “We can put to rest the notion that the country has never been this polarized,” McCarty said. “In other periods of time, especially after Reconstruction in what we call the ‘Gilded Age,’ the parties were just as divergent, and partisanship was just as important. You can identify many similarities between the 1890s and the current period, and the very high levels of economic inequality are among the most important.” ...

From the 1970s to 9/11 The current period of polarization has been building since the 1970s due to economic changes, such as advances in technology, that have created a broader gap between high- and low-wage earners, McCarty said. In the current period, as in previous ones, rising immigration has compounded the economic disparity, as many immigrants take low-paying jobs and do not carry the political clout of wealthier Americans.

“Going into the 1970s there was a very strong consensus for a welfare state — the Republicans wanted a little less and the Democrats wanted a little more, but there was a big consensus,” McCarty noted. “As the economic paths of voters diverged, the partisanship diverged. Most of that has come from the way the Republican Party responded to the winners of these economic shifts. The cost of the social safety net became apparent, and large segments of voters believed that by reducing taxes and deregulating the economy that the country could be made better off. It certainly was made better off for those from the middle to the top, but not so much for those at the bottom.”

Previous periods of polarization have ended as major events, such as World Wars I and II and the Great Depression, “changed the economy such that inequality was lessened or changed people’s sense of a shared fate in a significant way,” McCarty said. ...

See also "Class War Politics" and the follow-up "Immigration and Political Polarization" for some of the graphs (at bottom) from the McCarty, et. al. book.

Comments

[John Konop]

The way Wall Street economics works is this way. A company with a 5% profit margin cuts 50 basis points of expense. Now the quarterly earnings are up 10%. The executives sell off their options and they are happy on the rising stock price.

The 50 basis points of expense are supported by a paid economist who brags about efficiency.

Yet the “efficiency” is the laid off workers from the WEST who are replaced by slave and child labor with no environmental, labor and human rights standards. Am I missing something?

[Peter Schaeffer]

Anyone concerned about inequality needs to be concerned about immigration. Take a look at the graphs over at the "Immigration and Political Polarization" link. The correlation is amazingly high.

[Richard]

Perhaps I should change today's message ("Vote for the candidate of your choice") to "Vote for the extremist of your choice".

[evagrius]

Peter Schaeffer- Sure. But it's those who benefit rom immigration that need examining.

After all, Canada has a large number of immigrants and yet it doesn't seem to have the problems of the U.S. Of course, it helps to have a rational policy, one that requires educated, skilled immigrants.

The U.S. has had a policy for over twenty-five years, since the sainted Ronnie decided to chuck out the old one.

Reagan Embraced Free Trade and Immigration
by Daniel Griswold

Dan Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute.

In the many eulogies to Ronald Reagan since his passing, virtually all acknowledge his role in defeating Soviet communism and reviving America's self-confidence. But another aspect of Reagan's record that should not be forgotten was his commitment to keeping America open to trade and immigration.

Reagan's vision of an America open to commerce and peaceful, hardworking immigrants contradicts the anti-trade and anti-immigration views espoused by Lou Dobbs, Bill O'Reilly, Pat Buchanan, Rep. Tom Tancredo of Colorado, and many others who claim to speak for the conservative causes Reagan largely defined.

Reagan's heart and head were clearly on the side of free trade. While president, he declared in 1986: "Our trade policy rests firmly on the foundation of free and open markets. I recognize ... the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations."

It was the Reagan administration that launched the Uruguay Round of multilateral trade negotiations in 1986 that lowered global tariffs and created the World Trade Organization. It was his administration that won approval of the U.S.-Canada Free Trade Agreement in 1988. That agreement soon expanded to include Mexico in what became the North American Free Trade Agreement, realizing a vision that Reagan first articulated in the 1980 campaign. It was Reagan who vetoed protectionist textile quota bills in 1985 and 1988.

During Reagan's eight years in office, Americans eagerly expanded their engagement in the global economy. In 1980, the year before Reagan became president, Americans spent a total of $334 billion on imported goods and services and payments on foreign investment in the United States. By 1988, his last year in office, American spending in the global economy had nearly doubled, to $663 billion. If Reagan was a "protectionist," it had no discernable effect on the ability of Americans to spend freely in the global marketplace. Fittingly, one of the major federal buildings on Pennsylvania Avenue is named the Ronald Reagan Building and International Trade Center.

Like most post-war presidents, Reagan championed free trade while selectively deviating from it. Critics of trade note correctly that Reagan negotiated "voluntary" import quotas for steel and Japanese cars and imposed Section 201 tariffs on imported motorcycles to protect Harley-Davidson. All true. But those were the exceptions and not the rule. They were tactical retreats designed to defuse rising protectionists pressures in Congress.

Reagan's words and deeds regarding immigration were equally expansive. At a ceremony at Ellis Island in 1982, he spoke movingly of immigrants who "possessed a determination that with hard work and freedom, they would live a better life and their children even more so." As with trade, Reagan's record on immigration was mixed. He signed the Immigration Reform and Control Act of 1986, which included stepped up border enforcement and sanctions against employers who knowingly hire illegal workers. But that legislation also legalized 2.8 million undocumented workers. More immigrants entered the United States legally under President Reagan's watch than under any previous U.S. president since Teddy Roosevelt.

Like President George W. Bush today, Reagan had the good sense and compassion to see illegal immigrants not as criminals but as human beings striving to build better lives through honest work. In a radio address in 1977, he noted that apples were rotting on trees in New England because no Americans were willing to pick them. "It makes one wonder about the illegal alien fuss. Are great numbers of our unemployed really victims of the illegal alien invasion or are those illegal tourists actually doing work our own people won't do?" Reagan asked. "One thing is certain in this hungry world; no regulation or law should be allowed if it results in crops rotting in the fields for lack of harvesters."

In his farewell address to the nation in January 1989, Reagan beautifully wove his view of free trade and immigration into his vision of a free society: "I've spoken of the shining city all my political life, but I don't know if I ever quite communicated what I saw when I said it. But in my mind it was a tall, proud city built on rocks stronger than oceans, windswept, God-blessed and teeming with people of all kinds living in harmony and peace; a city with free ports that hummed with commerce and creativity. And if there had to be city walls, the walls had doors and the doors were open to anyone with the will and heart to get here."

Compare Reagan's hopeful, expansive, and inclusive view of America with the dour, crabbed, and exclusive view that characterizes certain conservatives who would claim his mantle. Their view of the world could not be more alien to the spirit of Ronald Reagan.

[evagrius]

Sorry- I meant that the U.S. has had no policy since the sainted Ronnie.

Have you noticed that income inequality, immigration, obesity, loss of educational attainment, etc; ALL seem to have had their origins during his "sainted" regime?

[maria]

Eva:

Well Ronnie only did what Nancy told him to do, so I think you are blaming the wrong person. LOL.

[save_the_rustbelt]

Ronald Reagan is responsible for obesity?

Nurse Rachet, warm up the electro-shock!

[save_the_rustbelt]

On a more serious note, I think Iraq is going to continue deteriorating, and perhaps at a faster rate, and foreign policy will dominate the next two years.

I think everything that happens domestically will be foreplay for 2008, so a lot of noise and not much light.

[evagrius]

save_the_rustbelt;
Ronald Reagan is responsible for obesity?

The obesity rate started going up at the same time as high-fructose corn syrup was introduced into food "manufacturing". This was during "St" Ronnie's first term.

Coincidence, of course.

[John Konop]

Why Conservatives Are So Angry

Debt Matters

We elect congressmen and congresswomen to represent our interests. We vote for self-described fiscal hawks who favor less government. But all we get is:

• A Congress that represents the lobbyist-money-changers in Washington
• A near $9 trillion debt
• An explosion in government spending that puts Liberal tax-and-spenders like Lyndon Johnson to shame

Integrity Matters

The moral lapses of the Clinton administration were, of course, distressing. We voted for self-described conservative representatives who claimed they would do better. But all we got was a never-ending chain of scandals ranging from sex crimes to bribe-taking to gambling promotion.

Each is driven by a combination of greed, power-lust, and arrogance. Of course, mistakes do happen. But even when individuals are caught red-handed, they refuse to take responsibility. All that results is finger pointing and excuses from congressmen hiding in rehabilitation centers. Misbehaving congressmen should be removed—period. Are we supposed to look up the definition of is again?

Immigration Matters

We are a country of laws. If you don’t like a law, change it. But a government that intentionally refuses to enforce select laws is weakening the whole “rule of law” and breaking its most sacred pledge to the governed.

Some employers are using illegal immigration to drive down wages and eliminate hard-working Americans from their payrolls. And of illegal immigrants gangs run roughshod over our communities, bringing with them:

• Violence (and the threat of violence)
• Crystal meth and other illegal drugs
• Prostitution
• And perhaps terrorists

Yet Congress and the White House repeatedly turn a blind eye in exchange for big business campaign donations and lobbying loot. The best they’ve done is pass a lame fence bill that covers no more than 10% of the problem (and they aren’t even obligated to follow through on that much). Yet many existing laws remain un-enforced.

What Should We Conservatives Do?

The Democratic Party is not the answer. It is at best beset by the same corruption as the Republican Party, and at worst completely at odds with our values. The only practical solution is to challenge Republican incumbents who fail to:

• Vote against bloated spending bills
• Demand immigration reform
• Hold their fellow members to the highest level of ethical conduct

We must stop giving money to any candidate who represents special interests over our interests.

[evagrius]

John Konop;

Actually, the solution is to create third, fourth and fifth political parties with vigourous debates.

But that would require work on the part of voters. It would force them to think.

Can't have that.

[John Konop]

Good Point evagrius!!!

[calmo]

Absolutely

[Lee A. Arnold]

It will be good to study this new book, although polarization may cause less of a problem than in previous episodes.

Number one, the more advanced era of communication is getting the news and information about inequality around much faster, and members of the general public are here and elsewhere discussing it, at far more advanced theoretical and realistic levels than in previous episodes. We don't have solutions yet, but discussion is always the necessary precursor. (And we still get too many complainers here without constructive ideas to make them worth reading, but maybe that's the price of an open society.)

Number two, the market libertarian ideology is running into a dead-end, theoretically and realistically. (This is one of the Republicans' biggest problems in the immediate future, though they do not seem to realize it yet.) A major sea-change in public awareness of the value of institutions -- their value to fairness and to economic growth -- is starting. So the current episode may end in a "major event" not pessimistic, but salutary.

[save_the_rustbelt]

Wall Street's wild windfall
Earnings help NYC cut estimated deficit as brokerages' $36B in bonuses prime pump for luxury-goods sales

BLOOMBERG NEWS

November 7, 2006

Never in the history of Wall Street have so many earned so much in so little time.

[save_the_rustbelt]

about those bonuses.........

Financial Services
Fed To Banks: Halt Bond Fraud
Liz Moyer, 11.07.06, 6:00 AM ET

The Fed wants banks to stop fraud in the U.S government bond market before regulators have to step in.

Regulators and members of Wall Street's biggest bond-trading operations are discussing ways to strengthen the integrity of the U.S. Treasury market amid a probe of possible market manipulation.

The meeting on Monday afternoon at the Federal Reserve Bank of New York included representatives of the U.S. Treasury Department and the Fed, as well as head bond traders and compliance officers at the 22 primary dealers in U.S. government bonds.

[Peter Schaeffer]

Evagrius,

I was never a fan of Regan’s positions on immigration. I opposed the 1986 IRCA on the grounds that Amnesty would only lead to a new tidal wave of illegals… At the time I had no interest (or knowledge) of trade issues. In retrospect, the early Regan years were the start of the “twin deficits” than have haunted us since and exploded under Bush.

The irony is that Reagan and Bush I recognized the problem and took serious steps to address both the trade and budget issues. The dollar was massively devalued (Plaza and Louve) and taxes raised. By around 1990, the trade deficit was gone. Of course, the recession triggered by these policies cost Bush I his presidency.

Bush II has pushed the crazy economic policies of early Reagan much father than Regan dared. The trade deficit is double the Reagan peak. Since Bush won’t even try to fix it, some future administration will be stuck with the task. It is plausible that the next Democratic president will suffer the same fate as Bush I.

For the record, Dan Griswold is one of my least favorite people in the world. Griswold has even attacked government efforts to crack down on illegal alien smugglers. Virtually everyone recognizes that these people are vile (ever seen a picture of a “Rape Tree”?). See http://www.nationalreview.com/comment/comment-fonte050902.asp for some information about Griswold.

Of course, Griswold is from Cato, a haven for lunacy. A few years ago, the Washington Monthly published an article about how Stuart Anderson (from Cato) helped to enable 9-11 by blocking a student tracking system. See http://www.washingtonmonthly.com/features/2001/0205.confessore.html for the article.

Canada’s immigration policies are better than the US. However, the trend lines in Canada appear to be going in the wrong direction.

That said, it is still possible for a poor Canadian to leave a depressed part of Canada and get a well paid job in a growing area. In the U.S. the same jobs pay dismally and are already taken by illegals.