Tuesday, October 11, 2011

The Selectorate in Theory and Practice

. Tuesday, October 11, 2011

Bueno de Mesquita and Smith continue their guest-posting at the Monkey Cage with this, which basically describes how time inconsistency problems can affect politics. (Michael Lewis recently wrote a case study of this process in California which, for all its faults, is better than his essays on Europe.) Before I get into my criticism, let me say that I value their work on selectorate theory, even though I think it has some problems. I value it for a few reasons: because I think the dynamics they are trying to model (basically a formalization of a strand of public choice econ) are very important for the study of politics even if their theory isn't a finished product, and because they provide a central theoretical paradigm for other scholars to use as a foil for their own research.

Anyway, enough throat-clearing. As this post, and the titles of their books on selectorate theory -- The Logic of Political Survival and The Dictator's Handbook -- make clear, theirs is a theory of comparative politics, not international relations. Nothing wrong with that, but it leaves them susceptible to problems that scholars who primarily operate in one subfield often have when crossing over into another. Specifically, they tend to make assumptions that seem reasonable but are nevertheless highly contentious. This post illustrates one of them. BdM and Smith write:
It is certainly true that bankers and businessmen wrote loans they suspected would not be repaid; they buried debt on the balance sheet; and, in extreme cases, committed outright fraud. These actions, and hundreds of others like them, provide rewards today, accruing costs that must be paid in the future. Why run up so much debt? Easy, paying costs in the future is someone else’s problem. It certainly won’t be the executive’s problem if she does not survive at the top today. Business leaders happily – and smartly – mortgage their firm’s future to ensure that they retain control now. Lavish payments even when performance is poor is the norm, not the exception.  
As much as politicians chide business leaders, they too love debt. It lets them buy loyalty now. Repayment is some future leader’s problem. Politicians hate to pay as they go. They love to make expensive promises that they don’t have to fund. For instance, politicians love to pay public sector employees with modest wages and fantastic defined pension benefits. This means less to pay today on their watch and more to pay on someone else’s tomorrow. What could be better!
On the one hand this seems more or less incontestable: politicians would prefer to buy support now and have someone else pay later. As the theorize later in the post, autocracies are more prone towards debt accumulation than democracies. I'm sure this is true in many contexts, and Oatley has some recent research that backs it up, but the example they introduce as illustrative of the broader phenomenon -- the actions of bankers -- gives us reason to question their narrative. Bankers acted the way they did in part because of policies that rewarded this behavior. The financial sector profited enormously from the legal and regulatory structures in the United States and around the world over the past few decades, and there was always an expectation that the government would support them in times of trouble. The Fed made that guarantee via the Greenspan/Bernanke "put", and the fiscal authorities did as well, setting a clear precedent of interventionism through a series of fiscal interventions from 1980s-2000s.

In democracies the "selectorate" -- the group whose support politicians must maintain to stay in office -- is assumed by BdM/Smith to be 50% of the population, or near that number. And yet the most energized political movements on both sides of the ideological spectrum right now, the #OccupyWallStreet and Tea Party groups, both formed in large part in reaction to policies that benefited bankers over the masses. These policies were enacted by both major political parties in two different presidential administrations, and do not benefit 50% of the population. They benefit a very small minority of it, hence the "We are the 99%" slogan of #OWS. In general the economy of the US and other industrialized democracies has become much more unequal over the past several decades, and  there has been little or no movement towards redistribution to mitigate the trend. A more progressive tax system would definitely benefit more than 50% of the population, yet the government finds it very difficult to pass a several percentage point marginal tax increase on millionaires.

Not only can selectorate theory not explain this, it would predict the opposite. More generally it would expect the majority of the population in an increasingly-unequal society to favor highly redistributive policies, and it would expect politicians to respond to this demand. BdM/Smith might be on stronger footing if they adopted the Rajan thesis that the government countered stagnating median wages by expanding credit access, but even this would depend on the claim that 50% would prefer more credit to more income. This seems dubious.

It seems more likely, to me, that the idealized account of democracy that selectorate theory provides is incomplete. The strength of selectorate theory is that it can accomodate more complex accounts of preference creation and aggregation relatively painlessly, but the weakness of the BdM/Smith application of selectorate theory is that they seldom take the more complicated steps that are necessary to reach conclusions that match our empirical understanding of the world. That leaves us in a place where selectorate theory is potentially valuable if used with care, but the primary proponents of selectorate theory -- in emphasizing parsimony over accuracy -- end up reaching conclusions that are pretty clearly wrong.


The Selectorate in Theory and Practice
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