Thursday, July 5, 2012

Money in American Politics

. Thursday, July 5, 2012

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.


LFC said...

You make interesting points here, Kindred. I only have time for a few brief-ish remarks (well, not so brief-ish, as it turns out).

The concern about money in politics is not, of course, the intertwining of commerce and politics, since they have always been intertwined. (Btw as you know, in IR and pol. theory there is a long-established school of thought, going back to Montesquieu at least, arguing that commerce is linked to peace. See e.g. Hirschman's classic discussion in The Passions and the Interests or R. Aron on Comte and Saint-Simon in his Peace and War or M. Doyle in Ways of War and Peace or Michael Howard, War and the Liberal Conscience. This is admittedly not directly relevant here but perhaps worth bearing in mind. Plus I didn't have to look up the cites. :))

The question, though, w/r/t the U.S. is the extent to which concentrated wealth may exercise such an undue influence that the system veers toward an oligarchic one in substance, surrounded by the form, but really not the substance, of democracy. This is hardly a new complaint about U.S. politics but there is some reason to think it is increasingly descriptive of reality (comparing last 25 yrs or so to the preceding period). Business has arguably always had a 'privileged position' (I believe the phrase is from Charles Lindblom, Politics and Markets) but there are degrees, as I said before. Serious scholars are writing about this. (E.g., there was an empirical article in Perspectives on oligarchy a while back. I linked it at my blog.)

Second, a narrower point: the fact that FDR and JFK were from wealthy backgrounds doesn't do much for your overall argument. FDR was denounced, of course, as a traitor to his class. And JFK was not all that progressive, frankly. As A. Gelman never tires of pointing out, the rich as a whole vote conservative/Rep. much more than groups beneath them on the income scale. The long tradition of some progressives and radicals emerging from upper-middle-class or wealthy backgrounds does not contradict the overall alignment.

Finally, the point about trends in the U.S. being influenced by global developments: of course. But taking a comparative, historical, and global perspective does not mean one cannot also consider national peculiarities. Surely (?) those who study IPE would not disagree with that.

Kindred Winecoff said...

Thanks for the thoughtful comment.

I do know at least some of the tradition in IR/poli theory discussing commerce and peace, although a few of your references are unfamiliar to me. (I've been meaning to get around Aron's major works for awhile; maybe I'll push him up to the top of the pile.) I agree, it is worth keeping in the back of one's mind when having these conversations. As Drezner noted the other day, when we limit commerce too much, we tend to get things like Declarations of Independence. Or, more recently, Tunisian street vendors setting themselves ablaze in protest of onerous regulations and confiscatory public officials.

I agree that an important component of this is the question of oligarchy. There are a few things along that path worth noting: First, it's still not clear to me that the US is more oligarchic now than at most points in the past. E.g., does JP Morgan (the company) have more political influence today than JP Morgan (the man) had in the early 1900s? I should think not. We could take other examples, the overall point I think still stands: if there is something *particularly* wrong about today's US political economy, it probably isn't that.

Perhaps trends over the most recent quarter century are "worse" than trends in the previous quarter century, but even if that were true (and I don't buy it) I think it's more likely that the first post-WWII generation was anomalous than that this generation is anomalous, and that this was primarily related to global rather than local factors. I can elaborate if you don't catch my drift, or you search the blog for my previous posts on Cowen's Great Stagnation hypothesis.

Second, it's not *immediately* clear to me that having some oligarchic components in the governance structure is necessarily a bad thing. Certainly the American Founders didn't think so, as they effectively institutionalized oligarchy in many different ways, including bicameralism, the electoral college, and the strict limits on government power. This was not just to prevent tyranny of the monarchical sort, but also of the democratic sort. It's the whole point of republicanism.

I had seen the Perspectives oligarchy paper but forgotten it. Thanks for the reminder. After a skim, I'm not buying the methodology right off. Many wealthy people (eg Kobe Bryant) have no effect on policymaking whatsoever. Many not-so-wealthy people (eg the editor of the New Republic, at least in days gone by) do. This is part of my point: money is only one route to influence, and not always the most effectual one.

Your point about FDR is what I mean: the effect of wealth on outcomes is ambiguous. As for the Kennedys, I chose my words carefully: I didn't just mean JFK, and I said initiated progressive programs, not saw them to completion. Sure, we would expect rich people (and all people) to vote their interests as a group, and Gelman has done a lot of good to keep that firmly in mind, but voting in one's interest is not the concern here, I don't think. We're talking about something more nefarious than that.

I'm fine with *also* considering national peculiarities. But who, exactly, is considering macro global trends? Not most of the people involved in this discussion, including all of the authors of the books Krugman and Wells review. Nor Krugman and Wells. You can think of my post as intended to be a partial correction to that.

LFC said...

Thanks for the reply. Two quick things:

1) I do catch your drift re the post-WW2 generation as anomalous b/c of global factors. Granted, there is something to that.

2)Rather than pushing Aron to the very top of the pile, of the references I mentioned I'd put A. Hirschman, The Passions and the Interests: Political Arguments for Capitalism before Its Triumph (Princeton U.P., 1977; 20th anniv. edition, 1997) at the top, b/c it's a gem: short, well written, interesting, learned without being pedantic, an acknowledged modern classic, and something that every (well-rounded) student of political economy should have read. It's partly, but only partly, about how the notion of 'interest' developed and, so to speak, slid in between the (uncontrollable) passions on one hand and (natural-law-linked or divinely-inspired) Reason (capital R) on the other. And though the point about doux commerce is probably what gets cited the most from the book, there's other interesting stuff there. (I should re-read it myself.)

Latinamericanist said...

I'm actually with you in being somewhat skeptical about the role of money in US politics, but you overstate your case.

5. Yes, but this ignores the whole literature about campaign contributions and lobbying as gift giving etc. - Lessig's book has a useful summary, including some polisci, Clawson's Dollar's and Votes is an excellent treatment: Money doesn't buy you votes, nor does it win you elections, but it screens out candidates, it provides you with access, it gives you influence over the fine print of laws etc. The quantitative "money doesn't matter" and "why is there so little money" literature would benefit a lot by taking more seriously some of the qualitative findings on how money actually works.

6. Well, yes Frieden, sectoral alliances etc. But you can't just pretend that's the only word out there. You're in Huber and Stephens' department for crying out loud. For a lot of things - taxes, welfare state institutions - (class) power resources matter. A lot. The fact that the interest sometimes overlap doesn't change that.

7. That's debatable. The Winner Takes All inequality trend in the US is an outlier - Hacker and Pierson use the comparison of inequality trends to other OECD* countries to show the flaw in non-political arguments about inequality such as increasing returns to skill. Yes, there are similar trends in the other anglo countries, but they're weaker, the comparative capitalism literature tells us to expect them to look similar, and there may be spill-over effects due to language.
Even regular 90/10 inequality trends in the US are among the strongest in the OECD - and that from levels that are already outliers.
Labor market trends (unionization, job tenure) would be another example - yes, those trends go in the same direction as in other OECD countries (so absolutely, there are international and/or technological factors at work), but they're stronger and on different levels in the US.

Where I agree with you is that this idea that something has suddenly gone wrong is odd. The inequality trends - which I think are the most significant ones - have been going on over the last 30+ years, so this is more a long term trend than a short term "things have gone wrong".

The strongest case for state capture is, of course, finance. This is hard to measure, but it's pretty clear that the influence of finance in politics has increased significantly - I'd have to track down data, but I'd be confident to find that in terms of campaign contributions, job history of top administration officials pre and post their appointments, case studies of legislative history of important bills... People like Simon Johnson, Acemoglu etc. are concerned about this. I'm not aware of any good measures on this from less developed countries, where there is more of a literature, but that's where to look.

*I mean the old OECD w/o Chile and Mexico.

Kindred Winecoff said...

Good comments.

5. I considered expanding this discussion, and actually drafted a bit of it, but I felt I was going on long enough as it was. I'm familiar with Lessig's work (tho not Clawson's... I'll look it up) but I'm not sure it changes the overall picture: we all think that money has some effect on politics, but we don't know very well what that effect is or how much it really matters for outcomes. Money screens candidates? So what? A ton of literature suggests that parties screen and control candidates anyway. So a Hillary Clinton presidency wouldn't look that different from a Barack Obama presidency. Ditto Romney and Gingrich. In the micro sense the screening effect might be important, but not so much in the macro sense. Access? Sure. But lots of groups have access. (And lots of groups have money, too.) Fine print on laws? Of course. But again: these tend to have micro effects not macro effects. Micro effects don't cause global depressions and 30-year trends in inequality across the entire OECD.

6. I am in the same department as Huber and Stephens, and I've read their book. That doesn't make me a disciple (a) and it doesn't have a ton to say about 21st century America (b). Also, on this point I intentionally caveated twice: in emphasizing short-run effects (which often matter most for policymaking) and "often aligned" ie not "always aligned". Even the most bank-friendly policies post-crisis have also benefited labor; any labor-friendly policy that boosted aggregate demand would also benefit banks. A bank-crushing policy would also harm labor. These effects are not necessarily symmetric but they are parallel. Meanwhile, in the current US political economy we've witnessed very notable EXPANSIONS of the welfare state over the past decade, under two different administrations coming from opposite parties. This ain't Huber and Stephens' world.

7. It is debatable. I'm debating it. There are important comparative differences b/t the US and the rest of the OECD -- eg in the US (but not the rest of the OECD) income measures don't include non-income compensation like health insurance, which has been increasing in value exponentially over recent decades -- but I don't think that really matters. The fact that common trends are more prevalent in the US than in (some) other OECD countries doesn't make the US an outlier. Just above the peak of the distribution. If all countries' trend lines are in the same direction but one country's slope just happens to be a bit steeper than the group mean, it seems a bit presumptuous to immediately assume that the entire political system in that country is screwed.

I agree that we need to think about longer run trends, and cross-sectional trends, and this is a running theme of mine on the blog (as I'm sure you're aware). In fact, if I were to sum up my last two posts in one sentence that might be it.

I'm planning a post on finance and state capture. I think the relationship b/t finance and the state is actually more complicated, and symbiotic, than that. We'll see what I end up arguing after I've finished writing it.

Anonymous said...

Will: Look at Luigi Zangales' good argument about the dangerous effects of business lobbying on U.S. economic policies. He discusses it in his recent book. I think lobbying has more corrosive effects on our economy today than in the past. It's not about the amount of lobbying money. Don't equate corruption with total amount of lobbying or lobbying dollars as a percentage of GDP.

Kindred Winecoff said...

Anon -

I have. Did you read my second-to-last paragraph? I agree that there is a lot of rent-seeking in the US. It is a central part of my research program. I blog about it consistently. I mentioned it explicitly in this post.

I do not dispute that lobbying occurs. It always occurs. In a healthy democratic society it, in fact, *must* occur. It is constitutionally protected, in fact, in the First Amendment: the "right to petition for a redress of grievances" is the right to lobby your government.

But a few things are worth noting:

1. Lobbying, in and of itself, is not the same as corruption.

2. There is nothing "wrong" -- morally or in terms of having a well-functioning democratic political system -- with businesses, labor unions, religious groups, or anybody else uniting to support political candidates who will enact policies favorable to them.

3. Regulation, including campaign finance regulation, as often exacerbate rent-seeking as correct it. The welfare case for regulation is about correct market externalities. Regulating campaign finance is *not* about correcting an externality... it's about shifting power away from some groups and towards other groups.

4. #3 may be appealing on normative grounds, but it actually creates new opportunities for rent capture. See my #5 above in the original post. If we create barriers to entry to the political process that is neither democratic (see the ACLU on Citizens United, linked above) nor likely to lead to an open, dynamic political sphere. The problem with DC is *not* that it is not calcified enough.

Anonymous said...

If anyone who has little to no capital gains holdings, or who makes less than 250k/year thinks that those taxes shouldn't be raised, there is only one obvious reason: They have been beaten over the head with the magical "influence" hammer, wielded expertly by the "money" fairy. It's the only convincing reason that someone would disagree with progressive political viewpoints.

Nevermind the stagflation of the 70s which seriously challenged the link between inflation and employment. Nevermind the rise of Solidarity in the 80s, and the fall of the Wall; things that cast serious doubt over the claims of the activists of the 1960s (I'm reminded of Susan Sontag being booed at a conference hosted by the Nation for claiming that Reader's Digest had been more accurate on their depictions of the USSR). Nevermind the Eurosclerosis of the 80s, or the retrenchment of Western and Northern welfare states during the 90s (Duane Swank), or hell, the current debt problems of the EZ periphery.

Nope, no good reason other than MONEY and INFLUENCE to explain low taxes and union decline.

Money in American Politics




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