interviews
The Nationalization of U.S. Elections
by Dan Hopkins
December 31, 2020
This interview with Dan Hopkins, Professor in the Political Science Department at the University of Pennsylvania, was conducted and condensed by franknews.
What were the original assumptions in the Constitution about state-level loyalty versus national government loyalty?
It's a good question. The Constitution is now far enough back in our collective memories that I think it's really valuable to start by having some sense of what the U.S. was like at the time. There were some scholars who argued that the Constitution is well understood as a peace treaty between sovereign states about how they were going to govern their affairs.
In 1776 and even in 1787, when the Constitution was drafted, the U.S. was a collection of 13 quite different colonies. It took the Georgia delegation six weeks to travel to Philadelphia in order to participate in the Constitutional Convention. Different colonies had very different economies and different religious heritages. This was a quite diverse country and, thus, the Constitution was designed to protect substantial levels of state-level autonomy. I think it is really important to recognize that at the time, many of the people thought of themselves as Americans, but also to a certain extent, as New Yorkers or Virginians or Pennsylvanians.
When do you start to see a shift towards politics in the U.S. becoming more nationalized?
To some degree, it's an ongoing process that has unfolded in fits and starts over our 200-plus year history. I do think that the Civil War is a critical turning point. In the run-up to the Civil War, you see many more implications of state-level identities. I'm a Georgian, I'm a Virginian. And obviously, the Civil War pitted state against state.
It's generally been the case that the Republican party has been more likely to invoke federalism. Of course, the exemplary issue is the issue of civil rights in the 1950s and 1960s. Even in more recent times, the Republican party has advocated for there being less of a role in the federal government asserting itself to protect the rights of African-Americans, especially, but not only in the South. I think it's fair to say that if you've heard a state rights argument in the last 50 years, it's more likely to be coming from the Republican party.
There's also an element in which as power shifts, we see changes. When the Republicans control the federal office, sometimes it's Democrats who say, "Hey, it's important to let California write its own laws with respect to clean energy or car emissions standards." At the same time, the extent to which we see Republican states moving to block sanctuary cities, for instance, is surprising.
If you're a principled federalist, then presumably cities shouldn't be punished for diverging.
In general, I see very few principled federalists in American politics. I think that all too often in contemporary American politics, federalism is just the clothing we use to dress up certain arguments instead of being a principled approach to a range of policy problems.
What factors contribute to a nationalized political landscape?
I actually think there's a relationship between the transformation of campaign finance, the transformation of voting, and the transformation of what's getting covered in our newspapers. There's a unifying element to all of this.
Let's look at campaign finance first. In many of the most competitive 2020 Senate races, large majorities of money came from out-of-state donations. What does that do to the candidates, and how does that affect the way constituents perceive elections?
I think that the nationalization of the campaign finance structure is an example of our nationalized set of divisions. What we're trying to do is refract these highly nationalized divisions through our federalist system. And the result often distorts representation in critical ways. One of the key facts about campaign finance has been that as late as 1992, two-thirds of all donations to federal candidates, to members of Congress, were coming from within the state that they represent. 20 years later in 2012, only one-third of all dollars were coming from the states that people represented.
The danger is that the representatives and senators increasingly have one constituency where they get their votes, but a separate constituency from where they get their money.
That is not how our system was designed to work. It was not designed for members of Congress to spend four hours a day raising money from people who are not their constituents.
And simultaneously, there has been a collapse of local media. I wonder how the decline of local news plays into this landscape?
When the internet first became a sizable presence, there was a hope that it might actually lead to a proliferation of local news. With the internet there are very, very low production costs, so, theoretically, I could put up a newsletter about my neighborhood. But in fact, as you said, the rise of the internet and the rise of cable television led to this dramatic concentration of our attention on a very, very small number of nationalized news sources. Partly that's because the news media would target us based on where we lived. The Philadelphia Inquirer targeted a set of people who wanted to know about life in and around Philadelphia.
But more recently we instead see that the business model for many media companies is to compete based on who voters are and who readers are and who consumers are, rather than where they live.
Rather than providing me with information specific to Philadelphia, they will identify me as someone who likes the National Football League or cares about politics.
That has led to the fragmentation of our media environment. One of the real losers in this has been people's attention to state and local politics. State and local politics have never been on the top of people's priority lists. It used to be that if I were reading the Philadelphia Inquirer, as a by-product of learning what the Eagle's score was, I also learn a little bit about who my mayor was or who my governor was. And nowadays, since I can go right to ESPN or I can go right to Fox News, I can skip over all that state and local information.
In a world where state and local politicians want to be well-known, they're much more likely to attach themselves to a lightning rod federal issue than they are to actually dive into the challenging, complex issues that face their local community.
Which really allows issues to be manipulated. When we focused on immigration, something I found interesting was how much immigration was used as a campaign tool in Ohio or Maine. It’s easy to make a border terrifying when you don’t live near one. Do you feel like campaigning has changed based on the ability to take issues that don't have anything to do with your constituents, but are made to look like they have everything to do with constituents?
Yeah, absolutely. One of the real challenges with a nationalized political environment is that it encourages attention to issues that are evocative and emotionally charged and often have to do with specific groups of people, but ultimately do not have clear policy effects. I think one prominent example of this is not long after President Trump was elected he attacked football players who refused to stand for the National Anthem. I think it's a very instructive case because he wasn't proposing any policy. This was purely about symbols.
I worry that in the nationalized political environment, it's very hard to put together a political coalition that speaks to auto workers and nurses in the suburbs of Detroit, and retirees in Maricopa County. This is a very diverse country. One of the easier ways to knit together a political coalition is to reach for these divisive, identity-oriented issues, even if that's not actually what's going to motivate the policies that you're proposing.
I do think that there's been a real connection between the way in which our politics has nationalized and the way in which our politics has become more identity oriented.
It's these kinds of identity charged issues that can have an intuitive meaning to people in places from Montana to North Carolina.
Has your work clarified your opinion about how national politics should work? What do you advocate for moving forward in terms of policy and campaigning?
I certainly think that voters do better when they have the information that they need, and I think that we are missing an opportunity to really use our federalist system, because there are so many different kinds of issues that face the different communities in our country.
If we are trying to force all of those issues onto a single divide between Democrats and Republicans, we're going to miss a lot of critical issues.
I think some of the disaffection with contemporary politics stems from the fact that many of us deal with problems in our day-to-day lives that are not represented by the Republican-Democrat divide.
I do want to be wary of nostalgia — or suggesting that some earlier period of history was markedly better. Yes. I worry a lot that today's voters just don't know much about state and local politics, but state and local politics wasn't always vibrant and democratic in previous generations, right? As a social scientist, I think part of my job is to lay out trends. I do think that nationalization is something that we should forecast as being a major part of our politics moving forward.
I also think that there are some policy changes on the edges that I would advocate for that I think would help reinforce the connections between places and voters, and to make better use of our current federalist system. For instance, I think campaign finance matching, so that every dollar you get locally is amplified, is a great idea. I think that could encourage politicians to lay down roots in the specific communities they represent and to spend less time trying to raise money from Manhattan or Dallas.
I think we should also do everything in our regulatory capacity to help promote, protect, and foster high-quality, non-partisan coverage of states and localities.
As a country that is hemorrhaging reporters who cover states and localities I do think that given how many important decisions are made at the state and local level, as a society, we have a real stake in the quality of local news media. There are fewer statehouse reporters, there are fewer city hall reporters, and there are fewer people who are tracking state and local politics to hold our politicians accountable. I think that has been underappreciated, and one of the real dangers in contemporary American democracy.
interviews
The Saving Glut of the Rich
by Ludwig Straub
September 22, 2020
This interview with Ludwig Straub, assistant professor at Harvard, was conducted and condensed by franknews.
Ludwig | I started working on inequality and debt related issues during my Ph.D, and since then I have been fascinated by how the distribution of resources across households can have macroeconomic impacts. Inequality and debt are just two examples of how these distributional aspects matter to the economy.
frank | To begin, what is the general economic understanding of the role debt plays in financial crises?
Debt is an important contributor to, and sometimes the cause of, economic crises.
Obviously, it does not cause all economic crises, as we have seen with the COVID crisis, but we have fantastic evidence as to the role that debt plays -- like that from my coauthors Atif Mian and Amir Sufi as well as Moritz Schularick and Alan M. Taylor -- who find that household debt run-ups for multiple years often culminate in a large, subsequent economic crisis.
We also see that debt can make financial crises, meaning the crises in which banks lose a lot of their equity, worse. Studies show that financial crises that occur after such household debt run-ups are much worse than other types of financial crises.
Why is a household holding debt dangerous to the economy?
Typically there's some kind of a saving glut – meaning there is a large amount of saving in the economy. This can be a global saving glut, or a domestic savings glut, like the savings glut of the rich that we write about.
Once that saving glut enters an economy, its financial system needs to digest it. In practice, this means the financial intermediaries, such as banks, who are holding the funds, will look for investment opportunities. They might increase lending to businesses and households. If there's not enough demand for those funds from businesses, the funds will flow to households and we will start to see households being offered lower and lower interest rates. We will see households get increased advertisements for using debt to finance all sorts of purchases, even those for every day goods such as furniture or appliances. That sort of thing becomes more and more prevalent the more desperate the financial system is to invest -- in other words, lend -- the funds originating from the saving glut.
One very natural thing that happens here is that people will be more likely to buy a house or a larger house, using mortgage debt. This demand raises house prices, and will ultimately start feeding on itself: if you have five, six, or seven years of steady house price growth, at some point, people irrationally believe that house prices will continue to grow forever. If that is your belief, then anyone’s best response is to go out and invest in housing, raising the price of housing even more. We call this a housing bubble. And all of it is financed by debt.
The problem is that at some point the bubble will burst, and households will see that they have accumulated a large amount of debt and that their investments are not doing so well anymore. As a result, they start cutting back on their spending. What's very important to understand here is that these are often middle-class people, people with high marginal propensities to consume. When they get worried about the depreciating value of their home, or about losing their job, they're going to respond with a dramatic cut in spending.
This is a key distinction between bubbles that happen in the housing market compared to bubbles that happen in the stock market. The majority of the stock market wealth is held by the top few percent of the wealth distribution. The wealthy typically have a low marginal propensity to consume. If they lose wealth in the stock market, they're not going to cut back their spending in a significant way.
That distinction explains why housing bubbles have much stronger effects on the real economy.
Is that a widely accepted view of debt and crises, specifically in the 2008 crisis?
There are two broad views on the 2008 crisis, and they each have their own set of supporters. Nearly everybody agrees that household debt and the housing bubble in the early 2000s played a role in the crisis and that we did have a crisis in the financial sector. The two camps just differ on how much weight they put on either factor.
Is the saving glut always tied to inequality?
A savings glut can happen in many different ways. I'll give you a few examples.
For the global savings glut of the early two-thousands, we need to look at what happened in 1997. After the East Asian financial crisis in 1997, central banks in East Asia feared they might run out of foreign reserves again, so they began and have continued to purchase massive amounts of U.S. treasuries. U.S. treasures are the go-to asset for central banks wanting to accumulate reserves outside of their country. Another well-studied source of a saving glut is an aging population. As people get older, there are more wealthy, older households compared to less wealthy, younger households. That is a phenomenon that is very pronounced in Italy and Japan, for example.
In our research, we focus on the saving glut that has emanated from rising inequality. The key idea is quite intuitive.
When you speak to the idea that more saving means more lending to households, what does that decision-making process look like?
That is something we don't have a definitive answer to yet. For instance, one of the big surprises that we found in our work is that when presented with that strong increase in saving, the financial system did not successfully channel those funds into businesses.
One of the most well-known relationships in macroeconomics is that saving is equal to investment. If there are more savings, typically the lending rate will go down, and businesses invest more. The thought is that we will have more investment overall and stronger growth; everybody will be better off no matter where the saving is coming from, whether it is from abroad or from the rich.
Quite frankly that surprised us. It goes against the standard logic macroeconomists grow up with.
More research is needed to understand whether the fact that the funds did not flow to businesses is because businesses didn't seem to want the investment, or if banks had preferences against lending to businesses and instead preferred to lend to households. I don't know the answer to that question, but I'm very interested in doing more work on it.
Are there policy solutions to look towards?
There are a number of solutions.
One possible solution is to have governments invest more. If businesses are not investing, why don't governments take advantage of low lending rates and invest, for instance, in infrastructure? Public investment has never been so low, and it has been falling over the past few decades. That could be one way to substitute for some of the missing private investment.
Another solution is redistribution, away from richer savers towards less rich spenders. And that is important for several reasons. One is that a heavily indebted population reduces demand. Whenever an economy generates less demand, central bankers cut their interest rates in order to stimulate the economy as much as they can. Currently, we are at zero percent interest rates, which means that one of the big steering wheels we used to navigate past crises is out the window. We are up against a constraint – we can’t go lower with interest rates than the zero lower bound. That is a major challenge that is coming about from too much borrowing in the bottom rungs of the wealth distribution.
How do you see the role of debt in the crisis we are in now?
The precise role remains to be seen, but there are already a few indicators as to what the role might be.
So far, household debt seems relatively stable, but since the extra unemployment insurance benefits in the Cares Act have not been extended, it might be the case that households need to begin to borrow more to make ends meet. That will have all of the macroeconomic implications related to debt that we spoke about earlier. So that is something to watch.
I think that the two types of debt that are going to be most affected are corporate debt and government debt.
For corporate debt, one key issue is going to be something called debt overhang. Consider a restaurant in New York City. After the pandemic, the restaurant's debt payments may be two or three times higher than before because the owners had to borrow in order to stay in business. This level of debt can make them less willing or able to invest in new locations.
That's the debt overhang problem, and that will put an additional drag on corporate investment in the coming years. That, I think, is another factor we need to watch.
For government debt, the risk that many economists think about is that there might be a loss in confidence in the dollar as the world’s reserve currency if we don't manage to get deficits under control. I don't think this is a risk that will materialize in the next 10 years. There's still ample room to go before that risk starts to become threatening, but at some point, if there is no sign of willingness to bring deficits under control, it may certainly become a threat. In that case, we would potentially see foreign central banks turning to other assets as opposed to U.S. treasuries, like Chinese or European bonds. But to emphasize, I think this is one is, luckily for us, more of a long term problem.