Money in American Politics

In my previous post I chided Krugman and Wells for concluding that something is rotten in America without being able to articulate what that is. In comments it was brought up that the role of money in American politics is surely part of it*. In a sense this is ipso facto true if your starting assumption is that commerce and politics should somehow not be intertwined. But the question, as I understand it, is "What is wrong now?" not "What is wrong in general?" That is, is money in American politics a bigger problem now than before? Often people assume that this must be the case, especially post-Citizens United (even though most of what is wrong now happened before that decision)**.

I'm not very old but I've heard this claim made repeatedly, in good times and bad, ever since I became politically aware. Even a quick glance through the historical record indicates that these concerns seem to be universal to time and place. That alone makes me suspect that it is not a good answer to Krugman and Wells' question, which seems to be much more about this particular moment in the American political economy. But maybe things have been getting progressively worse over the past quarter century or so. I'm willing to be persuaded of that, but when taking a comparative and temporal perspective I would like the following to be the starting points:

1. The Founding Fathers of the country were generally the richest people in society, and America's original charters both recognize and institutionalize this fact. The War of Independence was fought, largely, for reasons of commerce. Nostalgia for the past is inevitable, but it is often not accurate. (Note that I suspect this applies even more to the political right than left.) The point is simply that, like poverty, money in politics has always been with us.

2. The two great progressive eras in recent American history were initiated by Roosevelts and Kennedys... not exactly plebes, and they had no qualms with injecting money into American politics and for their own personal benefit too. I.e., the link between money and important outcomes is ambiguous.

3. There is almost surely less money in American politics as a percentage of GDP, or at least no more, than there was 100 years ago (caveat: this is pre-Citizens United).

4. There is almost surely less corruption in American politics, or at least no more, than there has been throughout its history including periods of populist reform. It is not true that there is more corruption in the US than in other advanced democracies, many of which have different electoral systems and/or campaign finance laws (ibid). At least some (imperfect) studies show that corruption is not related to campaign spending restrictions. Even the concept of corruption via economic interests expressed politically is relatively recent. 

5. The literature shows, over and over, that campaign contributions flow to winners. The literature does not show, very often or consistently, that this money actually affects the election itself. There are plausible causal mechanisms on both sides. Also note that some findings show that limiting campaign contributions benefits incumbents, who already have name recognition and institutionalized support. Recent experimental evidence from Germany supports these findings. From the perspective of making American politics more dynamic and responsive to the citizenry, this is not a point in favor of limiting campaign contributions.

6. At least in the short run, the interests of capital and labor are often aligned in an open economy. A recent example of this involves the American auto industry in 2008-9, where corporate and union interests coalesced in favor of a bailout. Recent trade politics between China and the US also reflects this dynamic. To the extent that we view money in politics as pernicious because it exacerbates class tensions, we may need to reconceptualize the contours of the political space.

7. The US is not an outlier (even among advanced democracies) in terms of broad-based trends in growth, unemployment, inequality, pressures on the federal budget, increased polarization, the growth of finance, public sector bailouts of firms, or other metrics. This should cause us to look to global dynamics -- which will affect all countries -- rather than just local dynamics -- which are idiosyncratic -- for explanation. Not many people do that.

8. When duly elected officials lower taxes on wealthy people, that is not corruption. More generally, when some outcome happens that you don't like that doesn't mean that the system is screwed. Unless you are the median voter***, and none of the loudest reformers on the right or left are anywhere close to her, you will disappointed by a large percentage of policies enacted in a democratic society. That doesn't mean something is wrong... that means something is right. Internalize this point, please.

In summary, what I think we're really concerned about is how interests are aggregated into policy. Money is one channel by which influence might spread, but it's not the only one. In general when we talk about "things going wrong" I think we mean that some groups have captured the state and are securing rents from it. There are plenty of examples of this in American politics, but I don't think we are in a unique historical moment where these problems are so much worse than they have been historically. I'm open to counter-argument here, but it must be rigorous. No more of this "well look at how much they spent on the last election! Obviously things are messed up". No. It isn't obvious. 


If we're to accurately diagnose what's wrong and figure out how to fix it we must define our terms carefully, examine the present era in light of previous eras and comparative contexts, and understand that people are not evil or corrupt just because they may have different preferences from us over things like the optimal top marginal income tax bracket. 

*Other common suggestions, not completely unrelated, are inequality and the power of finance in the political system. They are worthy of their own posts, which I hope to give them in the coming days.

**Leaving aside that the ACLU supports Citizens United on grounds of principle.

***"Median voter" here can be thought of as short-hand or a first approximation of the general dynamic of minimum winning coalitions, not as an iron-clad law of democratic politics.

Quote of the Day

M.S.:

What you're seeing in that divergence between the nominal rate corporations are supposed to pay, and the rate they actually pay after loopholes and gimmicks, is institutionalised clientilism and favouritism. In many other countries, the same phenomenon is expressed as corruption, but in America and other advanced economies it's incorporated into the tax code so as to fan away the stench. The problem with trying to get rid of clientilism is that it tends to be supported by the clients.

Domestic Political Cover, Policy Change and Greek Debt

An absolutely fascinating piece by Michael Lewis in the latest issue of Vanity Fair on Greek debt, Greek monks, Greek civic life, corruption, fraud and how the Greek budget deficit came to be 15% of GDP (and not the reported 3%).

Towards the end, Lewis engages how the new Greek government has sought to implement policy change in the face of a domestic crisis.

The day before I left Greece the Greek Parliament debated and voted on a bill to raise the retirement age, reduce government pensions, and otherwise reduce the spoils of public-sector life. (“I’m all for reducing the number of public-sector employees,” an I.M.F. investigator had said to me. “But how do you do that if you don’t know how many there are to start with?”) Prime Minister Papandreou presented this bill, as he has presented everything since he discovered the hole in the books, not as his own idea but as a non-negotiable demand of the I.M.F. The general idea seems to be that while the Greek people will never listen to any internal call for sacrifice they might listen to calls from outside. That is, they no longer really even want to govern themselves.

It's not necessarily that the Greeks don't want to govern themselves, nor that they will "listen" to calls from the outside. IPE research specifically, and IR research generally, has provided a good explanation of why politicians use this strategy to implement policy change. Political Scientists Todd Allee and Paul Huth discussed how politicians use international courts and other international bodies to push through domestic reform in "Legitimizing Dispute Settlement: International Legal Rulings as Domestic Political Cover" (APSR, 2006 - ungated).

From this research, we can see how politicians strategically use external pressure from intergovernmental organizations like international financial institutions such as the IMF to push through domestic legislation that would otherwise be incredibly unpopular. These politicians claim that "their hands are tied" by these external pressures and that they have no choice but to implement a change in policy (policy that they see as being absolutely necessary, but that the public may not). These international financial institutions provide political cover for politicians and allows them to deflect blame for the policy away from domestic politicians and towards external actors. It's not that the domestic audience will listen to outside actors, but that they will not necessarily blame domestic politicians for implementing these types of policies.

Zero-Value Bribes (Or, The New Testament in India)

Is this a market in everything?

In Doha last month, CommGAP learned about the work of 5th Pillar, which has a unique initiative to mobilize citizens to fight corruption. In India, petty corruption is pervasive – people often face situations where they are asked to pay bribes for public services that should be provided free. 5th Pillar distributes zero rupee notes in the hopes that ordinary Indians can use these notes as a means to protest demands for bribes by public officials. I recently spoke with Vijay Anand, 5th Pillar’s president, to learn more about this fascinating initiative.

According to Anand, the idea was first conceived by an Indian physics professor at the University of Maryland, who, in his travels around India, realized how widespread bribery was and wanted to do something about it. He came up with the idea of printing zero-denomination notes and handing them out to officials whenever he was asked for kickbacks as a way to show his resistance. Anand took this idea further: to print them en masse, widely publicize them, and give them out to the Indian people. He thought these notes would be a way to get people to show their disapproval of public service delivery dependent on bribes. The notes did just that. The first batch of 25,000 notes were met with such demand that 5th Pillar has ended up distributing one million zero-rupee notes to date since it began this initiative. Along the way, the organization has collected many stories from people using them to successfully resist engaging in bribery.

One such story was our earlier case about the old lady and her troubles with the Revenue Department official over a land title. Fed up with requests for bribes and equipped with a zero rupee note, the old lady handed the note to the official. He was stunned. Remarkably, the official stood up from his seat, offered her a chair, offered her tea and gave her the title she had been seeking for the last year and a half to obtain without success. Had the zero rupee note reached the old lady sooner, her granddaughter could have started college on schedule and avoided the consequence of delaying her education for two years. In another experience, a corrupt official in a district in Tamil Nadu was so frightened on seeing the zero rupee note that he returned all the bribe money he had collected for establishing a new electricity connection back to the no longer compliant citizen.

This is yet another piece of evidence in favor of the argument that in order to succeed markets (and governments) must be embedded in a set of social institutions, many informal, that reinforce norms of reciprocity, fairness, and accountability. Without those ideals firmly in place, society can fail to progress, or break down rather rapidly. Deidre McCloskey calls them the "Bourgeois Virtues", although these examples from India would perhaps point to a more universalist explanation.

Of course this is not a new story.

ht: DavosBoy.