Political Control of the Economy, by Edward R. Tufte
Buying the Vote
Political Control of the Economy.
by Edward R. Tufte.
Princeton University Press. 168 pp. $10.00.
A fundamental, and still unanswered, question about democracy is whether it is compatible over the long run with a stable and healthy economy. The competitive struggle for popular votes that is the essence of democratic rule need not lead to the expropriation of private property (and in fact private property is more secure in democratic than in non-democratic regimes), but it can lead to the manipulation of the value of money, the schedule of taxes, and the amount and distribution of public expenditures so as to serve the short-term interests of politicians at the expense of the long-term interests of society. In short, the risk of democracy is that elected officials will try to buy votes.
At one time, such buying as occurred took place at the local level and face-to-face, in the form of political patronage and cash handouts. No one knows the total cost, in padded payrolls and sweetheart contracts, of such expenditures, but it is unlikely that they amounted to more than a tiny fraction of the gross national product. And, in any event, they were checked by the need of most local governments to have a balanced budget and were eventually reduced by the steady spread of municipal reform and the “good-government” movement. Though implicit vote-buying on the part of the national government was certainly evident in the 19th century—one thinks of the massive system of pensions paid to veterans of the Union army in ways that certanly did not hinder the good fortunes of the Republican party—the ability of Washington to do much of this, or to have by so doing much of an effect on the economy, was quite limited. As late as 1929, total federal expenditures were only 2.5 per cent of the gross national product. It would have taken massive increases in these payments, on a scale not even achieved by the New Deal until well into World War II, before any dramatic effect on the economy would be observed.
Today, when the federal government spends more than one-fifth of the GNP, the opportunities for influencing both the economy and the elections are obvious. Of late, a growing number of political scientists and economists have been attempting to see if there is a relationship, here and abroad, between the “political cycle” (that is, periodic elections) and the business cycle (the ups and downs of various measures of economic well-being). The most recent, lucid, and comprehensive of these studies is the brilliant book by Edward R. Tufte, a political scientist at Yale.
In his careful analysis of politics and the economy in several European and North American democracies, Tufte finds an impressive body of quantitative evidence consistent with the view that politicians in power stimulate the economy just before elections in order to enhance their prospects for being returned to office. Drawing on his own research as well as that of others, Tufte is able to show that what politicians have always believed was true is in fact true: the government can make decisions that will win votes. Though he is careful to note the influence of other factors—such as party loyalties, the impact of non-economic issues, and the role of a candidate’s personality—he offers persuasive support for the view, long suspected by many scholars, that skillful officeholders are not simply the passive victims of inexplicable or purely emotional shifts in mood among voters, but can, to a significant degree, influence electoral outcomes. Indeed, this joining of academic and practical wisdom has now been institutionalized: in preparation for the 1972 election, economists in the Office of Management and Budget developed and tested elaborate statistical models to show the effect on voters of changes in net national product per capita and transmitted these results to John Ehrlichman and the White House political staff.
During the period 1961-72, Tufte finds that real disposable income increased faster during election years than non-election years in nineteen out of twenty-seven countries. In the United States, real disposable income per capita increased in eight of the eleven non-Eisenhower election years but in only two of the years without elections. Except in the Eisenhower years, the unemployment rate has been, on the average, one percentage point lower on election day than it was a year to a year-and-a-half earlier.
During the Eisenhower years, the administration deliberately pursued a policy of avoiding inflation and reducing the federal budget. This period produced, as a consequence, virtually the only exception since World War II to the pattern of increasing incomes and lower unemployment just before an election—a phenomenon Adlai Stevenson was to refer to as the “liberal hour” when, as popular votes are about to be cast, all but the sternest believers in fiscal restraint embrace the need to bolster the economy. Richard Nixon, for one, never forgot the Eisenhower exception to this pattern, ascribing his defeat in 1960 to the fact that the Republicans delivered the “pocketbook issue” over to the Democrats.
There is nothing very mysterious about how a party produces these stimulative effects. It is done chiefly by accelerating, in an election year, the amount of money spent on payments to individuals (chiefly, social-security and veterans’ benefits) and on aid to states and cities. (Monetary policy—that is, altering the amount of money in circulation—is less clearly related to the election cycle, owing, no doubt, to the partial independence enjoyed by the Federal Reserve Board.) The money involved in the transfer payments is huge but, even more important, it is visible. Social-security benefits (OASDHI) were increased in 1950, 1952, 1954, and in most other election years in a way that insured that millions of voters would get a larger check starting between June and October of an election year, accompanied by a printed notice of the increase that mentioned the name of the incumbent President. To insure that the voters’ perception of governmental benevolence is not marred by any reminder that someone must pay for this, the social security taxes are not raised until the January following the election.
So also with veterans’ benefits: they have increased an average of $660 million (at annual rates) in the third quarter of years with elections but only by one-third as much in years without elections. Grants to states and cities in the last quarter of 1972 were more than 50 per cent higher than they had been in the last quarter of 1971.
One might wonder why the government prefers increasing benefits to lowering taxes as a way of attracting public support. The answer is to be found in the politics of taxing as opposed to spending programs. Almost any tax bill raises complex issues generated by conflicts over who is to bear the burdens and receive the benefits; the current tax bill, with its protracted haggling over capital gains, tax rates, and personal deductions, illustrates how difficult it would be to provide a simple and timely boon to voters by lowering taxes. In comparison, raising social-security benefits is easy—millions will benefit immediately, almost everybody will appear to benefit ultimately, and the cost can be deferred for future generations to pay.
Moreover, the strategy of stimulus seems to work: Tufte summarizes a number of studies suggesting rather strongly that increases in real disposable income per capita produce measurable increases, in both off-year as well as presidential elections, in the votes received by the incumbents. A 1 percent improvement in real disposable income translates into a 1.3 percent increase in an incumbent President’s popular vote. The party in power typically loses ground in off-year elections, but when disposable income is rising, that loss is much less.
If all this is true, how does a party in power ever lose? Part of the answer, obviously, is the electoral impact of other issues—war, crime, civil rights. Moreover, some Presidents have felt inhibited about manipulating the economy for political purposes or believed that their personal popularity would see them through economic adversity.
For a long time, the incumbents may have been restrained from pursuing the “buy-votes” strategy by the offsetting need to maintain a balanced budget (except in times of national crisis). But Eisenhower seems to have been the last President to take that problem seriously; elite opinion, and perhaps mass opinion as well, is far more tolerant today of recurring deficits than formerly. Nixon entered office determined not to repeat Eisenhower’s “mistakes.” Gerald Ford, on the other hand, had not learned this lesson. He entered an election year determined to veto spending measures he regarded as excessive, either out of conviction or out of a need to counter the challenge from within his own party by Ronald Reagan, or both. The best Ford’s frustrated political advisers could do was to speak bravely of how the President’s principles forbade him from inflating the economy in order to win the election. Any port in a storm.
Indeed, the changes in the nature of party activists and the destruction of the formal machinery of political parties may have given a significant advantage to the Democrats in this regard. As Jeane J. Kirkpatrick has shown, both parties tend to be heavily influenced, in the presidential nominating conventions, by their more ideological members. But whereas the liberal ideologues in the Democratic party are strongly in favor of stimulating the economy and attach much less importance to inflation, the conservative ideologues in the Republican party favor reducing government expenditures and worry more about inflation than about unemployment. Should the activists in each party control the nominations, it is hard to see how a Republican President could win or, if he wins, be reelected—unless some issue (war, scandal) becomes, for the moment, more important than the economy. This was the case, of course, in 1952, 1956, 1968, and again in 1972, but it was not the case in 1976. Nixon tried to have it both ways—get elected on a conservative platform and reelected on a liberal one, and he pretty well succeeded. But Ford discovered that the militants in his party will tolerate expediency only so long and then they will insist on principle.
People differ on how costly the conventional political strategy is in terms of economic dislocation. Tufte wisely notes that it would be easier to compare the politicized economy we have with the optimal economy we want if only we could agree on what that optimum is and how it might be achieved. Some believe that the stimulus-inducing tendency of electoral competition, coupled with the stimulus-favoring policies of most Left-liberal parties, will lead to a greater equalization of incomes and less unemployment. There are some data, by Douglas Hibbs and others, consistent with this view, but much of their force depends on the significance one attaches to rather small differences among capitalist nations in the degree of income inequality. Others either deny that these benefits result or argue that the price paid for them—high levels of inflation—will in the long run prove disastrous.
What can be said is that a politically-controlled economy operates on a stop-and-go, up-and-down basis created by the very short-time horizons of the officials in power. After an election, Presidents worry about “restoring business confidence” and controlling inflation; just before an election, they work on buying voles by stimulating the economy. The relentlessly optimistic at heart might see in this alternating cycle evidence that diverse interests are being served and thus that the democratic control of the economy really works. But they should recognize that the stimulus-generating incentives have steadily become more important to most elected officials, especially now that large peacetime budget deficits have become politically tolerable.
Tufte reviews a number of possible remedies, all directed at decoupling the electoral and the economic cycles. Most he finds questionable, for all depend ultimately on persuading the electorate not to hold elected officials, especially the President, responsible for the state of the economy. It is hard to imagine how this might be done.