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Short and Sweet American Political Economy

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Shana Scogin

on 1 May 2013

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Transcript of Short and Sweet American Political Economy

American Political Economy Why does our economy look the way it does? What is the relationship between inequality and politics? What is the legacy of the New Deal? 1. Institutions and Structure
2. Politics, Agency, and Ideas
3. Culture Goldstein, 1989 Why is farm policy highly regulated while manufacturing trade policy is liberalized?
Why were 1930s agricultural and industrial trade treated so differently in the US? Answer: ideas supported by actors and politics Until mid-1930s agriculture and manufacturing were treated alike. Government helped manufacturing gain access to foreign markets through a program of reciprocal tariff reductions, while agriculture benefited from trade reductions as well as protection through internal system of internal price supports and land-use policies.

Past explanations say it was due to the international structure/system (role of US as a developing hegemon).

This explanation is incorrect for two reasons:
(1) trade liberalization for manufacturing came before the war and (2) agriculture retained protectionist prerogatives and increased them overtime. Why were 1930s agricultural and industrial trade treated so differently in the US? Historical Context Explanations Goldstein's assumptions (1)Institutions are prone to inertia, change is likely during

(2)During crisis, state structure becomes malleable

(3)Periods of crisis supply opportunities for new political coalitions to influence the direction of policy.

(4)Change is met by a supply
of ideas, on how to restructure
politics to accommodate the
changing economic and political
needs of central decision-makers Key reason for co-existence of liberalization and subsidization: The economic community was unanimous in their support of liberalization for industry; while agriculture was divided. No liberalized solutions (ideas) for agriculture were offered, with substantial evidence to back them up. When agriculture did recover policy norms amongs institutions and groups were too imbedded to be changed.

Goldstein analyzes policy alternatives suggested both within and outside government from the 1920-1930s, and then analyzes why a strategy of subsidization for agriculture and industry eventually prevailed. "The cultural significance of the monetary debates appears to be largely lost in American politics after the early twentieth century...There is a loss of populist vision empirically and ideologically in America." -Ritter, 1987

Why? Ritter (1)Explores the money debate as a dominant issue in American politics between 1865-1896. Ritter considers the ongoing character and significance of the finance debate
(2)Postulates the existence of two programmatic alternatives in the money debate and focuses attention on the failed alternative, financial anti-monopolism. 1) Antimonopolism: during late 1800s called for government regulation of the financial structure to insure economic opportunity and equal political rights for all classes and sections.

2) The financial system was/is central to economic and political development.

3) Role of history in American political development.
Why did Anti-monopolism fail? Ritter's Argument History Matters Answer: there was an intersection of institutional, structures, strategic choices and the effects of historical contingency that accounts. It makes our understanding of political development more complex and contingent than it would be otherwise. Ritter calls for the reconsideration of the (1) role of temporal order in shaping political opportunities and (2) an analysis of historical narratives that mediate our understanding of political change.
Antimonopolism was defeated, but she reinterprets the character of their failure and its significance for American political development. Ritter, 1987 significant polarization "political elites hate each other" significant inequality "CEO's are on a different planet
than their lowest wage worker" major
changes political
ization causality can run both ways Polarization (vanishing moderates and the two parties pulling further apart) and income correlate very strongly 1900-1970's polarization decline
1969 + income inequality increases every 2 yrs.
1977 polarization flips to upward trajectory income and economic well-being are important variables in defining political ideology and voter preferences
many public polices are defined in terms of income (eg. 1993, 2001, 2003 tax bills)
"overwhelming majority of congressional roll calls are over taxes, budgets, and economic policies." (p10)
partisan id and vote choice in presidential election are increasingly connected to income Correlated to income, but especially inequality in income Republicans "moved sharply away from redistributive policies"
Democrats have moved platforms away from general welfare issues to issues based on ascriptive characteristics (race, gender, sexual pref) (Gerring, 1998)
policy changes like drop in minimum wage and lowering of top tax occur with polarization increase (Lack of minimum wage increase accounts for half of the growth of income disparity between the median and lower 10% worker, David Lee (1999)
"polarization favors the policy status quo" (M,P,R, p. 14) Why? ...our system under our "checks and balances" polarization prevents inequality reducing policy change
re-alignment of the South and their significant focus on income while have a large share of the electorate
electoral system that uses plurality and causes two parties (good ol' Durverger) to diverge (not convergence as suggested by Anthony Downs (1957)
legislative institutions -bicameralism and separation of powers requires very large majority coalitions----gridlock prevents policy response Reasons for polarization decline: The End of Ideology (Daniel Bell, 1960)
nation moving from oligarchy to pluralism, Robert Dahl (1961)
"rational choice" theory and the median voter focus of "Tweedle-dee/Tweedle-dum parties (Downs, 1957)
Congresses concern with constituencies (Fiorina, 1978)
all involved in pork-barrel politics (Weingast, Shepsle, Johnsen, 1981) NOTE: Immigration follows a similar trajectory. McCarty, Poole and Rosenthal, ***2006 Torsten Persson and Guido Tabellini find a"significant and large negative relation between inequality and growth. This relation is only present in democracies." "Economic growth is largely determined by accumulation of capital, human capital, and knowledge usable in production." ability to appropriate private assets. tax policies and
regulatory policies Policy decisions that do not allow as much private appropriation prevent great accumulation and prevent greater growth in econ equilibrium: the more an individual can appropriate private assets, the higher the growth rate political equilibrium deals with income and affluence level and the relation to policy preference trade-offs and party identity Politico-economic equilibrium two key assumptions: policies are determined sequentially, and agents are fully rational in their roles as both consumers and voters.Krusell, Quadrini, Rios-Rull (1997) combining endogenous
growth and endogenous
policy Causation channels: 1.greater equality to less redistribution induced by policy, 2. less redistribution to greater investment and, therefore, quicker growth (1994) Civil War WWI NEW Deal WWII Political discussions of economic organzational and regulatory strategies Those strategies dominating policy Culminated in the New Deal which defined post-WWII political boundaries:... "a domestic welfare state, federal responsibility for economic regulation and labor law, a U.S.-centered world economic system, and (eventually) a commitment to military expenditure that represented both a 'Keynesian' floor for the industrial economy and the overhead costs of an interventionist foreign policy." (1) It didn't start with FDR Businesses wanted order (and got more than they bargained for) In 1929 when the private regulation experiments collapsed, the public (gov't) took over.
When both private organization and political regulation were not being very effective, "union power could be an effective surrogate." Businesses experimented on regulation through trade, welfare capitalism and labor management. U.S. political economy was a "disorganized synthesis" with the characteristic problems of:
the interplay of rational self-interest [rational choice]
political and economic competition
ambivalent business-government relations In McCarty et al's "Polarized Politics..."
The Great Depression brought discredit against the Republicans.
Democrats used this opportunity to adopt long advocated for policies that shifted from a market economy to a highly regulated state. p.202 Gordon, 1994 Institutions and/or Structure 1. Politics --> Economy
2. Economy --> Politics
3. Politics <--> Economy How politics affect economy & inequality Party politics
Republicans = inflation
Democratics = inequality
(Hibbs [1977]) Business cycles for use in reelection
Political Business Cycle (PBC)
(see esp. Nordhaus [1975]) Electoral system (non-proportional, two party system)
Traces our economic 'nature' back to the 19th century
No incentives for businesses to coordinate
(Martin and Swank 2004 for the effect of business coordination; Martin and Swank 2008) Culture Recall American Exceptionalism week
American values (individualism, Protestant work ethic, democracy, liberalism, etc.) =/= formation of strong labor parties, coordination, etc. Institutional + 'Societal' Institutional needs to add:
how policy feedback and path dependence extend to private social policies
policy paradigms & agenda setting
Beland & Hacker 2002 -> American Association for Labor Legislation in 1910, Social Security in 1930s, and private benefit developments 1935-1965 Politics, Agency, and Ideas Party politics
Hibbs 1977
Labor mobilization
Esping-Anderson (1985)
Korpi (1983)
Policy and historical context
Ritter 1987
Goldstein 1989 Federalism
Capital flight
(recall Steinmo [1994] from exceptionalism week) Vocational training institutions
critical junctures
'locked in'
(Thelen 2004) 1. Large (hidden) welfare state (?)
2. Business privilege (Peter Swenson; Salvatore & Cowie)
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