voting

BUSINESS STANDARDS: In Rural India, People will Vote for Cash Transfer

In the News / , , , / 0 Comment

This article originally appeared in Business Standard

Tyler Cowen is a professor of economics at George Mason University. He was among the “Top 100 Global Thinkers” of the Foreign Policy magazine in 2011. Bloomberg Businessweek named him America’s “hottest economist”. He leads Mruniversity.com, an online educational platform, which has many courses on India’s history, economics, politics and culture. Cowen was recently in India for a talk hosted by Centre for Civil Society, a think-tank based in Delhi. In a conversation with Shanu Athiparambath, he speaks on the role of the market and government policy in eradicating poverty. Edited excerpts:

You had said voters respond better to a food crisis in states where the newspaper readership is high. But many economists argue that much of the food grains that the government distributes are wasted.
I would agree to these arguments in the sense that I would not give the poor ‘food aid’, but when there is a crisis, I would increase the cash transfer. Food aid is not efficient, but it might be better than doing nothing. The marginal utility of extra food is quite high even if half of it is wasted.

Getting people registered will be very hard. Getting people into the banking system will be very difficult. Banking is still a product, and the banking sector has many regulations at different levels. This makes it difficult to set up accounts at low costs. You cannot make it easier by simply passing a law. The government can tell the banks to take in customers, but banks might not be willing to do it. But my biggest worry is that in rural India, people would vote for cash. I think it is a good idea, but politically, it can be dangerous. When you make transfers very easy, it is also very easy to manipulate.

Do you think policies like MGNREGA (rural job scheme) are also politically dangerous?
Those programmes in my opinion do not cure poverty or unemployment. But you cannot abolish them immediately. That would throw many people out of their jobs. They should be abolished gradually, making it easier for people to adjust when they are thrown out of their jobs.

You think that an artist is as much a trader as businessman, and that the making of a Bollywood movie demands as much talent as that of a Satyajit Ray movie. Many would disagree with that.
They should try making a good Bollywood movie. When you make a Bollywood movie, a lot of coordination is required. In my view, it’s not less of an art than a Satyajit Ray movie. It’s harder to make a commercial movie, because the audience has less patience with you. You really have to grab their attention somehow.

Why do you think that Amartya Sen has done good work in economics, despite the fact that he underestimates the importance of corporations and capitalism in eradicating poverty?
I think that he grossly underestimates the importance of corporations and capitalism, but he has done a lot of good work. His work on missing women is important. His work on development and capabilities is very important. But when it comes to policy, I think he is often wrong.

Recently, there was a paper by Anderson and Ray which argues that much of the missing women in India can be found at the age of pregnancy or after. Typically, the life expectancy of women in India is higher than that of men. So is there anything missing in this argument?
I understand what you are saying. Some of these might be disease effects. But it could be that those women either die after pregnancy or that they live very long. There might be more women dying at the age 25, but fewer women dying at a later age, and this perhaps results in higher life expectancy overall. I would say that we do not know, but I do not think that it is actually a contradiction in their accounting.

That is a great paper, and I think that they are right. Still Sen was the first person to identify the problem, though he stated the problem in a wrong way. Others could not have done it without Sen.

You once said that Kerala is one of the states which have achieved high levels of development despite the low income levels because of larger investment in education and healthcare. Why is the development model of Kerala considered a paradox?
If you look at wealth, you will see that Kerala is a lot wealthier than other Indian states. Wealth is harder to measure than income. Kerala does not happen to be such a poor state. But it’s not an economically important state. The problem of unemployment is very extreme when compared to other states. In Kerala, you have a good mix of conditions you do not find somewhere else. You will find that Sri Lanka is another place where the development indicators are very high, relative to their income. I think it is a bit of a paradox. The early rulers in Kerala did a lot that helped the population in Kerala. Many things are difficult to trace. But some parts of the paradox make sense. It’s not all about social spending. The causes are more deeply rooted.

You had said that even private schools in the slums of poor countries perform better than public schools. But there are some recent studies which suggest the difference can largely be traced to the differences in their family background.
Private schools are more responsive to consumers. There are positive gains from private schooling, but they are not very huge. One thing we know for sure is that parental satisfaction is much higher in private schools. That is not disputed. But we really do not have any hard knowledge on how large the gains from private schooling are. Policy alone cannot change things. There should be a change in family norms. If parents did different things, they could have more influence on children. Parents who really work with the kid, and really believe in that kid have a lot of influence.

Do you think farmers will have a better deal when Wal-Mart enters India?
The wages in agriculture are very low in India. The productivity is very low. When the Wal-Mart enters, the distribution will be better, and the productivity will go up. The wages will go up. If the farmers earn very little from their products now, it’s only because retailing is not that competitive, and because it’s not that efficient. More FDI (foreign direct investment) will only help everyone.

Why Politics Is Stuck in the Middle

Columns, In the News / , , , , , , / 0 Comment

This article was originally published in The New York Times

Market competition, under the proper circumstances, has the power to make a business better serve its customers. Cellphone companies, for example, compete via cheaper prices, clearer connections and better apps. Political competition, though no less vigorous, is conducted on very different terms — and often ends up stifling innovation instead of encouraging it.

When viewed through an economist’s lens, the quest for voter approval helps explain some recent developments in domestic politics, including the stalling of health care reform and the proposed freeze on the federal government’s discretionary spending.

Economists approach political competition with a simple but potent hypothesis called the “median voter theorem.” Anthony Downs, a senior fellow at the Brookings Institution, proposed the idea in his 1957 book, “An Economic Theory of Democracy.” Essentially, the idea is this: Any politician who strays too far from voters at the philosophical center will soon be out of office.

In fact, there is a dynamic that pushes politicians to embrace the preferences of the typical or “median” voter, who sits squarely in the middle of public opinion. A significant move to either the left or the right would open the door for a rival to take a more moderate stance, win the next election and change the agenda. Politicians will respond to this dynamic, whether they are power-seeking demagogues or more benevolent types who use elected office to help the world.

When it comes to the big issues, voters at the midpoint usually get the policies, if not always the exact outcomes, they want. In the federal budget, the largest line items include Social Security, Medicare, Medicaid and military spending — all very popular programs. The interest on the national debt is mounting because we don’t like paying higher taxes now for all those benefits, so our government borrows to postpone the pain.

Upon his election, President Obama stepped into a world already full of political constraints. He won the White House and significant Democratic majorities in both the House and the Senate — yet even if American voters were tired of the Republican Party, it’s not clear that their underlying opinions had changed very much.

Correctly or not, most Americans have failed to embrace the Democratic health care plans. And ever since the Republicans won the special Senate election in Massachusetts, even the Democrats in Congress have stalled on the legislation. It now appears that much of the initial support was thin.

Senate Democrats, for instance, could overcome a Republican filibuster through a parliamentary process known as reconciliation, but they are waiting, evidently out of fear that voters aren’t with them on this issue.

Many people are increasingly worried about deficits. That may have led Mr. Obama to announce a freeze on nonmilitary discretionary spending, and yet this freeze refuses to target major, popular budget items like Social Security. The public seems to want the self-image of being tough on spending without giving up the goodies. President Obama may well know better, but he is doing his best to oblige, if only to prevent a Republican landslide this November.

The point here is not to belittle or praise the president, but to point out that his hands are tied. The biggest leftward move in American economic policy occurred during the Roosevelt and Truman years, when the Democrats had the upper hand for five consecutive presidential terms. Because of depression and war, people were looking for real change. Competitive forces in politics were relatively weak, and the Democrats had the chance to make their policies stick.

The Supreme Court’s recent ruling on campaign spending also comes into clearer focus through the median voter theorem. The court ruled that the government may not ban political spending by corporations in candidate elections. Critics fear that the political influence of corporations will grow, but some academic specialists in campaign finance aren’t so sure.

For all the anecdotal evidence, it’s hard to show statistically that money has a large and systematic influence on political outcomes. That is partly because politicians cannot stray too far from public opinion. (In part, it is also because interest groups get their way on many issues by supplying an understaffed Congress with ideas and intellectual resources, not by running ads or making donations.) It is quite possible that the court’s decision won’t affect election results very much.

Of course, the median voter theorem is far from a complete explanation of politics. Sometimes politicians lead public opinion and talk voters into accepting new ideas, as when President Bill Clinton promoted Nafta. And voters often favor conflicting or contradictory policies, like wanting to pull troops out of Iraq but also not wanting Iraq to explode into chaos.

Finally, most people aren’t very well informed about politics and can be downright irrational or stubborn, which is another reason that political competition isn’t always as beneficial as economic competition.

THE median voter theorem doesn’t predict that the legacy of the Obama administration will be a wash. But it does imply that we might find the most important achievements in areas that don’t always linger on the front page. For instance, the president’s ideas on education, which involve accountability and charter schools and pay for performance, may please the American public and thus make their way into policy. And because education transforms the knowledge and interests of the median voter for generations to come, such acceptance could make for a lot of other improvements.

If you’re looking for change to believe in, and change that will last, the odds are best when political competition is pushing the world in your direction.

It’s an Election, Not a Revolution

Columns, Favorites, In the News / , , , , , , , / 0 Comment

This article was originally published in The New York Times

It has become common wisdom that the battle for the presidency is all about the economy. Voters are being told that the country’s economic health depends on pulling the right lever in the polling booth.

This election is certainly important. But based on the historical record, it isn’t likely to result in a major swing in economic policy. Fundamentally, democracy is not a finely tuned mechanism that can be used to direct economic policy as a lever might lift a pulley. The connection between what voters want, or think they want, and what ultimately happens in the economy, is far less direct.

Voters may be concerned about the economy, but there is little evidence that the electorate, as a whole, really wants to engage in close consideration of economics. The current campaign season is a case in point.

On the Democratic side, Senators Hillary Rodham Clinton and Barack Obama arguably represent the best thinking in their party. Yet voters seem to be making their judgment on the basis of image and style, not substance. Mrs. Clinton has won some state primaries by pulling in votes from Latinos, Asians and single women, while Mr. Obama does better among well-educated voters, the young and African-Americans. Former Senator John Edwards, perhaps the biggest “policy wonk” among the original Democratic candidates, never generated much voter support. He was often viewed as the guy with the $400 haircut, rather than as a leading advocate of the redistribution of economic wealth. If we look at opinion polls and actual voting patterns, the Democratic electorate has not been giving very definite economic instructions or making very specific demands.

On the Republican side, the situation is no better. The candidates have generally sought to cloak themselves in the mantle of Ronald Reagan, emphasizing his conservative principles, particularly his disdain for big government. But they might have stressed how President Reagan improved funding for the Social Security system or how he engineered what was then the largest tax increase in American history. In fact, the economic policies of his administration and that of Bill Clinton were marked by more continuity than change — and it is no accident that both administrations were happy to work with Alan Greenspan.

The economic debate is likely to be even less useful in the general election than in the primaries; general election campaigns tend to rely more heavily on the tactics of attack and misrepresentation. And for all the talk about the rising influence of independent voters, independents tend not to be as well informed as the partisans. Many studies have shown that voters who enter the election campaign with very particular views tend to be the ones who take the time and trouble to become well informed.

The classic response to such worries is simply to exhort voters to do better and to care more. No one can oppose such calls, but we would be wiser to recognize the limits of elections.

To put it simply, the public this year will probably not vote itself into a much better or even much different economic policy. To be sure, the next president — whoever he or she may be — may well extend health care coverage to more Americans. But most of the country’s economic problems won’t be solved at the voting booth. It is already too late to stop an economic downturn. Health care costs will keep rising, no matter who becomes president or which party controls Congress. China is now a bigger carbon polluter than the United States, so don’t expect a tax or cap-and-trade rules to solve global warming, even if American measures are very stringent — and they probably won’t be, because higher home heating bills are not a vote winner. A Democratic president may propose more spending on social services, but most of the federal budget is on automatic pilot. Furthermore, even if a Republican president wanted to cut back on such mandates, the bulk of them are here to stay.

Yes, the election does matter. Even small differences on economic issues affect millions of Americans. But the record of the Bush administration should prove sobering to all those who expect the American political economy to turn around in the next four years.

Many conservative and libertarian economists supported President Bush, thinking they would be getting policy drawn from the work of Milton Friedman and Martin Feldstein, two respected market-oriented economists. Instead, in economics, the Bush years have brought an increase in domestic government spending, and some poorly-thought-out privatization plans. For all the talk of an extreme right-wing revolution, government transfer programs like Social Security and Medicare have continued to grow. And despite big mistakes involving the Iraq war, Mr. Bush wasn’t punished by voters in 2004.

Of course, an administration can make big economic changes. The New Deal brought about a revolution in economic policy — but those were special circumstances. The United States was in a very deep depression, and the concept of economic planning was sweeping the world. That period is an exception; it does not reflect the general tendency of the American political system, which usually operates by checks and balances. Shifts in economic policy are usually quite moderate.

The reality is that democracy is a very blunt instrument, and in today’s environment we are choosing between ways of muddling through. We may hear that the election is about different visions for America’s future, but the pitches may be more akin to selling different brands of soap.

We hear so many superficial messages precisely because most American voters have neither the knowledge nor the commitment to evaluate the pronouncements of politicians on economic issues. It is no accident that the most influential political science book of the last year has been “The Myth of the Rational Voter,” by Bryan Caplan. The book shows that many voters are ill-informed or even irrational; many economic issues are complex, and each voter knows that he or she will not determine the final outcome.

Rather than being cynics, we should be realists. Democracy is reasonably good at some things: pushing scoundrels out of office, checking their worst excesses by requiring openness, and simply giving large numbers of people the feeling of having a voice. Democracy is not nearly as good at others: holding politicians accountable for their economic promises or translating the preferences of intellectuals into public policy.

That might sound pessimistic, but it’s not. Many Americans will be living longer, finding new sources of learning and recreation, creating more rewarding jobs, striking up new loves and friendships, and, yes, earning more money. Just don’t expect most of these gains to come out of the voting booth or, for that matter, Washington.

And if you’re still worrying about how to vote, I have two pieces of advice. First, spend your time studying foreign policy, where the president has more direct power, and the choice of a candidate makes a much bigger difference. Second, stop worrying and get back to work.