Category: Equitablog

What are the essential principles of America’s political parties?

Paul Krugman seeks enlightenment. But I think he looks in the wrong place. He looks in the works of German Charlie from Trier:

Paul Krugman: Partisan Classiness: “Many people in the commentariat are utterly committed to the view that the two major parties are mirror images of each other…

…despite vast evidence to the contrary. But until Harry Enten directed me to… Grossman and Hopkins, I hadn’t really registered the extent to which the same assumption of symmetry is often made by political scientists…. Grossman and Hopkins… document the very real differences in the two parties’ structure… in terms of how they work….

The Republican Party is the agent of an ideological movement, while the Democratic Party is best understood as a coalition of social groups.

The next question, which they really don’t answer, is why. And I find myself thinking about Karl Marx…. Marx declares… the three great classes… defined in part by shared economic interests. But he identifies a problem…. The Democratic Party looks kind of like the class system Marx said was wrong, without ever getting around to telling us why. It’s a coalition of teachers’ unions, trial lawyers, birth control advocates, wonkish (not, not ‘monkish’ — down, spell check, down!) economists, etc., often finding common ground but by no means guaranteed to fall in line. The Republican Party, on the other hand, has generally been monolithic, with an orthodoxy nobody dares question. Or at least nobody until you-know-who, which is why the establishment keeps imagining that ‘But he’s not a true conservative!’ can make the nightmare go away.

Better, I think, than German Charlie as a guide is St. Grottlesex Dean:

60-some years ago, Dean Gooderham Acheson laid out his version of how American politics and political economy worked.

Acheson had been at the center of American politics from the progressive era before World War I into the age of Eisenhower. He had been FDR’s ‘s acting Secretary of the Treasury. He had then resigned on principle because he found the New Deal too radical, and based on legal authorities that were too shaky to support such bold actions. He had returned to the FDR administration on the eve of World War II, working for Cordell Hull in the State Department. There he had helped launch the Marshall plan and the cold war. He ended as Harry Truman’s Secretary of State–and, along with his boss George Marshall, the first of what would become many Democratic cabinet members served up by cynical right-wing Republican pundits and politicians themselves engaged in profoundly un-American activities.

In his A Democrat Looks at His Party, Acheson described American politics thus:

• The Republicans are the party of wealth and enterprise–of those who have made or are making it, of those close to the fire. It thus celebrates and is held together by an ideology of opportunity and achievement.
• The Democrats are the party of everybody else–all those left out to varying degrees, all saying: “Hey! What about me?” It is a coalition of left-out interest groups.
• The contestation of, tension between, and alternation of these two parties is, broadly, very healthy.

From the very beginning the Democratic Party has been broadly based… the party of the many… the underdog…. The many… have many interests, many points of view, many purposes to accomplish, and a party which represents them will have their many interests, many points of view, and many purposes also…. The base of all three opponents [Federalist, Whig, and Republican] has been the interest of the economically powerful, of those who manage affairs…. This business base of the Republican Party is stressed not in any spirit of criticism…. It is altogether appropriate that one of the major parties should represent its interests and its points of view. It is stressed because here lies the significant difference between… the single-interest party against the many-interest party, rather than in a supposed division of… conservative… against… liberal….

[…]

The [Democratic] South…. We tend to see men like Watson, Tilman, Vardaman, and Huey Long chiefly in terms of their bellowings about White Supremacy. But if we drain this off–and the if is admittedly of major importance–what we should see is that the mass support of these men was formed by the dispossessed…. The Southern racist belongs to the same political party as the New York supporter of the FERC… [for each] speaks for the dispossessed, whether in his rural or urban form….

A party which represents many interests and is composed of many diverse groups must invariably know that human institutions are made for man… [that] government [is] an instrument to accomplish what needs to be done…. This is not so easy for those who are persuaded that human behavior is governed by [the] immutable laws… expounded in the Social Statics of Herbert Spencer or those in the Das Kapital of Karl Marx…. It was those whose interests were suffering under the impact of new forces who looked to government… to manage the thrust of forces in the interest of human values. Now… this… takes… brains…. so the Democratic Party is hospitable to and attracts intellectuals. It has work for them to do…

What would Acheson say if he were to rewrite his book for today? He would say:

Gradually, between the political end of Nixon in 1974 and the ascent of Gingrich in 1990, the Republican Party transformed itself from the party of those confident who feel they have a lot to gain into the party of those scared who feel that they had something to lose. Whether they fear civil rights that would take their race privilege and assorted economic advantages, feminism that would take their gender privilege and assorted economic advantages, social democracy with its progressive taxes that would eat away at their wealth, new technologies or new people or simply change itself it would in some way disrupt and a road what they had, even if what they had was not much–they all fear, and they all ally together.

The Eisenhower-Acheson-generation Republicans–and also the Hoover-Coolidge-generation Republicans–worshipped at twin altars: that of equality of theoretical opportunity, and that of accomplished wealth which was the due and proper reward of enterprise and hard work. The Gingrich-Trump Republicans fear even equality of theoretical opportunity. The big trouble with America, they feel, on the economic side is that some hungrier, cleverer immigrant or minority member might outcompete you; and on the cultural side is “political correctness”–that there might actually be some social-cultural blowback: that one might be judged a loser for saying racist or sexist things.

In the difference between the party of those who like property and feel that they have everything to gain from enterprise and change and the party of those who like property but fear that they have everything to lose from enterprise and change—that is, I think, the difference between the old Republican Party and the new one, the one that has reached its culmination in our era of Gingrich, and that was the product of the twin curses of Barry Goldwater and Richard Nixon.

America can, I think, make good use of a party of enterprise and creative destruction—and of the property wealth that that generates.

But what need does America have for and what use might it make of a party of fear and stasis—and of property wealth that is above all else scared that somebody might take it away.

—

From Dean Acheson (1955), A Democrat Looks at His Party: p. 23 ff:

From the very beginning the Democratic Party has been broadly based… the party of the many… the urban worker; the backwoods merchant and banker; the small farmer… the large landowners of the South, who saw themselves as being milked by the commercial and financial magnates gathered under Hamilton’s banner; the newly arrived immigrants… the party of the underdog…. The many have an important and most relevant characteristic. They have many interests, many points of view, many purposes to accomplish, and a party which represents them will have their many interests, many points of view, and many purposes also. It is this multiplicity of interests which, I submit, is the principal clue in understanding the vitality and endurance of the Democratic Party….

The base of all three opponents [Federalist, Whig, and Republican] has been the interest of the economically powerful, of those who manage affairs…. The economic base and the principal interest of the Republican Party is business…. This business base of the Republican Party is stressed not in any spirit of criticism. The importance of business is an outstanding fact of American life. Its achievements have been phenomenal. It is altogether appropriate that one of the major parties should represent its interests and its points of view. It is stressed because here lies the significant difference between the parties, the single-interest party against the many-interest party, rather than in a supposed division of attitudes… conservative… against… liberal….

[…]

At the end of the [nineteenth] century there was a lesser, but serious, missed opportunity for Democratic leadership in President Cleveland’s failure to grasp the significance of the Populist and labor unrest… and in his cautious and unimaginative approach to economic depression. The unrest… did not spring from a radical movement directed against the established order… or the constitutional system. It grew out of conditions increasingly distressing… on the farms and in the factories. Its purposes were the historic purposes of the Democratic party… to keep opportunity open, opportunity not merely to rise from barefoot boy to President but for people to find in their accustomed environments useful, respected, and satisfying lives…. The conditions and popular response had many points of similarity to those of the 1930s.

Grover Cleveland… followed the right as he saw it… through a conservative and conventional cast of mind. The agitation seemed to him… a threat to law and order…. Coxey’s Army was met with a barrage of injunctions and… the Capitol police…. The Pullman strike was smashed by federal troops who kept the mails moving, the union leaders imprisoned, and the union crushed. And the financial panic was dealt with through the highly orthodox and [highly] compensated assistance of Mr. Morgan.

The underlying causes… were neither understood nor dealt with… an opportunity was missed…. If, to take one of them, the problems arising out of the concentration of industrial ownership had been tackled when they were still malleable and subject to effective treatment, we might have been spared some aches and pains that are still with us.

But with all this, Grover Cleveland holds an honored place…. When the Congress showed signs… of declaring war on Spain, Cleveland put an end to the business for the duration of his administration by saying… that, if the Congress did declare war, he would refuse to direct it as commander in chief….

[…]

[T]he Democratic Party is not an ideological party…. It represents too many interests to be neatly labeled or to be imprisoned…. It has to be pragmatic…. In the Democratic Party run two strong strands–conservatism and pragmatic experimentation…. [T]he difference between our parties has not been and is not between a party of property and one of proletarians, but between a party which centers on the dominant interests of the business community and a party of many interests, including property interests…. They believe in private property and want more and not less of it. This makes for conservatism.

American labor is now known throughout the world for its conservatism…. the whole stress on seniority grows out of this. Pension rights are property interests of impressive value…. [W]hen a particular kind of property descends in the hierarchy of importance, its owners more and more turn for the protection of their interests to the party of many interests. The owners of land–the farmers–are the most crucial…. Small businessmen, also, are apt to find concern for their problems and welfare lost in the party of business on a larger scale….

But perhaps the strongest influence toward conservatism comes from the south, where for historical reasons all interests… are predominantly Democratic…. Southern conservatism is an invaluable asset. It gibes the assurance that all interests and policies are weighed and considered within the party before interparty issues are framed….

The South also faces us with an equal and opposite truth. It is that some of the most radical leaders of modern times have come from the South. We tend to see men like Watson, Tilman, Vardaman, and Huey Long chiefly in terms of their bellowings about White Supremacy. But if we drain this off–and the if is admittedly of major importance–what we should see is that the mass support of these men was formed by the dispossessed. Huey Long’s “share-the-wealth” program was aimed explicitly at the Southern Bourbons….

The tragedy of the South has been that racism has corrupted an otherwise respectable strain of protest and experimentation in the search for economic equality…. For all the apparent contradiction in the fact that the Southern racist belongs to the same political party as the New York supporter of the FERC, the inner logic that holds them together is that each speaks for the dispossessed, whether in his rural or urban form. What enables the Democratic Party to contain both elements is the fact that the party since the Civil War has made the Legislature the special province of the Southern Democrat, and the Executive the special province of the Northern Democrat….

Entwined with the strand of conservatism in the Democratic Party is the strand of empiricism. A party which represents many interests and is composed of many diverse groups must invariably know that human institutions are made for man and not man for institutions…. Such a party conceives of government as an instrument to accomplish what needs to be done….

This is not so easy for those who are persuaded that human behavior is governed by immutable laws, whether they are the laws expounded in the Social Statics of Herbert Spencer or those in the Das Kapital of Karl Marx…. [T]o the Manchester Liberals the Factory Acts ran squarely counter to economic principles and could end only in disaster. The “forgotten man,” in the phrase invented by William Graham Sumner… was the producer whose wealth was tapped by the government to bear the cost of the social programs for those whom Sumner regarded as weak….

In the last century the economically powerful have stood to gain by the doctrine of laissez-faire…. It was those whose interests were suffering under the impact of new forces who looked to government… to manage the thrust of forces in the interest of human values.

Now… this… takes… brains…. so the Democratic Party is hospitable to and attracts intellectuals. It has work for them to do…

Over at Project Syndicate: Economics in the Age of Abundance: BERKELEY – Until very recently, the biggest economic challenge facing mankind was making sure there was enough to eat.

From immediately after the dawn of agriculture until well into the Industrial Age, by far the most common human condition was what nutritionists and public-health experts would describe as severe and damaging nutritional biomedical stress.

Some 250 years ago, Georgian England was the richest society that had ever existed, and yet food shortages still afflicted large segments of the population. Adolescents sent to sea by the Marine Society to be officer’s servants were half a foot (15 centimeters) shorter than the sons of the gentry whose heights were recorded as they entered the army as officers. 150 years ago the working class of the United States–the richest working class that was then or ever had been–was still spending roughly 2/5 of extra income at the margin simply on more calories. Pre-Industrial Agrarian-Age human populations, even Mid-Industrial populations, and a third of the world today were and are under what nutritionists and public-health experts see as severe and damaging nutritional biomedical stress.

Inside the bubble of today’s prosperous middle-class North Atlantic, however, things are now different. Perhaps 1% of America’s labor force grows needed calories and essential nutrients. Perhaps 1% transports and distributes the needed calories and essential nutrients. That does not account for the entire food industry, of course. But most of what is being done by the remaining 14% of the labor force dedicated to delivering food to our mouths involves making what we eat tastier or more convenient – jobs that are more about entertainment or art than about necessity.

The challenges we face are now those of abundance. Indeed, when it comes to workers dedicated to our diets, we can add some of the 4% of the labor force who, working as nurses, pharmacists, and educators, help us solve problems resulting from having consumed too many calories or the wrong kinds of nutrients.

More than 20 years ago, Alan Greenspan, then-Chair of the US Federal Reserve, started pointing out that GDP growth in the US was becoming less driven by consumers trying to acquire more stuff. We were no longer in the business of growing economically by arranging more atoms in patterns we found luxurious, convenient, or necessary. Those of us in the prosperous middle class, at least, were becoming much more interested in communicating, seeking out information, and trying to acquire the right stuff to allow them to live their lives as they wished.

Of course, for the rest of the world this is simply not so. The rest of the world still faces dire problems of scarcity. Roughly one-third of the world’s population still struggles daily to get enough food. And there is no guarantee that those problems will solve themselves. It is worth recalling that a little over 150 years ago, both Karl Marx and John Stuart Mill believed that India and Britain would converge economically in no more than three generations.

There is no shortage of problems to worry about: the destructive power of our nuclear weapons, the pig-headed nature of our politics, the potentially enormous social disruptions that will be caused by climate change. But the number one priority for economists – indeed, for humankind – is finding ways to spur equitable economic growth.

But it is not too early to think about this job number two. This job number two–developing economic theories to guide societies in an age of abundance–is no less complicated. Some of the problems that are likely to emerge are already becoming obvious. Today, many people derive their self-esteem from their jobs. As labor becomes a less important part of the economy, and working-age men, in particular, become a smaller proportion of the workforce, problems related to social inclusion are bound to become both more chronic and more acute.

Such a trend could have consequences extending far beyond the personal or the emotional, creating a population that is, to borrow a phrase from the Nobel-laureate economists George Akerlof and Robert Shiller, easily phished for phools. In other words, they will be targeted by those who do not have their wellbeing as their primary goal – scammers like Bernie Madoff, corporate interests like McDonalds or tobacco companies, the guru of the month, or cash-strapped governments running exploitative lotteries.

This is a very, very different economics from that of creating Adam Smith system of natural liberty where it can be created and building institutions to approximate its effects where it cannot. The central challenge will be to help people protect themselves from manipulation. And it is not clear that those who currently call themselves “economists” have a comparative advantage in building it–although Thaler, Shiller, Akerlof, Rabin, it seems like half my colleagues here at Berkeley, and many others are certainly giving outsiders a run for their money. But we are starting to lead this different economics–this behavioral economics–with some urgency now. And unless things truly go to hell in a handbasket, the urgency will only grow

Over at Project Syndicate: Pragmatism or Perdition: BERKELEY – It is almost impossible to assess the progress of the United States economy over the past four decades without feeling disappointed. From the perspective of the typical American, nearly one-third of the country’s productive potential has been thrown away on spending that adds nothing to real wealth or destroyed by the 2008 financial crisis. Since the mid-1970s, the US has ramped up spending on health-care administration by about 4% of GDP and increased expenditure on overtreatment by about 2% of GDP. Countries like Canada, the United Kingdom, and France have not followed suit, and yet they do just as well – if not better – at ensuring that their citizens stay healthy. Meanwhile, over the same period, the US has redirected spending away from education, public infrastructure, and manufacturing toward providing incentives for the rich… READ MOAR

• Roy Van der Weide, Branko Milanovic, and Mario Negre: Inequality Harms Economic Growth for the Poor
• Jeffrey Frankel: Who is right on US financial reform? Sanders, Clinton, or the Republicans?
• Julien Lafortune, Jesse Rothstein, and Diane Whitmore Schanzenbach: School Finance Reform and the Distribution of Student Achievement

• Tom Randall et al.**: Watch five years of oil drilling collapse in seconds
• Eric Rauchway: Keynes’s Early Work on Monetary Policy
• Narayana Kocherlakota: Fiscal Policy Success Is All About Monetary Policy
• Aaron Carroll (2013): How much could we expect the Oregon Medicaid study to reduce blood pressure?
• Aaron Carroll (2013): How much could we expect the Oregon Medicaid study to reduce blood pressure? – ctd
• Austin Frakt (2013): For economist/biostats geeks – ctd x2 (with intro for non-geeks)
• Austin Frakt: Updated power calculation
• Aaron Carroll et al. (2013): More Medicaid study power calculations (our rejected NEJM letter)
• Bill Gardner (2013): The Oregon Experiment, Irrationality, and Universal Coverage
• Barry Ritholtz: MIT: Crashes, Terrorists & Sharks, Oh, My!
• Laura Tyson: Closing the Investment Gap
• Tim Duy: Fed Doves Still Have The Upper Hand For March
• Zack Beauchamp: This video shows what Ancient Rome actually looked like

Must-Read: Roy Van der Weide, Branko Milanovic, and Mario Negre: Inequality Harms Economic Growth for the Poor: “Using data from the United States spanning the years 1960-2010…

…the study establishes an important stylised fact: high levels of income inequality are associated with lower future growth rates for the poor and the middle classes. No such negative correlation is found to hold for the rich. If anything, higher inequality is found to help their future growth prospects. In other words, highly unequal societies are found to stimulate the type of economic growth that further enhances inequality, at least in the United States for the time period under consideration.

What makes it so hard to put a halt to this cycle and – in the case of the United States – put the country back on a trajectory where growth is shared by all? We hypothesise that when inequality is high and top incomes are significantly greater than the incomes of the middle classes, the rich prefer to opt out of publicly-funded and publicly-provided education, health care and other services, as they increasingly consume them privately. This can be seen as ‘social separatism’. Indeed, when asked if they would be willing to cut public spending on education and health as a way to reduce the deficit, 58 % of the rich in the United States are in favour of such cuts versus only 21 % among the rest of the population. The public goods that the rich are not interested in investing in are, however, crucial for real income growth among the poor.

Unfortunately for the poor, the preferences of the rich have been found to carry more weight in public decision-making than the preferences of the poor, or even those of the median voter. It is a model of society where high inequality, combined with credit constraints and the influence of the rich on the political process, results in a steady state of low government spending, which in turn holds back the rise of poor people’s incomes and perpetuates inequality.

While this study does not provide direct evidence for it, policies that would arguably reduce inequality and improve the growth prospects of the poor and the middle classes include curbing the influence of money in politics, confronting socio-economic segregation and ensuring that every child, regardless of socio-economic background, has access to a good quality education.

Must-Read: Julien Lafortune, Jesse Rothstein, and Diane Whitmore Schanzenbach: School Finance Reform and the Distribution of Student Achievement: “We study the impact of post-1990 school finance reforms, during the so-called ‘adequacy’ era…

…on gaps in spending and achievement between high-income and low-income school districts. Using an event study design, we find that reform events–court orders and legislative reforms–lead to sharp, immediate, and sustained increases in absolute and relative spending in low-income school districts. Using representative samples from the National Assessment of Educational Progress, we also find that reforms cause gradual increases in the relative achievement of students in low-income school districts, consistent with the goal of improving educational opportunity for these students. The implied effect of school resources on educational achievement is large.

Must-Read: Jeffrey Frankel: Who is right on US financial reform? Sanders, Clinton, or the Republicans?: “If an American citizen is ‘mad as hell’ at banks…

…should he or she respond by voting for the far left?  By voting for the far right? (Or by refusing to vote at all?)… There is a place in political campaigns for short slogans that fit on cars’ bumper stickers.  (‘Wall Street regulates Congress.’) And there is a place for ambitious goals.  (‘Shrink the financial sector.’) But the danger is that those who are attracted to inspirational rallying cries and sweeping proposals will lack the patience required to identify which is the right side to support in the numerous smaller battles over financial regulation that take place every year and that ultimately determine whether our financial system is becoming structurally safer or weaker….

Having thousands of small banks did not prevent runs on depositary institutions in the United States 1930s. Continental Illinois was the original case of a bank that was deemed ‘too big to fail’ in 1984…. Merely turning the deregulatory clock back 30 years would not be enough to do it…. Having a financial system dominated by just five large banks did not prevent Canada from sailing through the Global Financial Crisis of 2008-09 in better shape than almost any other country. Attacking banks is emotionally satisfying, for understandable reasons.  But it won’t prevent financial crises.

Hillary Clinton is correct in pointing out that the most worrisome problems lie elsewhere…. Secretary Clinton has done her homework… puts priority on closing the ‘carried interest’ loophole… a small tax targeting certain high-frequency trading… higher capital requirements on financial institutions, including non-banks… a ‘risk fee’ on big financial institutions…. It goes without saying that Dodd-Frank did not do everything we need to do.  But the law  would have moved us a lot further in the right direction if many in Congress  had not spent the last six years chipping away at it….

Sanders has indicated that if he were president, nobody with past experience on Wall Street would be allowed to serve in his administration. A blanket rule like this would be a mistake. Judging people by such superficial criteria as whether they have ever worked for Goldman Sachs, for example, would have deprived us of the services of Gary Gensler…. Financial issues are complicated. Getting the details of regulation right is hard…. We need leaders and officials who have the wisdom, experience, patience, and perseverance…. If such people are not the ones who receive political support for their efforts, we should not be surprised if the financial sector again escapes effective regulation and crises recur in the future…