Wednesday, February 24, 2010

It's the Economy, Stupid. Or Is It Politics?

. Wednesday, February 24, 2010

Jim Stimson, UNC prof and political science legend, has made his name by showing (with his co-authors) that the state of the economy predicts election outcomes with alarming accuracy. It seems too simple to be true: incumbents do well when the economy does well, and challengers do well when the economy does poorly. All the horse-race stuff that newspaper and cable tv fill space with is mostly ephemeral. Nevertheless, this single economic variable seems to explain quite a lot of democratic politics. According to Stimson, in other words, political outcomes are best explained by economic outcomes.

The recent lengthy New Yorker profile of Paul Krugman has illustrated something interesting. He thinks the opposite:

In writing his first popular book, “The Age of Diminished Expectations,” he became preoccupied by the way that inequality had vastly increased in the Reagan years. (Interestingly for an economist, Krugman believes that the political often determines the economic, rather than the other way around; he believes that the increase in inequality in the U.S. since the sixties is a product less of economic factors—the development of technology, say, leading to the greater importance of skills and education—than of political decisions about taxation and unions.

On the surface the two are not mutually exclusive; an economy could grow in aggregate even if the gains mostly accrue to the top of the income distribution. Depending on how you read the data, this seems to be exactly what has happened in the U.S. But Stimson's story is about political attitudes and behavior. If people do not view their economic station as improving, then they should vote against the incumbent party. This doesn't track Krugman's logic at all, since he views economic changes in the past 25 years as being more and more skewed against the median voter.

I've got no particular dog in this fight, although I think Stimson is right, but I just find it interesting that a revered political scientist views economic variables as the most important determinants of politics while a revered economist views political variables as the most important determinants of economics.

I'd love to get the two of them in the same room and see what comes out.


John Lovett said...

I'd have to side with Stimson, though I think some of the confusion comes from the differences in exactly what they're looking at: A Krugman model would seem to be retrospective: focused on past political decisions and how they affect events now. He doesn't have a micro or macro model of voting here, but if there was one, it would be focused on voters looking at the effects of past decisions and making judgments in those terms.

Erikson-MacKuen-Stimson (EMS) view the voter as more prospective. So basically, at the aggregate voters looks at the current situation and make voting decisions based on future performance. Future expectations are based on past performance, but voters are thinking more about the economy in future terms rather than retrospective.

There's also a small element of what is improving. Richard Brody's "Assessing the President" deals with this question in one of the chapters, and EMS does deal with this as well. There are party effects based on different economic indicators: Democrats are helped by improved unemployment, Republicans are helped by reduced inflation and debt balance.

What this really means is that the 10% unemployment #s are probably the biggest problem for Obama/the Democrats in terms of electoral prospects.

Thomas Oatley said...

This is why we have people writing books called "What's the Matter with Kansas."

One might conceptualize the problem along two dimensions: sociotropic vs. pocketbook voting and average GDP per capita growth vs. distribution as the metric for evaluation.

EMS perhaps believe that voters are more sociotropic and vote based on aggregate performance. I am not sure that Krugman has a positive model of voting. He seems to believe that people should vote pocketbook on distribution. If this were the true model, I don't believe governments would do what he claims they have done (redistribute away from the median voter).

Kindred Winecoff said...

I agree that Krugman doesn't have an implicit model of voter behavior. His view of politics seems to be along the lines of "the 'tougher' you are, the more you get what you want."

I think there's more to it than even what you describe, Thomas. Saying that median incomes haven't increased in the past however long, or that standard of living disparities have increased so dramatically since the 1980s, doesn't make sense to most people even though it's in the numbers. Why?

Because even the richest person in the world had no access to technologies like the present-day internet in 1985 (or 1995); now many of the poorest do. Technological innovation has led to a massive expansion of credit to middle and lower classes and access to markets that were previously out of reach (or didn't exist, like ebay). These have markedly raised standards of living across the board even though incomes have remained somewhat stagnant.

(The stark divergence b/t income inequality data and consumption inequality data speaks to this.)

Technological innovation provides massive positive social externalities, and people don't care if Bill Gates or Steve Jobs or the Google Guys get rich off of it. Populist rage is reserved for CEOs of failing firms (Enron, Telecom, AIG) who get rich while their employees get laid off.

In other words, my mental model combines sociotropic and standard-of-living motivations; it's just that the sociotropic motivation doesn't map the way that Krugman thinks it does (or should).

It's the Economy, Stupid. Or Is It Politics?
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