The pandemic has been a goldmine for case studies of economic principles or phenomena. That was the inspiration behind my forthcoming book, Economics In One Virus (available for pre‐order here). But while there has been plenty of discussion of, say, COVID-19 as an “externality” problem or evaluation of cost‐benefit analyses for lockdowns and other mandates, there has been less focus so far on the political economy aspects of the crisis.
In the book, I introduce readers to the public choice school of economics by analyzing the reasons why particular industries, especially passenger airlines, might have found it easier to obtain “ring‐fenced” relief funds, as other sectors scrambled in capital markets or to secure support from the Paycheck Protection Program. More recent research, however, highlights how political incentives shaped the contours of policy in another area: the regulations dubbed “lockdowns.”
In a new paper for the Journal of Political Institutions and Political Economy, political scientists Jesse Crosson and Srinivas Parinandi assess whether it was more likely that a state’s governor designated an industry “essential” in COVID-19 executive orders if the businesses in said industry had donated to the governor’s gubernatorial election campaign.
Using the wide variation of industry designation across states and a host of control variables, including the political party of the governor and the prevalence of COVID-19 in the state, they find the presence of a gubernatorial campaign contribution leads to a roughly 10 percent increase in the probability that an industry will be deemed essential. They tentatively suggest that there may have been around 250 such cases around the country.
The researchers then assess whether governors appear to “reward” businesses in industries who have donated exclusively to them (and not their opponent). They find no evidence of this being the case, nor of governors punishing businesses who donate to opponents. Instead what appears to be happening is that governors are more likely to bestow “essential” status on industries that are simply more politically active.
An obvious retort is “well, maybe those industries that really are essential are just more likely to be politically active too.” The researchers test this by dividing their sample into two groups: those states that reference federal critical infrastructure (CISA) guidance in their orders and those that do not. This guidance was the federal government’s attempt to tell governors what they deemed to really be “essential” to keep open. But the results stand across both samples—suggesting that donations impact “essential” designation germanely.
What does this mean? Well, it is suggestive that governors take into account political donations when making COVID-19 policy, even absent direct lobbying from companies. No doubt in some instances, this was because the governors genuinely believed the activities “safe” or maybe even helpful to public health efforts. But electoral incentives were likely in play too.
COVID-19 public health orders are often talked of as if disinterested bureaucrats sit down to work out what is optimal for controlling the spread of the disease. Last year I criticized blanket “nonessential business” closures on the grounds that the interconnectedness of economies left huge room for unintended knock‐on consequences—with policymakers ignoring how “one person’s non‐essential business might be another business owner’s key supplier.” This new paper reminds us of another truth: politicians are people and are affected by self‐interested incentives too.
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For more on the economics of COVID-19, you can pre‐order my book, Economics In One Virus (U.S.) The UK pre‐order site is here.