Political Economics

(a) Political conflict plays a key role in shaping economic decisions, policies and outcomes.

US panel: (b) The US has a smaller social welfare system than other rich countries in part because it is more heterogeneous by race and ethnicity.

European panel: (b) Most European countries have larger social welfare systems than the United States in part because the latter is more heterogeneous by race and ethnicity.

Of our 43 US experts, 40 participated in this survey; of our 45 European experts, 39 participated – for a total of 79 expert reactions.

Political conflict and the economy

On the first statement, both panels are unanimous that political conflict plays a key role in shaping economic decisions, policies and outcomes. Weighted by each expert’s confidence in their response, 69% of the US panel strongly agree, and 31% agree; and 56% of the European panel strongly agree, and 44% agree.

Among the short comments that the experts are able to include in their responses, Charles Wyplosz at the Graduate Institute, Geneva, notes: ‘This is what Alberto Alesina taught us.’ Caroline Hoxby at Stanford says: ‘My insightful and powerfully-minded colleague Alberto Alesina is responsible for much of the evidence on this point. Read his masterful work.’ Alberto’s Harvard colleague Pol Antras adds: ‘Thank you very everything you taught us, Alberto. Rest in Peace.’

Aaron Edlin at Berkeley points out that: ‘Where there are decisions to be made, there is politics, and where there is politics, there is conflict.’ And Larry Samuelson at Yale explains: ‘Political actors respond to incentives; conflicting incentives play a key role in shaping economic policy and activity.’

A couple of wrinkles come from Franklin Allen at Imperial, who comments: ‘In most countries, this is the case, in my view. In some totalitarian countries, it is not the case though’; while Peter Neary at Oxford states: ‘Hardly controversial in itself. More so is its importance relative to ideology, history, and deep economic forces.’

Anil Kashyap at Chicago provides a link to Alberto’s paper on macroeconomics and politics; while Pete Klenow at Stanford references Alberto’s paper with European panelist Eliana La Ferrara on the positive and negative effects of ethnic diversity on economic policies and outcomes.

Ethnic heterogeneity and support for social welfare systems

The second statement was framed slightly differently in the way it was put to the two panels, but the central idea was the same: whether the fact that the United States is more heterogeneous by race and ethnicity than most European countries is the reason for its smaller social welfare system.

On this issue, views are more varied: of the US panel (weighted by each expert’s confidence in their response), 17% strongly agree, 69% agree, 13% are uncertain, and 1% disagree. The European panel agrees considerably less (though still a majority), expresses more uncertainty (a third), and features more disagreement: 15% strongly agree, 40% agree, 33% are uncertain, and 13% disagree.

Among panelists who agree, Eric Maskin at Harvard says: ‘Alberto Alesina’s writings establish both points quite persuasively’; while Pol Antras comments: ‘I think Alberto convinced most of us that this is part of the reason. Of course, there are many other reasons why.’

Several other panelists mention some of those other reasons, Peter Neary, himself sadly no longer with us, adds: ‘The sad passing of Alberto Alesina reminds us of his work showing this; though ideology and public perceptions of heterogeneity also matter.’ Larry Samuelson comments: ‘The evidence is that people are more supportive of programs whose benefits go to “people like me”.’ Christopher Udry at Northwestern states: ‘But put it differently. It’s not diversity itself. It’s racism.’

A historical perspective comes from Daron Acemoglu at MIT, who says: ‘But unclear how much of this is because of the current effect of these variables or the historical, long-lasting compromises they induced.’ And Angus Deaton at Princeton notes: ‘I think it is less to do with heterogeneity, than with the legacy of slavery and white versus black.’

Among panelists who are say they are uncertain or disagree, Markus Brunnermeier at Princeton notes: ‘Empirical evidence points to it, but Canada might be a counterexample.’ Richard Blundell at University College London asks: ‘Isn’t it more about the underlying inequalities by race and ethnicity in the US rather than race and ethnicity itself?’ And Aaron Edlin concludes: ‘Looking across states with casual empiricism, many of the more diverse appear to have stronger social welfare programs. This gives me pause.’

Pete Klenow and Christian Leuz at Chicago both mention Alberto’s paper with Edward Glaeser and Bruce Sacerdote asking the question: why doesn’t the United States have a European-style welfare state? And Christian directs us to further papers by Alberto and colleagues on immigration and preferences for redistribution.

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh