POL124FINAL

Majoritorian electoral democracy

.Policies in a democracy should reflect the will of the mass public Described by Tocqueville as "tyranny of the majority," Possibility that the majority can impose their will on the reluctant minority. Described by Lincoln as a government "of the people, by the people, for the people," Downs predicted in his median voter theorem that policy is determined by median voter- that the average (50th percentile) citizen has lots of influence. Policy will be determined by the median voter because the median voter will tend to support a candidate that aligns with their ideology, and the winning coalition will always include the median voter. Median/Majority Voters have the most influence

Bonica et al discuss four reasons why rising inequality in the US has not led to a progressive policy response. What are these four reasons? How might these factors prevent progressive policy change?

1. There's been a rightward ideological shift in the country. There's also a growing polarity between the parties. The conservatives are getting more conservative. The liberals are having a compositional shift: they are losing all moderate voices and by default party is getting more liberal. The rightward shift works against redistributive measures. 2. Income-biased voting trends. Rich people turnout more than poorer people. Rich people tend to vote against redistributive measures. 3. Rising financial contributions from rich. Large donors donate to both parties, possibly skewing legislators away from redistributive agendas. Also, large donors tend to fall in the middle of the political spectrum, inducing status quo bias. 4. U.S.'s system of checks and balances. In U.S. legislation must pass multiple "pivot points," e.g., median house member, "filibuster pivot" in the Senate, President, Supreme Court. The U.S. system makes radical change very difficult. As members of Congress have drifted rightward, so have pivots. Explains scarcity of proposals for major redistribution—it's off the equilibrium path. Gridlock can also lead to de facto "policy drift" (unindexed minimum wage, i.e., minimum wage that doesn't follow a cost of living increase, and tax brackets, i.e., tax on $100k may be very different in ten years, so need to shift tax brackets as inflation increases.

According to Gilens and Page, a weakness of previous studies on political representation is that they do not test different theories against one another. Why is this a problem? (Hint: spurious correlations)

All four theories claim support, but previous studies don't test theories against each other. Results could be spurious if preferences of different groups are correlated.

In principle, a high capital share of income (α) might not imply high inequality. In practice, it probably does. Why?

Because capital is not equally distributed; most people don't benefit from capital ownership and most gains from capital go to the wealthy Most people don't own the kind of capital that produces high quality income.

Piketty asserts that very high growth rates (say, above 2 percent) cannot be sustained for very long. How does he explain why some countries grow much faster than this for sustained periods?Why, according to him, can't these growth rates be sustained indefinitely?

Because, eventually the poor countries catch up to rich countries in terms of technology and growth will slow at the technological frontier. Benefits of "backwardness" also provide for massive growth rates, because poor countries can just take advantage of tech already implemented in rich countries Basically, at a point, the growth rate is set by the rate of technological advancement (which generally does not provide for super high growth rates) Rich countries set the "Speed limit" for growth If he asks about population growth rates slowing too: They will inevitably slow Demographic transition rich people in healthy countries have less kids r/K mating strategies From Biology: safer environments yield higher birthrate

In general, does Bartels find evidence that Senators are responsive to citizen preferences? What differences exist across income groups? What differences exist across parties?

Both parties give more weight to opinions of middle and high-income voters, neither parties cares about opinions of low-income voters. Democrats are more a "middle-class" party; Republican more a "upper-class" party.Democrats gave slightly less attention to upper class opinions than the the Republicans

How do Gilens and Page measure political representation? That is, what does their research strategy look like? In answering this question, be sure to describe their main dependent and independent variables.

DV: Did a policy change occur in four years following survey (Yes=1, No=0) IV: proportion of respondents supporting policy change, at different income levels (10th, 50th, 90th %) IV: Net Interest group alignment (# in favor vs. # opposed to policy change)

What are the two components of economic growth?

Demographic and economic demographic: population growth economic: growth in per capita output both produce GDP growth. only per capita output growth delivers rising living standards.

Be sure you understand Gilens and Page's Figure 1. What does it tell us about political representation in the United States?

Economic elites graph: if majority of elites favor policy change, then there is a high chance a new policy will be adopted. Average citizen: even as percentage of citizens favoring proposed policy change increases, the probability of the policy's adoption does not increase Political representation in the US is not for the average citizen, higher income citizens and interest groups have influence.

In most developed (particularly European) countries, the capital/income ratio follows a U-shaped relationship over time. Why?

Equilibrium β (capital stock) was high in most countries with 4-8 years of national income, determined by s (savings rate), g (growth rate). Then, equilibrium was disturbed by shocks of 20th century including WWI, Great Depression, and WWII. The "crash" anomaly saw capital fall from about 7 to 3 years of national income. Now, we are now returning to equilibrium.The great depression led to crash of stock prices.growth was high during the 20th century shocks, physical destruction of capital and and collapse of colonies and empires and policies that reduced the price of assets like rent control→ led to "unnatural" decline from 1910 to roughly 1950s

How does recent political science research (discussed in the Swanson Washington Post article) support Keefer and Knack's theoretical argument linking inequality and growth?

From the article: "It's not just that these two trends of inequality and polarization are happening simultaneously. The researchers use statistical methods to eliminate other factors and show that a state's income inequality has a large, positive and causal effect on its political polarization. Furthermore, these results have increased in magnitude in recent years and seem to be concentrated in the states that are "reddest" by the end of the sample."

What are the "dual bell curves" of global growth? How are they related to the evolution of the capital-labor split?

Global growth is usually depicted as a bell curve. Bell curve 1: global population growth (demographic curve): began earlier in 18th century and decreased earlier as well. Bell curve 2: global growth rate of per capita output (prosperity/economic output per person): peak of curve will be between 2012-2030 as this began way later in comparison to demographic curve. the World GDP growth = population growth + the GDP per capita growth because both of these are decreasing and are projected to decrease in the 21st century from the second fundamental law of capitalism the g will slow down and get smaller (the denominator gets smaller) so beta( capital stock gets higher) and this implies higher inequality because capital is not equally distributed The growth rate, including observed and projected growth rate, was increasing and now decreasing. Meaning, in the future, the inequality, the capital-labor split, will be better condition for labor.

Why have capital/income ratios risen in recent decades?

High B can be attributed to slow growth regime. Decreased growth will make capital's comeback. If growth rate falls, B will increase. If growth rate rises, B will decrease.

What advantages do higher-income people have when it comes to political representation? That is, why might they be better at getting their views represented?

Higher income people have higher voter turnout than their lower-income counterparts. They are also more likely to financially contribute to the campaigns of their choice. As a result, policies are may be more represented of (or I guess beneficial to) these groups of people because of their wealth creating this political influence.

Suppose r > g. How will this affect the relative importance of inherited wealth and labor incomes over time?

If r>g, inherited wealth grows faster than labor incomes over time. If r>g people born into more money will get more of a share of income from capital resulting in rising inequality

What is the fundamental cause of growth in per capita output and income?

In the long run, the cause of growth is technological progress and productivity improvements. It is fueled by investment, research and development (R&D), and innovation. These reflect many factors including security of property rights, government stability, violence, incentives (e.g., taxes, regulation, trade, patents, etc.).

Skill-biased technological change, globalization, and the rising importance of capital all help to explain rising inequality. However, different factors may be more important to different parts of the income distribution. Based on our class discussion, what type(s) of rising inequality are best explained by technology and globalization? What type(s) are best explained by Piketty's argument?

Inequality best explained by technology and globalization Explain rising inequality in bottom 90% (Lower-End Inequality) Inequality based on labor income Inequality best explained by Piketty's argument Inequality in the top 10% (Higher-End Inequality) Inequality based on income from capital accumulation

What are some reasons to be skeptical of "majoritarian pluralism", given the data presented in Gilens and Page?

Interest group alignments are almost totally unrelated to the preferences of average citizens. Business interest groups make up most of the interest groups out there, and their policies don't align with the average citizen.

Corak shows a relationship between inequality and social mobility. What is the relationship? How is social mobility measured? Be sure you understand the concept of the "intergenerational earnings elasticity".

It is a negative relationship, because we know the birth lottery matters.Social mobility is measured by intergenerational earnings elasticity. Ln(Son's Income)t = b0+b1Ln(Father's Income)t-1 b1 gives the elasticity(% change in son's income resulting from 1% change in father's income) Higher values imply less social mobility.

What do Gilens and Page find when they test each theory in isolation, i.e., without including the variables that test other theories? How do their results change when they test all theories simultaneously, i.e., when all variables are included? What do we learn from these different sets of results?

Majoritarian Electoral Democracy: support Economic Elite Domination: support Majoritarian Pluralism: support Biased Pluralism: support SIMULTANEOUSLY: Majoritarian Electoral Democracy: ordinary citizens DO NOT have uniquely substantial power over policy decisions; they have little or no independent influence on policy. So this theory is rejected right away. Economic Elite Domination: elites DO have influence over policy (Fig.1); if majority of elites favor policy change, then there is a high chance a new policy will be adopted. BUT also found that individual elites must share their policy influence with organized interest groups Majoritarian Pluralism: mass-based interest groups don't have much influence Biased Pluralism: business groups have more influence and don't represent the average citizen So we learned that the variables are important in finding out which theory actually describes policy change.

Greenwood et al discuss the effects of "positive assortative mating" on household income inequality. You should be familiar with (a) the concept of assortative mating, (b) how it might contribute to income inequality, (c) how the prevalence of assortative mating has changed over time, and (d) how Greenwood et al estimate the effects of assortative mating on inequality (hint: make sure you understand their thought experiment at the end of the article).

Marriage patterns affect household income. Household income inequality depends on whether educated marry uneducated or not. (a) positive assortative mating(marrying your like) has increased over time.(b) Greenwood et al find this has increased inequality(c) over time mostly reflects higher female educational attainment & workforce participation.(d)positive assortative mating also reduces social mobility, in that poorer/less educated are less likely to "marry up" they had a thought experiment about the mating patterns of people: one was through random mating patterns and the other was through 1960s patterns→ they both resulted in lower gini coefficient numbers which means positive assortative mating has risen inequality in the past few decades.

Piketty notes that Marx's predictions—particularly about β and r—were incorrect in part because Marx failed to appreciate the importance of sustained economic growth. Discuss why Marx's predictions about β and r would be plausible given very low growth rates (approaching zero) and why they make less sense given relatively rapid growth.

Marx went wrong in two hypotheses: the infinite accumulation of capital and the falling rate of profit (return on capital). Both reflect failure to anticipate long-term growth.With low g (as g approaches 0), β will continue to rise (approach infinity), and r approaches 0. Falling r will limit but not eliminate rising α.Marx's predictions are right if g (growth rate) = 0. Marx's predictions make less sense given relatively rapid growth because positive growth limits capital accumulation, declining rates of return.

biased pluralims

Only some become organized and gain political influence. Both the thrust of interest-group conflict and the public policies that result tend to tilt toward the wishes of corporations and business and professional associations They tend to represent corporations or business/professional associations. Policy is determined by these business interests. Empirically, it is well established that organized groups regularly lobby and fraternize with public officials, move through revolving doors between public and private employment, provide self-serving information to officials, draft legislation, and spend a great deal of money on election campaigns. Relatively few represent the poor or even the economic interests of ordinary workers, particularly now that the U.S. labor movement has become so weak. Marx states that government is "but a committee for managing the common affairs of the whole bourgeoisie" Stigler states regulatory capture

Majoritorian pluralism

Policies driven by organized interests . Interests are diverse and representative of the population (all interests are represented). Not all groups become organized and individuals who would benefit from collective action may have no incentive to personally form or join an organized group. Aware of the collective action problem, officials may feel free to ignore much of the population and act against the interests of the average citizen. Not as many collective action problems in small groups as they have more concentrated interests. Policies are reflected by represented interest group preferences that happen to be highly correlated with citizens.

What do Keefer and Knack mean by "insecure property rights"? Why are insecure property rights bad for growth?

Property rights define what is/is not ours. Property rights are created by government & can be contested, changed. Property rights are secure if people (investors) can count on them. PRs are insecure if there is a high risk that "governments will... make decisions that devalue firm assets"(EX: tax increases, changes in trade, regulatory policy). PRs are insecure if economic policies can change dramatically. Insecure PRs are bad for growth. Investors only invest if they can predict rate of return. Insecure PRs make this impossible. Security of PRs matters more than specific PR regime(are taxes, trade barriers, regulations high or low) Anything that undermines PR security is probably bad for growth.

Gini coefficient

Ranges from 0-1/ 0-100 Higher values=more inequality Equals twice the area between the lorenz curve and the 45 degree line of perfect equality Because the number is reflection of area between the curve and the 45° line, the larger the number the more inequality there is in the country.

In class, we discussed research on relative income and happiness. What is the main conclusion of this research? Why, given this research, might rising inequality lead to political discontent?

Relative income matters more than absolute income. Holding personal income constant, people are less happy when their fellow citizens get richers and when their age-group peers get richer. People feel unhappy when they see others (the "1%" "wall street fat cats") pulling away from them, leading to political discontent.

Piketty notes that not all capital receives the same rate of return. What implications does this have for the distribution of wealth?

Some investments yield higher returns than others The wealthy can find better investments and gain better returns (or hire financial analysts to do it for them) Also they can better absorb shocks and risks These all can exacerbate inequality and further concentrate distributions of wealth

(37)What is Keefer and Knack's argument linking inequality to growth? Be sure you're familiar with each link in the causal chain.

Studies show that inequality is bad for growth. Demand-side: lower-income people more likely to consume, stimulate growth. Supply-side: inequality may affect policies that influence investment. inequality increase political polarization- if parties are polarized, changes of government can produce large policy shifts- makes PRs less secure, reduces investment and growth.

What is the basic prediction of the Meltzer-Richard model? Has this prediction been correct for the United States?

The basic prediction is that increased inequality (in the form of median incomes falling relative to average incomes) leads the median voter to demand more redistribution so that politics should limit after-tax and -transfer inequality. Basically, if the median voter is poorer than the mean he will want more taxes (on the wealthy) & and more redistributive policies The higher the inequality, the further the median voter will be from the mean, thus the more resistance they will put up and demand more redistribution; therefore making inequality self-correcting This is not true in the US because of: a general conservative ideological shift, income-based voter turnout, rising financial contributions from rich, checks and balances.no redistributive policy changes

Piketty argues that economic growth is a force for equalization. Explain.

The economic growth (higher growth rate) reduces importance of inherited wealth. In terms of income: inherited wealth becomes less important relative to current earnings. Rapid population growth means that family wealth is divided among more descendants so in terms of income, inherited wealth less important relative to current earnings. When there is growth slowdown, inherited wealth becomes more important and there is higher inequality.

What were the shocks of the early/mid-20th century? How did they affect national capital stocks?

The shocks in the early/mid-20th century were the Great Depression and World Wars I and II. They severely depleted capital stocks in advanced countries (mainly Europe). Specifically, the depressions resulted in a crash in stock prices and low savings. The World Wars resulted in physical destruction, collapse of foreign portfolios (expropriation and decolonization) and low savings rate, and low asset prices due to policies like rent control, financial regulation and high taxes on dividends/profits. During this crash, national income capital (stock) plummeted worldide.

Gilens and Page's results imply that lower-income Americans have no influence over policy. Does that mean that their preferences are completely unrepresented? Under what conditions are they (not) represented? The Venn diagram presented in class may be helpful in answering this question.

Their views are represented when they coincide with those of the upper classes, but are mostly ignored when they deviate from the upper classes 90th percentiles preferences are always represented 10th and 50th preferences represented when they overlap with 90th percentile, but if they disagree they will not have their opinions represented (as represented in the chart below)

Schwartz and Bui (New York Times article) summarize recent research by Autor et al on the political effects of trade with China. What are these effects? How do they help explain recent trends in political polarization?

Trade with China has increased political polarization by leading to election of more extreme candidates. "Anti-establishment" effect. Angry voters appear to "double down on ideological priors" (liberals become more liberal & conservatives become more conservative). Consistent confirmation bias: failure of status quo "proves" need for more liberal/conservative policies. Not obviously rational, i,e., choices not clearly matched with goals.

Swanson (Washington Post article) summarizes recent research by McCarty et al on inequality and political polarization. What is the main conclusion of this research?

US politics have become more polarized. Recent research indicates that inequality has a causal impact on polarization. It has moved Democrats leftward & Republicans rightward.Study concluded that Democrats' leftward shift is "compositional". Moderate Dems have lost seats to Reps. The remaining (smaller) Dem caucus is more liberal because it lost more conservative members. Rising inequality has increased the proportion of Rep seats causing state legislatures to move rightward. Result in widening gap between the two parties.

How has the US's capital/income ratio differed from Europe's over the last two centuries? Why?

US β (capital stock or capital/income ratio) has been lower in the first place, and more stable than European. Land prices were lower in the US due to abundance and we had higher g (growth rate) due to rapid population growth. US was less affected by shocks of WWI and WWII.

volume effects

Volume of capital relative to national income the same thing above except that the marginal utility of capital is high→ which leads to smaller fall in r and bigger rise in beta ⇒ volume effect overtaking the price effect ⇒ the capital share of income is increasing a rising β will lead to a rising α only if r does not fall. Both r and β are directly proportional to α -Empirical evidence: since industrial revolution, techonology has riased substitutability of capital -r has fallen less than proportionately with beta -rising beta leads to rising of alpha (though less pronounced)

Empirical research shows that the preferences of average citizens are strongly correlated with policy outcomes. Gilens and Page do not dispute this point, but they nonetheless argue that average citizens have no political influence. How can we reconcile Gilens and Page's argument with the observed correlation between citizen preferences and policy outcomes? (Hint: this question is closely related to the previous one.)

When they tested all the different groups against each other, they found that only the middle and upper class opinions retained statistical significance in terms of having an influence on policy. 90th percentiles preferences are always represented 10th and 50th preferences represented when they overlap with 90th percentile, but if they disagree they will not have their opinions represented (as represented in the chart below).

Piketty demonstrates that the capital-income ratio (β) has been rising for some time. Under what conditions will a rising β lead to a rising capital income share (α)? Does the empirical evidence of the last few decades indicate that these conditions have been met? In answering this question, make sure you understand the importance of price effect.

With a fixed r a rising β will result in a rising α (PP#8 Slide 21) Price Effect "r" the rate of return on capital/price of capital But, when marginal utility of capital is low→ meaning (lower labor substitutability) → the rise in beta is smaller that the fall in r ⇒ this leads to the price fall overtaking the volume effect (rise in beta) ⇒ which lead to lower capital income share

What evidence do Keefer and Knack present to support their argument?

a. Inequality reduces security of property rights b. Property rights security has positive impact on growth, reduces inequality coefficients c. Property rights partially mediate impact of inequality on growth, but not fully d. Berg and Ostry say that growth can be more or less sustained, but inequality is associated with shorter growth spells e. In fact, multivariate analyses shows that inequality has a robust, significant effect because political instability discourages investment and growth

Drawing on the Corak article and lecture, explain each of these causal arrows.

child development educational opportunities labor market competition childs income

What does growth "convergence" mean? Why should we expect it?

countries at technological frontier (rich) can only grow as fast as new technologies are developed. poor countries enjoy "advantages of backwarndess" poor countries have higher potential growth rates. Poor countries often don't grow fast than rich countries (e.g. Sub-Saharan Africa), but all things being equal, poor countries grow faster than rich ones- this is "conditional convergence." Convergence theory says that as the poor country is catching up (increase in GDP per capita→ higher growth rate) the rich country would have a lower growth rate (because investors will invest in foreign countries due to high return→ lower growth rate) and they would converge in an equilibrium. But actually, the rich countries have stable low growth rate and the poor countries (in agreeable conditions) have high growth rate while catching up→ opposite of Red Queen Effect → they catch up to output per capita of rich countries. But, there is no absolute convergence to an equilibrium like the convergence theory depicts.

scheve/syasavage

government raises taxes significantly only during war time True for income and inheritance taxes Perceptions of fairness: citizens feel that, if labor is supplying bodies, capital should provide money Wars are expensive

economic elite domination

have advantages that confer political influence- they determine policy. These advantages include money, education/information, and political engagement through voting, emailing, and public discourse. Education/information allows more information to monitor policy positions of politicians and are more likely to vote.

Gilens and Page test four theories of American politics. What are these theories, and what do they predict?

majoritorian electoral democracy economic elite domination majoritorian pluralism biased pluralism

How does Bartels measure political representation? That is, what does his research strategy look like? In answering this question, be sure to describe his main dependent and independent variables.

measured the effect of voters ideological views (by income level) on the elected representatives voting patterns DV: Ideological position of Representative Votes Measured by DW Nominate score (-1 to 1 {lower = liberal, higher = conservative} IV: Voters opinions Measured by DW Nominate score of societal groups at different income levels

child development

more affluent households have many advantages. more stable, less stressful environment. Intellectual stimulation. Work/study habits. affluent parents may pass on "human capital" to their children(not only wealth is inherited). These advantages reduce social mobility but may not rise with inequality. Advantages do rise with income - books, computers, private schooling, better nutrition, health care, etc. "child enrichment gap may rise with inequality.

main point convergence

rich countries define "speed limit for long-run per capita output growth poor countries can grow faster while catching up(China)

educational opportunities

schools can increase or decrease social mobility. Increase:schools are uniform quality; affluent parents subsidize good education for poorer children (e,g., Scandinavia) Decrease: affluent children get better schools, poor children get worse schools (e,g,. US).Federal financing likely to be progressive; local, private financing regressive. When schools are funded by local tax base(as in the US), wealthier families will get better schools. Rising inequality may also increase higher-education disparities. But it also reflects an information problem (financial aid) many lower-income families do not know this, providing knowledge may increase applications to good colleges.

labor market competition/childs income

the more education the better the job prospects, the higher the salaries. Much of the inequality- social mobility link probably comes down to education, resulting job prospects. Parental income/inequality may also affect job prospects directly. Examples: support during job search & connections.

Piketys first fundamental law of capitlaism

α = r x β Capital's share of income (α) depends on the rate of return (r) and the capital stock (β) true by definition

piketys second fundamental law of capitalism

β = s/g The size of capital stock depends on the savings rate (s) and the growth rate (g) saving rate high beta high, growth rate high betta low long term proposition