William R. Keech

A New View of Political Accountability for Economic Performance

Most political support models imply that in evaluating economic performance, voters use a standard that would provide poor predictions of the future and leave the economy vulnerable to manipulation by vote-hungry politicians. Drawing on macroeconomic theory, we develop a simple standard of evaluation which encompasses a concern not only for current economic outcomes, but also for accurately assessed future consequences of current policies. We find that political support for the president can be explained as well by models that assume that voters use this sophisticated standard as by models that assume voter naivete.Our analysis questions the wisdom of measures typically used to assess voter evaluation of economic performance in a variety of theoretical contexts. The results also help to explain the absence of convincing evidence that governments exploit voter ignorance in manipulating the economy.

POLICY MOTIVATION AND PARTY DIFFERENCES IN A DYNAMIC SPATIAL MODEL OF PARTY COMPETITION

We present a model of party competition that produces more realistic patterns of results than those often emphasized in the literature. Reversing Downs (1957), we assume that parties win elections in order to formulate policies, rather than formulate policies in order to win elections. Voters are modeled first as having perfect information about candidate positions, and then under conditions of uncertainty. In simulation experiments we show that policy motivation and voter uncertainty can bring about persistent and predictable party differences in sequential majority rule elections. As the degree of voter certainty decreases, parties diverge towards their optima, whereas increases in voter certainty draw parties towards cycles in which party positions vary, but predictable issue stances are maintained on the average.

Partisanship, Institutions, and Change in American Trade Politics

We document the change of the identities of Republicans and Democrats on trade policy. This change involves a reversal of positions in the House of Representatives but a convergence on the presidential level. We also demonstrate in pooled cross-sectional analyses that presidents of both parties now exert a free-trade influence on House votes.

Elections and Macroeconomic Policy Optimization

This paper investigates the implications of electoral politics for public policymaking on inflation, unemployment, and per capita income and identifies three mechanisms by which electoral incentives can affect the quality of these policy outcomes. The first is based on party differences, the second on cycles following electoral periods, and the third on the long-term consequences of short-run decision-making. Existing research does not support robust conclusions, whether positive or negative, about the optimizing consequences of electoral incentives. The arguments do, however, demonstrate that a fair and open electoral process does not necessarily lead to desirable policy results.

Welfare Consequences of the Six-Year Presidential Term Evaluated in the Context of a Model of the U.S. Economy

We evaluate the six-year presidential term proposal in the context of a model of the U.S. economy characterized by a short-run but not a long-run trade-off between inflation and unemployment. Votes and public welfare are separately conceptualized as functions of inflation and unemployment, which are indirectly controlled by the president through manipulation of government spending.In a series of simulation experiments, the vote-maximizing choice of policy instruments led to less we(fare loss with six- than with four-year terms under most conditions. Ironically, vote maximizing was shown to lead not only to short- and long-term welfare loss, but also to long-run political disadvantage.

Appointments, Presidential Power, and the Federal Reserve

Abstract The Federal Reserve is nominally independent of elected officials, but it is widely seen as being subject to presidential influence. A number of scholars who have taken this view have also identified the appointment power as the most important mechanism for the exercise of this influence. An examination of the institutional nature of the relationship between the president and the Fed casts doubt on this assertion. We argue that the president’s use of this institutional prerogative, as a means of influencing Fed policy activity, is a more limited tool than previously realized.

The political viability of rule-based monetary policy*

6. ConclusionsWe have estimated two models explaining political support for the president as a function of economic performance. One model reflects the assumption characterizing most of the literature, that voters indiscriminately punish inflation and unemployment without regard to the tradeoffs between them. The other represents a more demanding conception of voter sophistication about macroeconomic possibilities and about control of the money supply. While the data do not unambiguously designate a ‘best’ model of behavior, the sophisticated voter hypothesis performs as well as the naive voter hypothesis in the context of our study. Clearly this result is subject to the usual econometric caveats including possible misspecification of the model, multicollinearity among independent variables, etc.. However, there is no particular reason to believe that these problems should favor one model as opposed to the other. Thus, while we cannot conclude that voters really think in terms of rates of growth of velocity and natural output, we can question the conventional wisdom that consistent rule-based monetary policies may not be politically viable.Our findings are somewhat reassuring in suggesting that the electoral process does not inevitably involve adverse incentives, as the political business cycle literature suggests that it does. However, the fact that the conventional naive voter model performs comparably well does illustrate that questions about the nature of electoral incentives in economic policy are far from resolved. Our claim is not to have provided a better explanation for patterns of political support, but rather to have conceptualized and tested an alternative to models which suggest that voters are vulnerable to cynical manipulation.

Politics, Economics, and Politics Again

This essay reconsiders the meaning of politics. It argues that economics offers theory and language that can contribute to the understanding and fulfillment of political life by facilitating analysis of the public interest. However, economics does not provide an escape from political disagreement, whether based on inevitable differences of interest or of belief, or on self-serving efforts to advance one cause at the expense of another. As a language of discourse, economics is shown to be compatible with a broader conception of human nature than is sometimes claimed by its practitioners or acknowledged by its critics.

A theoretical analysis of the case for a balanced budget amendment

A balanced federal budget is not a best outcome for all situations, and a constitutional amendment to require annually balanced budgets is not well defended on grounds that it is. However, the case for a balanced budget amendment may have some merit on other, subtler grounds. This article outlines a set of such grounds.Specifically, if it can be shown that the political process systematically undervalues a desirable relationship between revenues and expenditures, a balanced budget requirement might be defensible. The grounds would be that annually balanced budgets are a second best solution, given an argument that the unconstrained political process produces even less desirable outcomes. However, existing knowledge does not make an adequate case that such a rule is needed.

Electoral and welfare consequences of political manipulation of the economy

Abstract This paper examines the long-term electoral and welfare consequences of repeated strategies whereby a political office-holder induces cycles in economic variables to maximize his chances of re-election. Unlike other studies of political business cycles, we focus on questions of the desirability of these cyclical patterns and on the long-run properties of these political economic models. Noting that the welfare costs of vote maximizing in a single term extend beyond that term, we examine in detail the properties of the ‘long-run equilibrium path’ to which such cycles converge. If the economy starts above this path, vote maximizing can lead to increased social welfare and vote margins. However, if the economy starts below this path, vote-maximizing in the present can cause reduced votes and electocal defeat in subsequent terms. This possibility should lead a far-sighted, enlightened politician or political party to eschew vote-maximizing tactics and the political business cycles which accompany them and thus canhelp explain why empirical studies have not found convincing evidence of the existence of such cycles. This paper also quantifies the dependence of this long-run equilibrium path on the important political and economic parameters of the model.