Polarizing politics is bad enough by itself. We have seen what it does to such values as truth, justice and civility. It was unlikely that a powerful force like political polarization would leave our economy untouched.
In December 2017, researchers at the Federal Reserve Bank of New York published a report, “Political Polarization in Consumer Expectations,” which shed some light on one critical dimension of the issue — human behavior.
The report’s authors, Oliver Armantier, John J. Conlon, and Wilbert van der Klaauw, begin by noting that after the 2016 election there was a dramatic shift in the polarity of consumer expectations — positive for Republicans and negative for Democrats.
The data they used to examine this shift was taken from the “Survey of Consumer Expectations,” which the New York Federal Reserve Bank publishes every month. The survey data itself does not identify respondents by their political affiliation, but it does identify the responses by county. This allowed the authors to estimate the responses’ political preference by grouping them into red counties and blue counties.
The first thing that they saw was, “…that polarization predated the (2016) election.” The gap separating the poles grew after that but did not begin there. This is significant to economists in their search for causality.
The structural differences between Republican and Democratic counties — in income and education, for example — do not seem to be the cause of either consumer expectations or spending. More directly to the issue of polarization, as the report notes, “…we find that the election had little partisan impact on spending patterns or a number of other behavioral outcomes.”
Economists are not sure why the increasing polarization of presidential elections in the past two decades has affected consumers’ expectations but not their actual spending. As the report points out, “…if such polarization in expectations does not cause polarization in economic behavior, then it may not be a major concern to macroeconomists and policymakers.”
Politics is as complicated and hard to predict as human behavior, so it is not surprising that the authors’ conclusions produce a number of unanswered questions. In the relatively short period covered by this study, 2014-2017, for example, Republican economic expectations appear to be more volatile than Democratic ones. What is not clear, though, is whether that characteristic is the result of this particular election or of basic economic and educational differences between the two groups.
The idea of using voter data by county, as the authors did, is a very resourceful technique that sheds a most useful light on how economists can construct a reasonably accurate proxy variable for political affiliation while honoring the secret ballot principle. It may be, though, that in its current form this method is not up to the job of explaining consumer behavior. It may take a more complex weighting system to reflect affiliation in order to account for actual voting patterns. A longer time frame for the data might also help to gain an understanding of its message.
One sign of a good research paper is the significance of the questions it raises; another is the clarity of the paths it maps out to answer those questions.
Now that we have a measuring system for the aggregate amount of political polarity, we need to know more about its intensity and its causes. Political polarization is not a friend to either the free market economy or to democracy. The polarity principle of destroying one’s opposition is closer to the philosophy of despots, who rarely believe in the value of free markets or freedom of any sort.
Determining the cause, or causes, of political polarization will not be easy, and is not made easier by its methodology — but it is possible that research might reveal its secrets. It is not clear, for example, how tolerance for opposing ideas might show up in an economy, or how it might be measured. But we didn’t know how political polarization might be measured, either, until the researchers at the New York Fed showed us.
We have already seen some anecdotal evidence of political polarization but not any hard data for an economic model. Maybe researchers can combine this type of evidence using artificial intelligence to start measuring the volume and intensity of political polarizing.
Superman’s original instructions were to use his powers in the interest of “Truth, Tolerance and Justice.” Later, under World War II conditions, his charter was modified to fighting for “Truth, Justice, and the American Way.” The American Way was then considered synonymous with tolerance for others, their views, and ideas — at least in theory and gradually becoming more so in fact
Truth, Justice and The American Way are still worth fighting for. So is our economy.
James McCusker is a Bothell economist, educator and consultant.
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