Political Philosophy

October 26, 2020 12:10PM

California Watch: 2020 November Ballot Initiatives

California’s ballot measures can be more than a little confusing. Commonly referred to by their numbers, and sometimes referencing previous propositions, even knowledgeable voters can be forgiven for having trouble keeping track of which proposition does what. Take this year’s Prop. 15, for instance: it would roll back 1978’s Prop. 13, which limited property taxes, and which is unrelated to March 2020’s Prop. 13, which would have authorized the state to issue bonds for schools. Some propositions are quite obscure: this year’s Prop. 23 deals with regulations for kidney dialysis clinics, and – believe it or not – this is the second time in two years that California voters will decide on an initiative about that industry.

There are, however, several measures on the November ballot that have direct implications on the work we’re doing at the Cato Project on Poverty and Inequality in California. Specifically, some of the measures relate to our work on housing, criminal justice, and economic inclusion issues. California’s ballot measures provide a unique insight into how voters in the Golden State are thinking about policy issues. It is no exaggeration to say that California’s ballot measures sometimes set the agenda for nationwide debates, as Prop. 13 did for the nationwide tax revolt. With this in mind, we have compiled an overview here of a few initiatives that are of particular interest to Cato’s Project on Poverty and Inequality in California.

Proposition 15:

Proposition 15 requires many commercial properties to be taxed based on their market value. It aims to roll back 1978’s Proposition 13 (which capped yearly property tax increases at 2% and limited property taxes overall to 1% of a property’s purchase price) and introduce a “split roll” property tax system, which would split the treatment of commercial property from that of residential property for the purposes of tax reassessment. No matter how the numbers are calculated, Proposition 15 would be a significant tax increase for California businesses, with estimates between $7.5 billion and $12 billion. How much of the tax increase will be passed on to consumers is still up for debate. 40% of the increased tax revenues would go toward school districts and community colleges, hence supporters’ messaging touting the effect of increased school budgets. A notable point on this issue is that California’s recent school funding reform (the Local Control Funding Formula) shifted California’s schools farther than ever before from relying on property taxes for revenue.

Proposition 21:

Prop. 21 is in many ways the return of 2018’s Prop. 10. Prop. 10 would have repealed California’s Costa‐​Hawkins Act, which limits local governments’ authority to enact rent control measures. Prop. 21 is more narrowly‐​targeted than Prop. 10 was: it would continue to prevent rent control on newer housing units, and on housing units owned by individuals who own two or fewer units. Prop. 10 failed at the ballot box in a 65%-35% vote, but the legislature enacted AB 1482, which (among other provisions) capped yearly rent increases at 5% plus inflation or 10% overall, with a sunset of 2030. There are a number of reasons to be skeptical of rent control policies like AB 1482 and the laws that Prop. 21 would allow. Rent control is, like so many other policies, an example of concentrated benefits and diffuse costs: a study of San Francisco, for example, showed large benefits for covered renters but higher rents city‐​wide. Rent control makes it harder to operate as a landlord, and therefore would restrict the supply of rental housing, despite Prop. 21’s exemption of new housing from rent control.

Proposition 22:

Perhaps the biggest bill to go through California’s legislature in 2019 was AB 5. AB 5 dramatically limited the situations in which workers can be freelancers, as opposed to employees requiring benefits and minimum wages. While AB 5 was publicized as primarily targeting app‐​based rideshare workers, it has wide‐​ranging effects on industries such as newspapers to yoga instruction. In a notably measurable effect of regulation on the price of consumer goods and services, the price of yoga classes from one LA‐​area studio increased from $22 to $26. It’s notable, though, that Prop. 22 only affects app‐​based drivers – not the myriad other workers reclassified by AB 5. There is clearly an argument for creating new regulatory flexibility for the numerous workers who appreciate the flexibility of app‐​based or other freelance work, but Prop. 22 isn’t that far‐​reaching reform, except for in the rideshare industry. Angeleños can expect to pay more for yoga classes whether Prop. 22 passes or not, but whether they can take Uber or Lyft there likely hangs on the outcome of Prop. 22. There has been some policy discussion – often including too many buzzwords and jargon – about “the future of work,” with Gov. Newsom starting a commission on the subject. Both sides of the AB 5 debate will probably try to claim their side is that future.

Proposition 25:

Cash bail has long been a target for criminal justice reformers. California passed a law in 2018 that would eliminate cash bail and replace it with a risk assessment system, but the bail bond industry immediately pushed for a referendum to overturn the law. That referendum has become Proposition 25. In general, this reform could reduce the number of people who are incarcerated. It is clear that being in jail – even for a short period – can put or keep individuals in poverty. There are numerous questions about how California’s risk assessment system will work in practice; however, it’s clear that the current system of cash bail is deeply flawed: whether California’s changes will be determined by the voters.

October 13, 2020 3:23PM

Samuel Brittan, RIP

I am saddened to hear that Samuel Brittan has died at the age of 86. He wrote columns on economics and politics in the Financial Times that were often described as “essential reading” for almost 50 years, as well as essays and books. He described himself as a “sort of individualist liberal,” writes the FT, with “lasting hostilities: to politicians (with rare exceptions), the Treasury and economic forecasting.”

In 1973 he wrote a brilliant essay titled “Capitalism and the Permissive Society,” which is included in his book by that name (later reissued as A Restatement of Economic Liberalism) and in The Libertarian Reader. He noted that in recent decades the advocates of personal freedom and of economic freedom have often found themselves on opposite sides of the political spectrum, with supporters of economic liberty lining up with Republicans or the British Conservative party and those who defend civil liberties and personal freedom becoming Democrats or Labour party supporters. In the 18th and 19th centuries no such distinction was made, and those who favored freedom — both personal and economic — were found in the liberal movement. The logical connection among various liberties remains, however, and in that essay Brittan argued that “competitive capitalism is the biggest single force acting on the side of what it is fashionable to call ‘permissiveness,’ but what was once known as personal liberty.” He pointed out that although capitalists and the young people of the Sixties regarded each other as the enemy, both the market economy and the “counterculture” were based on the idea of “doing your own thing.”

Read the whole thing.

The FT notes the themes of some of his other books:

His books included Left or Right: the Bogus Dilemma, in which he argued that Adolf Hitler and Joseph Stalin had more in common with each other than either had with middle‐​of‐​the‐​road politicians, and Is There an Economic Consensus?, in which he showed that economists of all political persuasions agree more closely with each other than they do with non‐​economists.

The FT’s Editorial Board adds:

He was a passionate believer in freedom from any sort of tyranny, political or personal, a true intellectual and a man of conscience.…

He was known for his belief in free markets. But this was more because of his conviction that they expressed and supported liberty than that they would make everybody rich. He was well aware, too, that a society with free markets, such as Victorian England, could be replete with squalid tyrannies. His liberalism was far broader than this. He believed in freedom in all domains — economic, social and political.

That belief made him ambivalent towards Margaret Thatcher and Ronald Reagan. “The greatest paradox of Thatcherism, and to some extent Reaganism,” he wrote, disapprovingly, “is the contrast between their economic individualism and their authoritarianism in other areas”. Brittan hated violence and coercion. Essentially a pacifist, he condemned what he saw as the immoral sales of arms.

Brittan was knighted in 1993, so if I were British I would call him Sir Samuel Brittan. As an American republican, I just call him one of the most insightful economic journalists of the past half‐​century. RIP.

September 4, 2020 3:35PM

Does The Unemployment Fall Prove The $600 Benefits Didn’t Disincentivize Work?

The unemployment rate fell sharply in August to 8.4 percent. While an accurate pre‐​crisis comparator unemployment rate is undoubtedly slightly higher than this, this was an unexpectedly sharp fall in the official jobless rate.

The glass half‐​full reading is this: despite the massive pandemic shock, the unemployment rate in the U.S. is already as low as France’s in boom times (a testament to easy hire and fire laws and low levels of labor market regulation here).

The glass half‐​empty reading: this is still a long way from a full recovery and we’d expect that recent months would have seen some low‐​hanging fruit gains as closed businesses reopened, bringing back on board workers. In future unemployment might prove much stickier, if it results from more permanent company failures and realization that we are in a new normal until the pandemic is over.

Some have claimed that the sustained fall in unemployment from April through August shows that the $600 per week pandemic unemployment benefit expansion, which expired July 31, did not disincentivize people returning to work. This seems a bad take, for several reasons.

First, the Federal Reserve’s Beige Book this week reports a lot of contacts at state level saying that they continued to find it difficult to hire low‐​wage workers at the wages they were willing to pay. This suggests the supply of workers remained constrained somewhat by the high level of unemployment benefits in July and the expectation of some form of continuation of them after that (the President has since introduced a lower $400 unemployment supplement for four to five weeks, but Congress is considering its own actions).

The Beige Book national summary:

Firms continued to experience difficulty finding necessary labor, a matter compounded by day care availability, as well as uncertainty over the coming school year and jobless benefits.

The Federal Reserve Bank of Boston:

The majority of contacts reported difficulty finding candidates who were willing to work, especially for pay rates that might be lower than pandemic‐​augmented unemployment benefits.

Richmond:

Some contacts cited skills mismatches as a barrier to finding the workers they needed while others believed that the generous unemployment insurance benefits had discouraged workers from applying for available jobs. Also, multiple contacts said that some former employees were recalled but did not report back to work.

Atlanta:

Among those hiring, most indicated that the pool of available workers was ample, although there were reports that unemployment insurance benefits continued to present challenges attracting low‐​wage workers.

Chicago:

Several contacts again commented that generous unemployment benefits had made it difficult to bring payrolls back to desired levels, especially at the entry level.

And of those with surveys specifically mentioning August, the Federal Reserve Bank of New York report claimed:

Some businesses have noted less trouble bringing back furloughed workers and hiring new ones in recent weeks, as unemployment benefits were scaled back.

And Philadelphia:

Fear of infection and expanded unemployment benefits had become lesser concerns.

So, businesses in many parts of the country are convinced that the disincentive effects were and are real and that they then dissipated somewhat in August, when the scale of the unemployment benefits fell. But why then did we see falling unemployment through July too, when the expanded benefits were actually still in place?

One obvious explanation is that although some laid‐​off workers would have sought to pocket the benefits, others would have been more forward‐​looking. Without the knowledge about President Trump’s executive order extending less generous payments, many unemployed folk would have faced a risky decision: the security of a job now, or high benefits for a few weeks.

If the option then in spurning employment was perceived as receipt of 140–220 percent of past earnings in UI benefits for July but then falling to 30–50 percent of previous earnings and confronting the uncertainty of unemployment, it’s perhaps unsurprising that many accepted recalls or took up new roles.

In fact, I heard this story on a recent trip to a hotel on the West Virginia border. The worker told me that he was effectively furloughed and simply ignored his employers’ calls by turning his phone off for several weeks in May and June, such was the uplift in his income on pandemic‐​related unemployment insurance benefits. He ultimately decided to take up the offer to return in late June because he recognized that the expanded benefits might expire and he’d then be worse off unemployed.

If this story is in any way generalizable, then it has big policy implications. The recent jobs bounce‐​back would in part reflect the falling UI benefits from July to August and the expectation over a longer period that these additional benefits were temporary. The robust jobs growth therefore cannot be used as supportive evidence for continuing the $600 UI payments. If the $600 benefits had already been extended through the end of the year, the disincentive effect would have been sharper and we’d have heard louder complaints of the sort outlined in the Beige Book.

August 26, 2020 3:43PM

The False Economic Promise Of A Government Infrastructure Splurge

According to frontline politicians, “now” is always the right time, economically speaking, for governments to invest heavily in infrastructure. When unemployment is low and growth reasonable, they say it’s essential we invest to raise productivity or “modernize” the economy. When a pandemic hits, unemployment spikes, and uncertainty drags on recovery, they say we need to build our way to recovery through shovel‐​ready investment.

This rhetorical penchant to support huge government infrastructure packages is bipartisan. President Trump has flirted with major proposals through his whole term. He still apparently wants to use a September 30 transport infrastructure funding deadline to push a $1 trillion funding package for roads, bridges, 5G and rural broadband, prior to the election.

The Biden‐​Harris campaign, of course, promises to “Build Back Better.” They desire “a $2 trillion accelerated investment, with a plan to deploy those resources over his first term” to “create millions of good, union jobs rebuilding America’s crumbling infrastructure – from roads and bridges to green spaces and water systems to electricity grids and universal broadband.”

As the election draws closer, both parties and commentators will tell us that infrastructure investment is win-win—both good “stimulus” in the short‐​term pandemic‐​suffering economy and good for economic growth in the longer term. We will be told this spending can provide employment, accelerate growth, and repair “crumbling infrastructure” simultaneously, ignoring the obvious trade‐​offs associated with fulfilling these aims.

Good infrastructure can, no doubt, grease the wheels of economic activity. But Cato Institute scholars have long warned that a government‐​led infrastructure splurge today would not bring the economic benefits proponents claim. Recent research supports our conclusions.

Not Effective Stimulus

New working papers from both Valerie Ramey and Gilles Duranton et al suggest public infrastructure investment is not good macroeconomic “stimulus.” With delays in getting projects off the ground and high degrees of crowd out of private sector projects for workers and equipment, throwing money at building things does not do much to boost output or employment in the short‐​term. These results are robust to both theory and evidence across OECD countries, the U.S. over time, and across U.S. states.

In the 2009 ARRA, for example, Ramey shows there were lengthy delays between appropriations and spending. Only 11 percent of Federal Highway Administration appropriations had been spent 4 months after the legislation passed and only half had been spent 16 months’ after. Then there’s the lag to actual building times, let alone the time that elapses before the asset becomes usable. This construction period itself can prove extremely disruptive to other economic activity, particularly if immobilizing existing transport infrastructure.

These effects, Ramey suggests, could even lead to infrastructure investment reducing output and overall employment in the near‐​term. Analyzing papers on highway construction in the ARRA, she concludes:

there is scant empirical evidence that infrastructure investment, or public investment in general, has a short‐​run stimulus effect. There are more papers that find negative effects on employment than positive effects on employment. The ARRA results are particularly negative, since the ARRA spending occurred at a time when interest rates were at the zero lower bound and the unemployment rate was 9 to 10 percent. Despite the slack in the economy and the accommodative monetary policy, the effects on construction employment were either small positive or negative.

Politicized decision‐​making

Better infrastructure could lead to a more productive economy in the longer‐​term, provided funds are invested in areas markets can’t provide well or where bottlenecks occur. Yet even then Ramey finds that some methods for assessing past infrastructure spending bias their supposed positive impacts on long‐​term output upwards. Regardless, economics happens on the margin. That an old highway had positive effects on GDP tells us little about the benefits of another road today.

Whether an infrastructure package improves economy‐​wide productivity depends on whether the funds are used better than they would have been in market activity. This in turn depends on which projects are selected and how they are financed. On this, there are good reasons to think that politicians, particularly at the federal level, will not choose projects where the returns are greatest. Politicians instead face incentives to invest in projects to help favored constituencies, to “create jobs,” or to fulfill other non‐​economic criteria.

There is little evidence that politicians select projects with long‐​term growth in mind. Many, including Joe Biden, talk of the need to replace “crumbling” infrastructure. But assessments of data on the state of U.S. infrastructure consistently show things are not as bad as politicians suggest. In a new working paper Duranton et al examine claims of crumbling US infrastructure and find little evidence to support the worst case scenarios portrayed in the news, writing:

Perhaps our main conclusion is that, on average, U.S. transportation infrastructure does not seem to be in the dire state that politicians and pundits describe. We find that the quality of interstate highways has improved, the quality of bridges is stable, and the age of buses and subway cars is also about constant.

Randy O’Toole’s extensive work has shown how politicians plough money into loss‐​making rail and public transit projects, while ignoring that a lot of other projects could be viable through private initiatives less prone to cost overruns. The likelihood of policymakers selecting the “wrong” projects is of course heightened during this pandemic, when it is not clear whether transport habits will permanently change. As I concluded in a paper in 2017:

Congestion and changing demand patterns do necessitate new infrastructure investments, and government spending in certain areas can enhance growth. But…scope for more private funding is ample, and resources allocated through the political process are often badly managed and prioritize ambitions that undermine economic performance.

We should therefore not accept claims that government infrastructure spending—as a homogenous entity—is “good for growth” as a general statement. As Duranton et al conclude:

our review of the literature above suggests that transportation improvements lead to a displacement of economic activity while net growth effects are limited. This finding needs to be buttressed and refined. The balance between displacement and net growth effects is likely to differ greatly across projects depending on mode, spatial scale, and whether the project serves a corridor between cities or is a transit improvement within, etc.

For more on the macroeconomics of infrastructure spending, read here.

August 25, 2020 12:35PM

The Rights of Women

On August 26, 1920, the ratification of the Nineteenth Amendment, giving women the right of the vote, was formally certified. In 1973 Congress designated August 26 as Women’s Equality Day. Equal suffrage is one part of equality under the law, but by no means the only part. Visiting Pittsburgh a few years ago I came across this historical marker:

No photo description available.

Anyone who thinks Americans were free in some earlier period might want to ponder the message on the plaque, which celebrates the woman who persuaded the legislature in 1848 to allow married women to own and sell property. (Court decisions, however, limited these rights, including declaring that earnings were not “property.”) As Charles O’Brien wrote in the American Law Register in 1901, in an article titled, “The Growth in Pennsylvania of the Property Rights of Married Women,”

Whether these criticisms are sound or not, the practical results were as stated, and in substance her property and contractual rights as a single woman were almost entirely destroyed, her legal existence for most purposes suspended. and other legal disabilities not to be properly considered here added to her estate when she became a married woman. Such legal servitude was incompatible with the spirit of the founders of the Commonwealth and their descendants.

Throughout the 19th century states began to change those laws, though other legal disabilities for women remained.

The cause of women’s rights has always been bound up with the spread of classical liberalism. In England the liberal writer Mary Wollstonecraft responded to Edmund Burke’s Reflections on the Revolution in France by writing A Vindication of the Rights of Men, in which she argued that “the birthright of man … is such a degree of liberty, civil and religious, as is compatible with the liberty of every other individual with whom he is united in a social compact.” Just two years later she published A Vindication of the Rights of Woman, which asked, “Consider … whether, when men contend for their freedom … it be not inconsistent and unjust to subjugate women?”

In the United States the ideas of the American Revolution — life, liberty, and the pursuit of happiness — led logically to agitation for the extension of civil and political rights to those who had been excluded from liberty. Women involved in the abolitionist movement also took up the feminist banner, grounding their arguments in both cases in the idea of self‐​ownership, the fundamental right of property in one’s own person. Angelina Grimké based her work for abolition and women’s rights explicitly on a Lockean libertarian foundation: “Human beings have rights, because they are moral beings: the rights of all men grow out of their moral nature; and as all men have the same moral nature, they have essentially the same rights.… If rights are founded in the nature of our moral being, then the mere circumstance of sex does not give to man higher rights and responsibilities, than to women.” Her sister, Sarah Grimké, also a campaigner for the rights of enslaved persons and women, criticized the Anglo‐​American legal principle that a wife was not responsible for a crime committed at the direction or even in the presence of her husband in a letter to the Boston Female Anti‐​Slavery Society: “It would be difficult to frame a law better calculated to destroy the responsibility of woman as a moral being, or a free agent.” In this argument she emphasized the fundamental individualist point that every individual must, and only an individual can, take responsibility for his or her actions.

The Declaration of Sentiments adopted at the historic Seneca Falls Convention in 1848 consciously echoed both the form and the Lockean natural‐​rights liberalism of the Declaration of Independence, expanding its claims to declare that “all men and women are created equal,” endowed with the inalienable rights of life, liberty, and the pursuit of happiness. The document notes that women are denied moral responsibility by their lack of legal standing and concludes that women have been “deprived of their most sacred rights” by “unjust laws.” Consider some of the specific grievances relating to the concerns commemorated in the Pittsburgh plaque:

He has made her, if married, in the eye of the law, civilly dead.

He has taken from her all right in property, even to the wages she earns.

After depriving her of all rights as a married woman, if single and the owner of property, he has taxed her to support a government which recognizes her only when her property can be made profitable to it.

He has monopolized nearly all the profitable employments, and from those she is permitted to follow, she receives but a scanty remuneration.

He closes against her all the avenues to wealth and distinction, which he considers most honorable to himself.

That classically liberal, individualist strain of feminist thought continued into the twentieth century, as feminists fought not just for the vote but for sexual freedom, access to birth control, and the right to own property and enter into contracts.

A libertarian must necessarily be a feminist, in the sense of being an advocate of equality under the law for all men and women.

August 20, 2020 11:18AM

Some Reasons for Optimism Regarding the “Hollowing Out” of America’s Middle Class

A frequent refrain among Washington populists (and in omnipresent political advertising) these days is that decades of global capitalism have “hollowed out” the center of the American workforce, leaving two predominant classes in the United States: the poor and the super‐​rich (aka “the 1%”). The alleged “polarization” of the American workforce drives domestic and international economic policies on the left and the right, all of which seek to “restore” the middle class to its long‐​past glory (and often blame the “rich” for deliberately causing the current predicament).

New research, however, calls this narrative into question by examining individuals over time instead of the prevailing methods of analyzing certain groups – most notably income classes or occupations – during certain periods. These “real world” analyses reveal that, while the American middle class is indeed shrinking, this trend has been caused less by “polarization” (i.e., Americans moving both up and down the economic ladder) and more by Americans simply getting richer.

First, in a new Brookings Institution analysis, George Washington University’s Stephen Rose conducted a “longitudinal” analysis of the same people over time using the popular Panel Study on Income Dynamics (PSID) dataset. These data, Rose tells the Washington Post’s Robert Samuelson, “provide a picture of what is really happening to people because they have data on each specific person for many years.” In particular, Rose examined individuals aged 25 to 44 during two different 15‐​year periods: 1967–1981 and 2002–2016. To standardize the data, he converted all individuals into “family units” of three and adjusted for inflation (using Bureau of Economic Analysis’ Personal Consumption Expenditure price deflator). The results, which the Post helpfully summarized in the table below, run counter to the prevailing “polarization” narrative:

Americans' incomes over time

As the table makes clear, the predominant trend during and across the two periods – although certainly less so during second one – is fewer poor and lower/​middle‐​class Americans and more upper‐​middle and rich Americans. Rose thus draws two important conclusions from these data:

First, while the benefits of economic growth have not accrued equally, they have not gone solely to the top 1%. The upper middle class has grown. Second, the main reason for the shrinking of the middle class (defined in absolute terms) is the increase in the number of people with higher incomes.

He also finds another bit of good news: “many more Black people are in higher income classes” during the latter period (though there is still more work to do in that regard). Samuelson helpfully adds in his Post piece that these figures likely understate the individuals’ actual gains, because the income figures do not include government transfers (which, as this CBO analysis demonstrates, substantially improves poor and middle class income gains over time) or non‐​wage employer compensation like healthcare premium contributions. (I’d also note that the latter period not only featured the 2008-09 Great Recession and the 2015–16 “mini‐​recession” in U.S. manufacturing, but could show even more improvement if it ended last year instead of 2016 and thus captured the strong gains for middle‐​class workers in 2018–19.)

Second, a 2019 paper from Jennifer Hunt and Ryan Nunn provides similar conclusions when examining wages at the individual level (rather than occupation‐​average wages) over time. They explain that “[w]hile occupations may provide reliable information about tasks and the nature of work at a point in time, average occupation wages are in general not appropriate proxies for individual wages, nor is the distribution of occupations by average wage very informative about the distribution of workers’ wages” (and thus wage inequality and polarization), in large part because wages can vary dramatically within occupations (even those classified as “low wage”).

Instead, they assign workers to real hourly wage “bins,” ignoring specific occupations and their average wages, and then track annual changes in the shares of workers in each bin between 1973 and 2018, again adjusting for inflation. The groups examined here are different from those used by Rose – the highest‐​wage bin starts at $35.08 (equivalent to about $70,000 per year), and these individuals are not converted to 3‐​person “family equivalents” – but the findings are nevertheless similar: low and middle‐​wage jobs are slowly declining while higher‐​wage jobs are increasing more quickly:

American wage trends over time

These general (and positive) long‐​term trends do not change when adjusting for worker hours or business cycles, or when increasing the number of wage bins from four to ten. In summarizing their research at VoxEU, the authors conclude: “The share of workers earning middle wages has declined for the last 50 years…. But in a departure from employment polarisation, the figure does not show simultaneous increases in the top and bottom group shares…. [S]hares of workers earning bottom and top wages have generally moved in opposite directions, and do not rise together in the polarising fashion that would provide a link to rising wage inequality.” They subsequently find that women benefited most from these trends, though their analysis of male wages still shows a long‐​run increase in high‐​wage jobs and no clear “polarization” trend:

Female wage trends over time
Male wage trends over time

These “real world” analyses effectively counter the “polarization” narrative that we hear so frequently from politicians, pundits and the media. They (and some other recent assessments, including one on this very blog) show that America’s middle class is indeed getting smaller, but it is primarily because Americans are moving up the economic ladder.

This good news, of course, does not mean that all is well in U.S. labor markets or with the American middle class. The studies show, for example, less significant and less stable gains for male workers (Hunt/​Nunn) or for all workers in more recent periods (Rose), as well as the increasing importance of education for upward mobility in the United States (both). And, while each study accounts for inflation (including housing costs), they do not address important cost‐​based challenges that are specific to certain American workers (e.g., higher education costs) or to important U.S. labor markets (e.g., coastal “megacities” like New York). Nevertheless, those very real challenges are very different, and more nuanced, than the common narrative peddled by populists like Elizabeth Warren and Josh Hawley about nefarious elites and multinational corporations “hollowing out” the American middle class. These challenges also require different policy responses (many at the state and local level), such as improving educational outcomes, eliminating occupational licensing or other regulations that stifle mobility, or lowering the cost of essential goods and services (see, e.g., my colleague Ryan Bourne’s suggestions or my recent presentation on housing costs), instead of punitive federal wealth taxes, wage controls, protectionism, or abandoning capitalism altogether.

U.S. policymakers should therefore focus their attention on these specific challenges and reforms — and maybe save the populist uprising for another day.

August 10, 2020 3:45PM

Is Two‐​Party Polarization A Threat to Liberty?

In the cover story for the July/​August issue of Cato Policy Report, Lee Drutman of the New America Foundation expounds on a theory of the causes of, and solutions to, hyperpartisan polarization, adapted from his book Two‐​Party Doom Loop: The Case for Multiparty Democracy in America. In the past two to three decades, America’s two major political parties have become strongly sorted and polarized in a way that has not been seen since the Civil War. The consequences have become alarming.
 

It’s not just that the political marketplace is broken — it’s that the broken political marketplace is now breaking the fundamental foundations of modern liberal democracy: the rule of law and adherence to constitutional norms. In the constant jockeying for narrow elusive majorities, partisans are putting short‐​term gains ahead of long‐​term stability and disregarding long‐​standing norms in order to win the next election and humiliate the other side. When “winning” becomes everything, and winning means dehumanizing the other side for short‐​term gain, it legitimates increasingly extreme behavior on both sides.

I call this problem the “two‐​party doom loop.” The idea is similar to an arms race, or any self‐​reinforcing feedback loop of escalation. More aggressive actions on one side justify more aggressive actions on the other side. 


This is a problem that should be especially concerning to libertarians. Not only because we perennially struggle for a seat at the table as an ideological minority within both major parties, but because escalating partisan incentives have undermined things libertarians care deeply about: constitutional limits on government power, checks and balances, liberal norms, and an aversion to the tyranny of the majority.

Rep. Justin Amash (L-MI) noted similar reasons in his decision to leave the GOP last year, writing in the Washington Post that “The two‐​party system has evolved into an existential threat to American principles and institutions.”

That’s a dire warning that lovers of liberty should take seriously. But luckily, we are not without possible solutions.

The question is in some ways one of public choice, the incentives facing political actors because of systemic design and process choices. It’s also not new territory for political science, with Duverger’s law dating to the 1950s but the underlying observation long predating it. First‐​past‐​the‐​post elections (the only kind then known to the Framers of the Constitution) tend to sort a nation’s politics into two dominant political parties, and nowhere has this effect been seen more strongly than in the United States. Alone among major liberal democracies, the United States has no members of the House of Representatives who were elected outside of the two largest parties. (The Senate has two nominal independents, but both are de facto Democrats).

Libertarians are thus well positioned to draw on an intellectual tradition that stretches from Nobel laureate James Buchanan all the way back to James Madison, who strenuously sought to craft a system of checks and balances that would tame and channel partisan incentives, including through a strong system of federalism and decentralization. Simply put: incentives matter. The rules of the game go a long way toward determining its outcome. Madison’s genius continues to serve us well, but is not beyond improving on with knowledge unavailable to him in 1787.

Our situation is not hopeless and runaway polarization is not inevitable, as much as recent years might have given that impression. There is currently a bubbling movement for electoral reform sweeping the states, which have broad authority to determine the rules of their own elections. Maine has led the way with ranked choice voting, using it for congressional elections in 2018 and applying it to a presidential race for the first time this November. But there are other possibilities. Some states already use multi‐​member districts for their legislatures, which are especially well suited to many models of multipartisan electoral reform.

Since the Supreme Court’s ruling in Baker v. Carr in 1962, which struck down malapportioned districts that were once common for one or both chambers, legislative bicameralism in many states has struggled to find a purpose. With state senates effectively elected in an identical manner to their lower houses, they are no longer representing any difference of interests or incentives. One possible reform to consider would be making one house elected by a method of party list proportional representation, and thus explicitly multipartisan, and making the other chamber elected in single‐​winner nonpartisan elections, as the unicameral legislature of Nebraska already is.

But that’s just one idea. The field of possible electoral reforms is rich with possibilities, many of which have long standing examples abroad we can study. The state‐​level initiative and referendum process provides a key avenue to bypass established legislators entrenched within their two partisan camps. States can and should take the lead with experimentation. Perhaps in no other policy field is the label “laboratories of democracy” more apt.

By chipping away at the foundations of the doom loop at the state level, Americans might be able to find a more diverse and competitive market for political representation. And in so doing, we could find a way out of the toxic escalation of two‐​party tribalism, which in the long run provides no satisfactory defense of liberty and the Constitution. The American people represent a vast diversity of values, ideologies, and interests. Their elected representatives should reflect that, including building compromise and consensus rather than engaging in a fight to the death for total control built on narrow majorities.

There is strong reason to doubt how long our constitutional traditions and institutions can survive the two‐​party tug of war, which in its current unbounded incarnation is barely a generation old. We are overdue to do something about it before something breaks, potentially irrevocably. It is a testament to Madison’s vision that he not only attempted to tackle these same problems, but also provided us a workable way to correct and perfect his system, to better meet its goal of preventing the dominance of any one party or faction.