According to a group of economists, uncertainty over U.S. government policy – taxes, spending and government regulations – is not the only contributor to the subpar economic growth in the country. In a paper presented at the annual American Economic Association meeting over the weekend, economists from Stanford University, Princeton University, and the University of Chicago hypothesize that political polarization is also hurting the American economy.
While they contend that government regulations and the tax code are contributors to the rise in economic uncertainty, they also believe the rise in political polarization has led to the “expectation of more extreme policies, less policy stability, and less capacity of policy makers to address pressing problems.” They also argue that competitive presidential elections and the frequent changes in the partisan control of Congress contributes to the increase in policy uncertainty.
Furthermore, Americans presidents through their appointment power also contribute to policy uncertainty. Democratic and Republican presidents often politicize the bureaucracy by appointing party loyalists through executive orders and other forms of unilateral actions that do not require Senate confirmation. So as each successive president tries to undo some of the bureaucratic changes of his or her predecessor, they add to uncertainty in policy-making process. “The tendency toward rapid switching of regulatory regimes intensifies when presidents respond to legislative gridlock by implementing policy agendas through executive orders,” they wrote. “The effect is to increase long-term policy uncertainty.”
Scott R. Baker (Stanford), Nicholas Bloom (Stanford), Brandice Canes-Wrone (Princeton), Steven J. Davis (Chicago), and Jonathan Rodden (Stanford) were the authors of the report.
There are many factors that contribute to the rise in political polarization, some of which include gerrymandered Congressional districts, rise in media polarization, income inequality, and the emergence of Super PACs. The economists, however, did not draw a causal link between economic uncertainty and the increase in polarization. Some economists do not even believe uncertainty is such a big problem.
At the American Economic Association meeting, for example, Larry Summers, Harvard professor, and former White House economic adviser, challenged the idea that uncertainty is a major problem for the American economy. Do I want my doctor to be “consistently predictable or responsive to” a particular health emergency, Summers asked, according to a Wall Street Journal report. It is better to have the doctor “evaluating my condition and responding appropriately,” he argued.
[Image via The White House]