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.