Buying the Vote
Buying the Vote? The Economics of Electoral Politics and Small Business Loans
Ran Duchin & John Hackney
Journal of Financial and Quantitative Analysis, forthcoming
We study the effect of electoral politics on government small business lending, employment, and business formation. We construct novel measures of electoral importance capturing swing and base voters using data from Facebook ad spending, independent political expenditures, the Cook Political Report, and campaign contributions. We find that businesses in electorally important states, districts, and sectors receive more loans following the onset of the COVID-19 crisis, controlling for funding demand and both health and economic conditions. Estimates from survey and observational data show that electoral politics and the allocation of government funds affect employment, small business activity, and business applications. Data from political prediction markets show that the allocation of loans to electorally important states is associated with higher returns on shares betting that Donald Trump would win the election in those states.
Life, Literacy, and the Pursuit of Prosperity: Party Competition and Policy Outcomes in 50 States
Gerald Gamm & Thad Kousser
American Political Science Review, forthcoming
We ask whether party competition improves economic and social well-being, drawing on evidence from the 50 American states for the period 1880-2010. Today, strident party competition and partisan polarization are blamed for many of the ills of national and state politics. But a much deeper political science tradition points to the virtues of competitive party politics. In this historical analysis, we find that states with competitive party systems spend more than other states -- and specifically spend more on education, health, and transportation, areas identified as investments in human capital and infrastructure. We find that this spending leads to longer life expectancy, lower infant mortality, better educational outcomes, and higher incomes. Thus we conclude that party competition is not just healthy for a political system but for the life prospects of a state's residents.
The Democrat-Republican presidential growth gap and the partisan balance of the state governments
Dodge Cahan & Niklas Potrafke
Public Choice, forthcoming
It is known that the US economy has grown faster during Democrat presidencies, but the Democrat-Republican presidential GDP growth gap cannot be attributed fully to policy differences, nor did Democrat presidents happen to benefit systematically from more favorable external shocks. The question why thus remains open. We postulate that, if the effect is real, a Democratic Party performance advantage should be present with respect to measures of political control other than just the presidency. We investigate partisan control of US state governments and show that national GDP grew faster when more states had Democrat governors and Democrat-majority state legislatures: a one-standard-deviation increase in the share of governorships controlled by the Democratic Party (unified Democrat state governments) is associated with a 0.57-percentage-point (0.77-percentage-point) increase in the real US national GDP growth rate. The effect appears to occur on top of the presidential D-R growth gap, suggesting that the Democrat growth advantage may be a more generalized phenomenon. To investigate whether the effects are explained by state-level policy differences, we adopt an encompassing measure of a state's policy priorities -- state policy liberalism (in the modern, popular sense rather than the classical sense). Nevertheless, our findings are not explained by state policy liberalism. That result echoes the puzzle at the national level that key national policy differences cannot account for the presidential growth gap.
The Legislative Legacy of Strict Voter Identification Laws
Alejandra Campos & Jeff Harden
University of Notre Dame Working Paper, August 2021
Does the implementation of contentious legislation intensify dissension between legislative parties? We examine the consequences of strict voter identification (ID) laws for party polarization in American state legislatures. We theorize that these laws shift perceptions of election administration from a valence issue into an ideological battle, escalating tension in state capitols. To test this theory, we leverage plausibly exogenous variation in the implementation of strict voter ID laws induced by the timing of post-enactment legal challenges. We find support for our expectation; a strict law going in force widens the inter-party ideological distance in ensuing sessions. The effect is strongest among Republican parties and in upper chambers. We conclude that the amplification of political conflict is a crucial legacy of these laws. By creating conditions that stifle compromise, promote gridlock, and potentially encourage further restrictions on the franchise, strict voter ID requirements indirectly threaten the quality of the democratic process.
The Truman Show: The Fraudulent Origins of the Former Presidents Act
University of Colorado Working Paper, July 2021
When President Donald Trump was impeached for a second time, many commenters pointed out that, if Trump were to be convicted by the Senate, he would likely lose millions of dollars in future taxpayer-funded benefits. These benefits are provided to ex-presidents by the Former Presidents Act, a 1958 statute of considerable political significance and ongoing controversy, that nevertheless has to this point been ignored completely by the legal academic literature. This Article represents the first sustained discussion of the FPA in that literature. It concludes that the statute should be revoked - and it centers its critique on the law's until-now unrevealed fraudulent origins. Essentially the only argument ever put forward in either scholarly or popular discourse to justify the existence of the FPA is that it was passed as a response to former President Harry Truman's financial struggles, and in particular because he refused to exploit his status as a former president to ameliorate them. Using recently released and until now unexamined archival evidence, this Article demonstrates that, in a complete contravention of the existing standard historical record, Harry Truman was, as a direct result of being president, a very wealthy man on the day he left the White House, with an estimated net worth, in relative economic terms, of approximately $58 million in 2021 dollars. The Article reveals that this wealth was a result of both Truman's enormous presidential salary - several times larger, in real terms, than the current salary for the office - and, more problematically, of the evident fact that Truman misappropriated essentially all of the multi-million dollar - in 2021 terms - presidential expense account that was set up for him by Congress at the beginning of his second term. The Article also reveals that, again contrary to the current historical understanding, Truman made another fortune after he left the presidency, by doing precisely what he claimed he was not doing, that is, exploiting his status as a former president to maximum economic advantage. Indeed, by the time Congress passed the FPA in response to Truman's various claims that he was at least teetering on the brink of potential financial distress, Truman's net worth was, in relative economic terms, approximately $72 million in 2021 dollars. In a precise inversion of the meaning ascribed to it by the standard historical narrative, Harry Truman's actual financial biography illustrates exactly why the Former Presidents Act has always been a bad law, that has never had any reasonable justification in public policy.
Winning by Default: Why is There So Little Competition in Government Procurement?
Karam Kang & Robert Miller
Review of Economic Studies, forthcoming
Government procurement contracts rarely have many bids, often only one. Motivated by the institutional features of federal procurement, this paper develops a principal-agent model where a buyer seeks sellers at a cost and negotiates contract terms with them. The model is identified and estimated with data on IT and telecommunications contracts. We find the benefits of drawing additional sellers are significantly reduced because the procurement agency can extract informational rents from sellers. Another factor explaining the small number of bids is that sellers are relatively homogeneous, conditional on observed project attributes. Administrative hurdles and corruption appear to play very limited roles.
Confirmation Dynamics: Differential Vetting in the Appointment of U.S. Federal Agency Leaders
George Krause & Jason Byers
Journal of Politics, forthcoming
Confirmation delay is decomposed to better understand both when and why the Senate augments its efforts to vet presidential nominees. Distinctions among expedited, normal, and protracted confirmation processes are analyzed, as well as those between the work of Senate standing committees and chamber floor. A theory of ex ante moral hazard reduction is proposed which predicts that as the confirmation process becomes increasingly protracted in response to rising potential agency costs, the Senate will be increasingly swifter to confirm Tier 1 top executive leaders to U.S. federal agency leadership positions than Tier 2 subordinate leadership nominees. The statistical evidence is consistent with this theory of differential vetting between nominee tiers for both Senate party polarization and the nominee's loyalty to the appointing president, as well as for agency decision-making independence restricted to protracted confirmation processes. Yet, such differential vetting is not empirically observed in response to inter branch policy conflict.
Federal Reserve Appointments and the Politics of Senate Confirmation
Public Choice, forthcoming
This paper examines the politicization of Federal Reserve (Fed) appointments. In contrast to the extant appointment literature's almost exclusive focus on ideological proximity as a predictor of Fed nominations and confirmations, I theorize that senators will be more likely to vote against confirmation when their constituents have little confidence in the Fed because it allows them to more credibly defer blame on the Fed for economic downturns. Drawing on novel estimates of state-level confidence in the Fed as well as new common space estimates of senators' and central bankers' monetary policy preferences, I demonstrate that when constituents do not have confidence in the Fed, senators are less likely to vote in favor of confirmation regardless of their ideological proximity to the nominee. The results have important implications for the ability to fill Fed vacancies and, in turn, the balance of power between the Fed and regional bank Presidents in the monetary policymaking process.
The ties that bribe: Corruption's embeddedness in Chicago organized crime
Jared Joseph & Chris Smith
The crime of corruption ranges from politicians involved in high-profile scandals to low-level bureaucrats granting contracts and police officers demanding bribes. Corruption occurs when state actors criminally leverage their positions of power for financial gain. Our study examines how corruption varies by political power position and within criminal contexts by measuring the embeddedness of corruption within Chicago historical organized crime. We analyze Chicago's organized crime network before and during Prohibition (1900-1919 and 1920-1933) to compare differences across embedded network positions between political, law enforcement, and nonstate actors. Our findings show that more police were in organized crime than politicians before Prohibition, but the small group of politicians had higher embeddedness in organized crime. During Prohibition, when organized crime grew and centralized, law enforcement decreased in proportion and became less embedded in organized crime. Politicians, however, maintained their proportion and high level of embeddedness. We argue that everyday corruption is more frequent but less embedded when criminal contexts are moderately profitable. As criminal contexts increase in profitability, however, corruption moves up the political ladder to include fewer people who are more highly embedded. This work has theoretical implications for the symbiotic relationship between corruption and criminal organizations.