Tuesday, October 21, 2008

The Rhetorical Gap far Exceeds the Policy Gap: Further Evidence and Interpretation

Democrats are supposedly the ones who "help" the poor. Measured in terms of the fraction of people who are not obligated to pay income tax, hardly any progress was made during the Clinton years. It was two laws passed under the current administration that exempted large numbers of poor from the income tax.

Professor Mankiw reminds us that Democrats renege on campaign promises too (see here for Republican examples): President Clinton changed his mind about "middle class tax cuts."

By the way, the phenomenon that Democrats and Republicans have essentially the same public policies is evidence that our political system is pretty efficient. If Democrats and Republicans actually differed as much as their rhetoric does, public policy would wildly shift every time there was a change in the party in power. Wild policies shifts would be bad for the economy.

If instead Democrats and Republicans were blunt and said "Ultimately, I'll do essentially the same thing as my opponent does" (McCain and Obama are almost this blunt when it comes to policies related to the financial crisis), the political process would lose its value to many people. I might call it "entertainment value," but that sounds pejorative. It's more like the difference between Coke and Pepsi -- they might be chemically indistinguishable, but consumers would not be well served if Coke said "our drinks are essentially like Pepsi's" and Pepsi said "our drinks are essentially like Coke." Indeed, I wrote an earlier post to cheer up the November 4 losers, but it may have the opposite effect because there is value to imagining that your favorite brand is unique. Many people look at the Democrat and Republican brands that way.


Sheng said...

Obama is now socializing with former Fed chairman Paul Volker, who had the gut to take the inflation down despite the risk of protracting the recession in late 70s. Paul seemed to oppose to further stimulus package as well (at least initially). It will not be bad if Obama listens to him.

Tino said...

The obvious analogy is its sports teams. People like to divide themselves in groups, root for one side over other, get emotionally riled up, identify with your team supporters, hate the other team, exaggerate the importance of victory etc. Fulfills some leftover tribal instincts? In ancient Rome the supporters for the Chariot racing teams coincided with political parties.

While preferences may be an efficient solution to the collective action problem of getting enough voter involvement it’s not an efficient way to make public decisions. People don’t care enough to invest the information they would if they were making private choices. Utility from participation only predicts they will spend some resource, not the optimal amount.

Also Becker/Mulligan rational voting predicts that people for whom ideology is a really big part of the utility function (like me) become disproportionally involved. That why the media and pundit class is filled with partisan morons, and disinterested experts are relatively rare.

Bob Murphy said...

I realize you are just making analogies, but someone--let it begin with me--needs to point out:

(a) It's too bad that the political parties coordinate on the same awful economic policies,

(b) Coke and Pepsi are chemically different. Pepsi is sweeter and that's why it wins taste tests, when you're just taking a sip or two. Failure to recognize this is what led to the "New Coke" fiasco.

(c) Nobody forces you to buy Coke or Pepsi (or root for sports teams). Yet one of these two clowns is going to be "my" president even though I am certainly not voting for either of them.

HispanicPundit said...

This is probably true given normal circumstances but Obama may get elected under abnormal circumstances...those being with full control of congress.

In other words he will be in the same position FDR and LBJ were in - the two most liberal presidents of our time...and their policies have clearly had a huge effect on our economy - multiple times more than your estimates.